Treasury stock definitions
| Word backwards | yrusaert kcots |
|---|---|
| Part of speech | Noun |
| Syllabic division | trea-sury stock |
| Plural | The plural of treasury stock is treasuries stock. |
| Total letters | 13 |
| Vogais (4) | e,a,u,o |
| Consonants (6) | t,r,s,y,c,k |
When a company buys back its shares from the open market, these shares are known as treasury stock. Treasury stock represents the company's own shares that have been issued and then repurchased but not canceled. This stock reduces the number of outstanding shares available in the market.
Accounting for treasury stock involves recording the shares as a contra equity account on the balance sheet. This means that treasury stock is subtracted from the total shareholder's equity. It is recorded at cost, which is the price the company paid to buy back the shares.
Reasons for acquiring treasury stock
Companies may choose to buy back their shares for various reasons, such as to boost the stock price by reducing the number of shares outstanding, to reward shareholders by increasing earnings per share, or to have shares available for employee stock compensation plans.
Types of treasury stock transactions
There are two main types of treasury stock transactions: open market purchases and issuance of stock options. In open market purchases, the company buys back its shares from the public stock exchanges. In the issuance of stock options, the company grants stock options to employees, and when employees exercise those options, the company issues new shares and holds the repurchased shares as treasury stock.
Overall, treasury stock is a strategic tool that companies use to manage their capital structure and enhance shareholder value. It is essential for investors to understand how treasury stock impacts a company's financial health and overall valuation.
Treasury stock Examples
- The company decided to repurchase its own shares as treasury stock.
- Treasury stock can be reissued back to the market at a later time.
- Investors often pay attention to the amount of treasury stock a company holds.
- Treasury stock can affect a company's earnings per share calculation.
- The board of directors approved the buyback of treasury stock.
- Treasury stock is recorded on the balance sheet as a contra equity account.
- The stockholders' equity section of the balance sheet includes treasury stock.
- Treasury stock buybacks can be used to return excess cash to shareholders.
- Some companies use treasury stock as a defense against hostile takeovers.
- Accounting rules dictate how treasury stock transactions are recorded and disclosed.