Treasury Stock

Treasury stock (also called treasury shares or reacquired stock) consists of shares that were originally issued to the public but have since been bought back by the issuing company. These shares are held in the company's treasury and are effectively removed from circulation. Treasury shares do not pay dividends, have no voting rights, and are not included in earnings per share (EPS) calculations or shares outstanding figures. Companies repurchase their own shares for several strategic reasons: to return capital to shareholders (as an alternative to dividends), to boost EPS by reducing shares outstanding, to fund employee stock option or compensation plans, to prevent hostile takeovers by reducing available shares, or because management believes the stock is undervalued. On the balance sheet, treasury stock is recorded as a contra-equity account, meaning it reduces total shareholders' equity. A company can choose to retire treasury shares permanently (canceling them and reducing authorized shares) or reissue them later for various corporate purposes. The two main accounting methods for treasury stock are the cost method (most common, recording shares at repurchase price) and the par value method (recording at par value). Large-scale share buyback programs have become increasingly popular among major corporations as a way to deploy excess cash.