The Daily Technical #126: What are share buybacks and under which circumstances would they be most appropriate?

Good morning. Welcome to the 126th edition of The Daily Technical.

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OVERVIEW OF YESTERDAY’S QUESTION
Walk me through the balance sheet.

The balance sheet shows a company’s assets, liabilities, and equity sections at a specific point in time.

The fundamental accounting equation is: Assets = Liabilities + Shareholders’ Equity.

The assets belonging to a company must have been funded somehow, so assets will always be equal to the sum of liabilities and equity.

Assets Section:

• Assets are organized in the order of liquidity, with “Current Assets” being assets that can be converted into cash within a year, such as cash itself, along with marketable securities, accounts receivable, prepaid expenses, and inventories.

• “Long-Term Assets” include property, plant, and equipment (PP&E), intangible assets, goodwill, and long-term investments.

Liabilities Section:

• Liabilities are listed in the order of how close they're to coming due. “Current Liabilities” include accounts payable, accrued expenses, and short-term debt, while

• “Long-Term Liabilities” include items such as long-term debt, deferred revenue, and deferred income taxes.

Shareholders’ Equity Section:

• The equity section consists of common stock, additional paid-in capital (APIC), treasury stock, and retained earnings.

Common Mistakes

1. Not organizing assets by how quick they can be converted to cash. Always start with assets readily convertible into cash to ensure clarity and accuracy in presentation.

2. Mixing current and long-term liabilities or assets often leads to confusion. Clearly differentiate between items due within a year and those longer-term to maintain proper structure.

3. Failing to specify components within the equity section. Always mention and explain common stock, APIC, retained earnings, and treasury stock to cover all bases.

TL;DR

• Balance Sheet Purpose: Displays a company’s assets, liabilities, and equity at a specific point, using the equation: Assets = Liabilities + Equity.

• Assets: Listed by liquidity. Current Assets (cash, marketable securities, accounts receivable, prepaid expenses, inventories) convert to cash within a year. Long-Term Assets (PP&E, intangible assets, goodwill, long-term investments) are durable.

• Liabilities: Ordered by due date. Current Liabilities (accounts payable, accrued expenses, short-term debt) are due within a year. Long-Term Liabilities (long-term debt, deferred revenue, deferred taxes) mature later.

• Shareholders’ Equity: Includes common stock, APIC, treasury stock, retained earnings. Reflects owner investments and retained company profits.

TODAY’S QUESTION
What are share buybacks and under which circumstances would they be most appropriate?

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DEAL TALK
Scopely to Acquire Niantic’s Gaming Division for $3.5 Billion

Niantic Inc., the creator of Pokémon Go, is in talks to sell its gaming division to Saudi Arabia-owned Scopely Inc. for $3.5 billion​. The deal includes Pokémon Go, Monster Hunter Now, and Pikmin Bloom.

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