Treasury Stock

When a company repurchases its own shares, it can either cancel them or hold them as treasury stock, sometimes called treasury shares. Treasury stock carries no voting rights and receives no dividends while the company holds it.

On the balance sheet, treasury stock is shown as a deduction from shareholders' equity, usually at the price paid to buy it back. For example, if a company buys back 1 million of its shares at 25 each, it records treasury stock of 25 million, reducing total equity by that amount.

Because treasury shares are excluded from shares outstanding, buying them back reduces the share count and can increase earnings per share.

Companies may later reissue treasury stock, for example to satisfy employee share plans, to raise cash or to pay for acquisitions. When reissued, any difference between the reissue price and the buyback price is generally recorded in equity, not as profit, because companies cannot make accounting profits from trading in their own shares.

Rules on treasury stock vary between countries. Some require repurchased shares to be cancelled, while others limit how many can be held.