Treasury Stock

Business, Legal & Accounting Glossary

Definition: Treasury Stock


Treasury Stock

Quick Summary of Treasury Stock


A US term for shares that have been repurchased by the issuing company; thereby reducing the number of it’s shares on the open market.




What is the dictionary definition of Treasury Stock?

Dictionary Definition


Treasury Stock is a US term for shares that have been repurchased by the issued company; thereby causing a reduction in the number of it’s shares on the open market.


Full Definition of Treasury Stock


Treasury stock is stock the company has repurchased on the open market and not yet canceled or retired.

From the name, you’d think it would be the shares of the company kept locked in the vault or buried on a desert island somewhere. Unfortunately, it is much less romantic than that.

When a company repurchases shares on the open market at full price, it uses either debt or retained earnings to fund the purchase. The amount spent to purchase these shares is recorded in the shareholders’ equity portion of the balance sheet and is a negative number, representing money spent. Ideally, this would be a return of such capital to the shareholders. This negative balance is the value of the shares of treasury stock.

Treasury stock is counted among the shares issued, but is not counted as part of shares outstanding.

Treasury stock can be resold by the company (hopefully at a higher price than when it was purchased) or it can be used to cover the exercising of stock options. In this latter case, the money spent to purchase the shares can be viewed as having been transferred directly to the employees or management.

Shares of treasury stock can also be retired, reducing the share count of the company. Retired shares cannot be reissued or resold — they’re gone. If the company repurchases shares, then investors prefer that this use be made of them.


Related Phrases


Shareholders' equity
Shares outstanding
Stock


Treasury Stock FAQ's


What Is A Treasury Stock?

A treasury stock is a stock issued by a public company at start-up or as a result of a stock repurchase program.

Treasury stock are included in the company’s treasury which can be traded for cash if needed. Issuance of treasury stock is also a strategy used to retain control of the company in the event of a takeover. At any time, treasury stock can be retired or resold. Unlike the shareholder of a common stock or a preferred stock, the owner of a treasury stock does not have voting rights. Furthermore, a treasury stock does not pay out or accrue dividends.

A treasury stock is not included as part of a company’s outstanding shares so the calculation of earning per share excludes treasury stock. Accounting for treasury stock can be done in two different ways.

Treasury stock can be accounted for using the par value method (i.e. treasury stock is recorded at the par value of the stock reacquired) or the cost method (i.e treasury stock is recorded at the cost incurred by the company when repurchasing the shares). Treasury stock can also be referred to as treasury shares or reacquired stock.


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Definition Sources


Definitions for Treasury Stock are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 28th November, 2021 | 0 Views.