Another $US40 billion buyback ahead for Microsoft

Stephen Withers
Tuesday, 23 September 2008 10:34

IT Industry - Listed Tech

Microsoft has revealed that a $US40 billion share repurchased program has been completed, and that the company has initiated a further buyback of similar magnitude.

Companies use share buybacks as a way of returning capital to shareholders. It's basically a way of saying 'we've got more money than we need, so you might be able to find a better use for the surplus than we can.'

A 'lazy' balance sheet - one with too much cash that's not earning its keep, or one with too little debt - is seen as a bad thing. The thinking is that a strong company will be able to raise cash when required either by borrowing or by selling shares (either newly issued, or those previously repurchased).

Another way of reducing cash holdings is by increasing dividends paid to shareholders. Depending on the tax laws in the particular jurisdiction, one or other of these methods may be preferable from the shareholder's perspective.

Microsoft's cash cows - notably Windows and Office - are bringing in the money faster than the company can spend it on projects with little or no associated revenue such as the Windows Live family.

Consequently, Microsoft has returned more than $US115 billion to shareholders over the last five years through dividends and share repurchases, and its board of directors has just approved another program for repurchasing up to $US40 billion in the next five years.

The board also declared a dividend of $US0.13 per share, up two cents on the previous quarter.

Microsoft is also borrowing billions - please read on.