Float shrink can be defined as a reduction in the number of shares of a company that is floating in the market for trading by the company. There are a number of different ways through which a company can perform float shrink. The most practical and widely used method of conducting float shrink is to buy back or repurchase the shares that are being floating in the market at that point of time. Another way of float shrink can be done by an investor by acquiring a large stack of the shares from the company.
In addition to that there are many other methods of conducting float shrink and these methods involve reverse split and share consolidation. However the most common and widely used method of float shrink is to buyback or repurchases these shares from the market. With the help of buyback the company can easily and fastly returns cash to the shareholders of the company. Moreover with the float shrink through buy back or share repurchase the numbers of outstanding share of the company in the market are reduced as a result there is a positive impact on the earnings per share of the company as well as the cash flow of the company.
In addition to that float shrink when done via share buyback can enhance the investment portfolio of the company. The reason behind this is that the companies with consistent buybacks can outperform the board market index over a long period of time.
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