A company may buy back its shares listed on a stock exchange from the investors out of the reserves and surplus available with the company. The shares bought back are extinguished by the company and leads to a reduction in its share capital. A share buyback is used by companies to increase the Earning Per Share (EPS). Surplus cash with the company for which there is no productive use, is used to restructure the capital of the company.
EPS = Profits of the Company / No. of shares Outstanding
So if number of shares decreases due to buyback, the EPS will increase.