eli5 what are buybacks and how do they raise company profit?
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You have two good explanations about buybacks below, but neither say anything to address your question about how they raise company profits. They don’t. Profit is unaffected by a depletion of cash and recording the treasury stock in the net worth of the company. A buyback from an accounting standpoint affects the balance sheet only, not income or expenses. But a key measure like earnings per share (EPS) is certainly improved, not by increased profits but by there being less shares outstanding to spread the same profit over. Similarly, the P/E ratio can be improved, as well as ROE and ROA. These ‘profitability’ ratios are important to investors. But note, they are ratios of earnings compared to something else (to equity, to assets, etc.) and it is those parts of the ratio that are affected by the buyback to improve the ratio, not the profit itself.
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