How does Amazon’s stock buyback impact its earnings per share and balance sheet?

In March 2022, Amazon’s board of directors authorized it to buy back up to $10 billion of its stock. The stock buyback will take place over a multi-year period. Amazon may not buy back the full $10 billion of its stock; the board’s authorization is simply the maximum amount of stock that can be repurchased.

View a quick tutorial video about treasury stock (stock buybacks) below (or at this link) and then answer the following questions.

Questions

  1. What are some reasons that Amazon may want to buy back its own stock?
  2. Assume that Amazon repurchases $1 million of its stock. How will Amazon’s balance sheet be impacted by this purchase?
  3. Compare a stock buyback with a stock issue. Which transaction (stock buyback or stock issue), if any, will cause stockholders’ equity to increase? To decrease?
  4. Assume that a company has 1,000,000 shares authorized and 600,000 shares issued. How many shares will it have outstanding if it has repurchased 150,000 shares?

About Dr. Wendy Tietz, CPA, CMA, CSCA, CGMA

Dr. Wendy Tietz is a professor of accounting at Kent State University in Kent, Ohio, USA. She is also a textbook author with Pearson Education.

2 Responses to “How does Amazon’s stock buyback impact its earnings per share and balance sheet?”

  1. Thank you for these as they add so much to the class and I loved your little video on the explanation of Treasury Stock. One of the best and simplest I have see yet.

    Is there anywhere that you post the answers to all of these little projects just so I don’t have to bother you asking for the keys for them each time I do one?

    • Dr. Wendy Tietz, CPA, CMA, CSCA, CGMA Reply April 25, 2022 at 3:36 pm

      Hi Jenifer. Thank you for the kind words. I do not post the answers anywhere – I have no way to keep students from accessing solutions.

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