Issuing Stock and Buying It Back on the Statements

Introduction

Apple bought back 402 million of its own shares in its fiscal year ended September 2025, spending $89.3 billion. Its net income that year was $112.0 billion, and its shareholders' equity at year end was only $73.7 billion, with an accumulated deficit of $14.3 billion, because years of buybacks had been charged against its retained earnings. None of those repurchases appeared on Apple's income statement. All of them reduced its cash and its equity, and all of them reduced its share count.

Transactions with shareholders follow a simple rule on the statements: they are never income or expense. Issuing shares brings in cash and creates equity; buying them back pays out cash and removes equity. What makes them matter to bankers is their effect on the number of shares, and therefore on earnings per share and ownership. Tracing both with the method from tracing a transaction through the statements takes only two statements, which is itself the main lesson.

When a company sells new shares, it receives cash and records an equal increase in equity, split between common stock at par value and additional paid-in capital for the rest. The costs of the offering, such as underwriting fees, are not expensed; under Accounting Standards Codification (ASC) 340-10, they reduce the amount recorded in paid-in capital. Suppose a company sells shares for $500 and pays $10 of underwriting and legal costs:

The income statement does not move. Cash rises by $490 in financing activities, and equity rises by the same amount. The effect that matters for analysis is outside the three statements: the share count has increased, so future earnings are divided among more shares. How the equity accounts record issuances is explained in shareholders' equity.

Shares Issued Without a Public Offering

Many new shares are not sold in offerings. When employees exercise stock options, the company receives the exercise price in cash, a financing inflow, and records it in paid-in capital; when restricted stock units vest, shares are delivered with no cash at all, the cost having already passed through the income statement as stock-based compensation. When a company pays for an acquisition in stock, it issues shares in exchange for the target's assets and liabilities, so equity rises with no cash flow, and the transaction appears among the non-cash investing and financing activities. In each case the share count rises, and in none does the issuance itself touch net income. The acquisition case is traced in how an acquisition hits the three statements.

Share repurchase (buyback)

A company's purchase of its own outstanding shares, either held as treasury stock or retired. It reduces cash and shareholders' equity, reduces the number of shares outstanding and does not appear on the income statement.

A buyback reverses the issuance. Cash falls in financing activities and, under ASC 505-30, equity falls by the same amount, either through a treasury stock account, a negative component of equity, or, if the shares are retired, through paid-in capital and retained earnings. Since 2023, publicly traded US companies have also owed a 1% excise tax on net repurchases, introduced by the Inflation Reduction Act. Because it is not a tax on income, it falls outside income tax accounting, and Deloitte's guidance on excise taxes on treasury stock transactions explains that it is typically recorded as part of the cost of the repurchased shares, with the cash payment classified in operating or financing activities by consistent policy.

Suppose a company buys back $200 of its shares at year end and accrues the $2 excise tax, payable the following year:

Cash falls by $200, and equity falls by $202, the price of the shares plus the tax. The unpaid tax is a liability until it is paid, at which point cash falls by a further $2. Net income is unaffected throughout. Whether the cost lands in treasury stock or in retained earnings depends on whether the company holds or retires the shares, a choice that changes the look of the equity section but not its total, covered in share repurchases and treasury stock.

Accelerated Share Repurchases

Large buybacks are often executed through an accelerated share repurchase, in which the company pays a bank a lump sum up front and receives most of the shares immediately, with the rest delivered when the bank has finished buying in the market. On the statements, the full cash payment is a financing outflow on day one. The shares received reduce equity and the share count at once, and the remaining portion is treated as a forward contract on the company's own stock, usually classified in equity. The income statement is again untouched, but earnings per share benefit sooner, because most of the share reduction happens at the start rather than over months of open-market purchases.

Apple holds no treasury stock: the shares it buys back are retired, and it charges their full cost to retained earnings, which it reports as an accumulated deficit. Its fiscal 2025 annual report shows what that does to equity:

In fiscal 2024, Apple returned more to shareholders through dividends and buybacks than it earned, so the accumulated deficit deepened from $0.2 billion to $19.2 billion. In fiscal 2025, higher net income and slightly lower buybacks let it narrow to $14.3 billion. The equity charge for repurchases differs slightly from the cash spent; such gaps typically come from timing between trade and settlement dates and from the excise tax, which is added to the cost when shares are bought but paid later. Shares outstanding fell by about 2.3% in the year, net of the shares issued to employees.

Because a buyback reduces the share count without changing operating profit, it raises earnings per share (EPS), but not by as much as the share reduction alone suggests: the cash spent would otherwise have earned interest, or would have avoided borrowing costs. Suppose a company earns $100 of net income on 100 shares, so EPS is $1.00, and spends $200 of cash earning 4% before tax to buy back 10 shares at $20 each.

The arithmetic generalizes: a buyback increases EPS when the earnings yield on the shares repurchased, the inverse of the price to earnings (P/E) ratio, exceeds the after-tax cost of the cash or debt used. At a P/E of 20, the earnings yield is 5%, so buybacks are accretive whenever the after-tax cost of funding is below 5%. The share count calculations behind EPS are explained in earnings per share: basic vs diluted.

Buybacks and dividends return the same cash but leave different marks on the statements:

Bankers advising on capital allocation compare buybacks with dividends, debt reduction and investment, and test whether repurchases actually shrink the share count or merely offset shares issued to employees. Apple's figures show both forces at work: shares issued to employees and withheld for taxes appear alongside the buybacks in the same equity statement. The trace keeps the comparison clean: whatever the purpose, a stock issuance or repurchase moves equity, and usually cash, but never net income, and its economic effect comes entirely through the number of shares that share the company's earnings.