A:

When a company decides to repurchase shares through treasury stock activity, treasury stock contra account activity allows a shareholder to sell his shares back to the company for a profit or increases the price per share if a shareholder decides to hold.

Treasury stock can be defined as stock repurchased by the issuing company, intended for either retirement or eventual resale to the company. It is the difference between the number of shares issued overall and the number of shares outstanding to the public. If a company retires its treasury stock, it decreases the supply of stock in the market and increases the price per share of existing shares. If a company intends to resell the treasury stock at a future date, it normally repurchases the shares when the price is low and waits until the price is high to resell back to the public.

When the treasury stock contra account is increasing, the shareholder can decide to sell his shares back to the company, normally at a premium price. If the shareholder decides to adopt a buy and hold strategy and doesn't sell his shares back to the company, the decreased supply in the market as the treasury stock account increases theoretically increases the price per share.

Treasury stock isn't included in earnings per share (EPS). If a company is known to pay dividends, increasing its treasury stock would mean that it would increase its EPS for the shares outstanding, so that dividend payments would increase for the shareholder.

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