Loading the player...

What is a 'Treasury Stock (Treasury Shares)'

Treasury stock (treasury shares) are the portion of shares that a company keeps in its own treasury. Treasury stock may have come from a repurchase or buyback from shareholders, or it may have never been issued to the public in the first place. These shares don't pay dividends, have no voting rights and should not be included in shares outstanding calculations.

BREAKING DOWN 'Treasury Stock (Treasury Shares)'

Treasury stock is often created when shares of a company are initially issued. In this case, not all shares are issued to the public, as some are kept in the company's treasury to be used to create extra cash if it is needed. Another reason may be to keep a controlling interest within the treasury to help ward off hostile takeovers.

Alternatively, treasury stock can be created when a company does a share buyback and purchases its shares on the open market. This can be advantageous to shareholders; it lowers the number of shares outstanding, thereby increasing the remaining shareholders' equity interest in the company. However, not all buybacks are a good thing. For example, if a company merely buys stock to improve financial ratios such as earnings per share (EPS) or the price-to-earnings (P/E) ratio, then the buyback is detrimental to the shareholders, and it is done without the shareholders' best interests in mind.

Treasury Shares vs. Retired Shares

Although the company has repurchased its shares, those shares are not necessarily retired. Retired shares cannot be reissued and are taken out of circulation. Treasury shares, however, can be reissued through stock dividends, employee compensation or a capital raising, for example.

Treasury Shares' Effect on the Balance Sheet

When a company raises cash by issuing stock, the equity portion of the balance sheet shows a positive balance in the common stock and additional paid in capital (APIC) accounts. The common stock account reflects the par value of the shares, while the APIC account shows the excess value received over the par value.

When treasury shares are repurchased by the company, however, they are carried on the balance sheet as a contra-equity account with a negative balance in the equity section. Moreover, they are carried at cost in one account as opposed to two accounts with a par value and excess value over par.

Example of Treasury Shares

A company has excess cash and believes its stock is trading under its intrinsic value, so it decides to repurchase 1,000 shares of its stock at $50 for a total value of $50,000. The total sum of its equity accounts including common stock, APIC and retained earnings is $100,000. After the repurchase, the $50,000 in treasury stock is carried as a negative equity account and subtracted from the $100,000 in equity beforehand, leaving the total equity amount on the balance sheet at $50,000. Correspondingly, the cash account on the asset side of balance sheet decreases by $50,000.

RELATED TERMS
  1. Direct Repurchase

    The buying of shares in a publicly-traded company by the company ...
  2. Treasury Offering

    The issuance of an additional class of security already existing ...
  3. Share Repurchase

    A program by which a company buys back its own shares from the ...
  4. Buyback

    The repurchase of outstanding shares (repurchase) by a company ...
  5. Share Premium Account

    Usually found on the balance sheet, this is the account to which ...
  6. Share Capital

    Funds raised by issuing shares in return for cash or other considerations. ...
Related Articles
  1. Investing

    What is Treasury Stock?

    Treasury stock is a company’s own stock that it holds in its treasury for later use.
  2. Investing

    Getting Acquainted With Treasury Stock

    When publicly traded businesses decided to buy back some of their outstanding shares, it becomes treasury stock. Treasury stock confers no voting rights or dividends, but helps boost shareholder ...
  3. Investing

    A Breakdown Of Stock Buybacks

    Find out what these company programs achieve and what it means for stockholders.
  4. Investing

    What are Issued Shares?

    Issued shares are the amount of authorized stocks a company’s shareholders buy and own. The annual report shows the number of outstanding shares.
  5. Investing

    Impact of Share Repurchases

    Share repurchases can have a significant positive impact on an investor’s portfolio and are a great way to build investor wealth over time.
  6. Managing Wealth

    4 Reasons Why Investors Like Buybacks

    From a financial perspective, buybacks benefit investors by improving shareholder value, increasing share prices, and creating tax beneficial opportunities
  7. Investing

    The Basics Of Outstanding Shares And The Float

    We go over different types of shares and what investors need to know about them.
  8. Investing

    The Impact Of Share Repurchases

    Share repurchases can impact investors and companies in different ways.
  9. Investing

    6 Bad Stock Buyback Scenarios

    Buying back shares can be a sensible way for companies to use extra cash. But in many cases, it's just a ploy to boost earnings.
  10. Investing

    What's Share Capital?

    Share capital, also called equity financing, is the total amount of money and property a company has received for selling its shares to shareholders.
RELATED FAQS
  1. As a shareholder, why is the treasury stock contra account activity important?

    Learn what treasury stock is used to measure. Understand why a shareholder should be interested in a company's treasury stock ... Read Answer >>
  2. What's the difference between a capital stock and a treasury stock?

    Learn about treasury capital stock, how to calculate a company's capital and treasury stock, and the differences between ... Read Answer >>
  3. Why would a company buyback its own shares?

    Learn about share buybacks and some of the many reasons a company may choose to repurchase its own stock, including ownership ... Read Answer >>
  4. What are the components of shareholders' equity?

    Understanding company valuation figures, such as shareholders' equity, can be a powerful tool in assessing the financial ... Read Answer >>
  5. What valuable information can a company's Additional Paid in Capital provide to potential ...

    See how potential investors can sometimes use Additional Paid in Capital to assess the level of shareholder confidence in ... Read Answer >>
  6. In what situations does it benefit a company to buy back outstanding shares?

    Learn about the reasons a company may choose to buy back its outstanding shares, such as reducing the cost of capital and ... Read Answer >>
Hot Definitions
  1. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  2. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  3. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  4. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  5. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  6. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
Trading Center