Treasury Stock
Treasury stock refers to previously outstanding stock that has been bought back from stockholders by the issuing company. The result is that the total number of outstanding shares on the open market decreases. Treasury stock remains issued but is not included in the distribution of dividends or the calculation of earnings per share (EPS).
Definition: Treasury stock refers to previously issued shares that a company repurchases from its shareholders. As a result, the total number of outstanding shares in the market decreases. Treasury stock is still issued but is not included in dividend distributions or the calculation of earnings per share (EPS).
Origin: The concept of treasury stock originated from companies' actions to repurchase shares to adjust capital structure, enhance shareholder value, or prevent hostile takeovers. The earliest stock repurchases can be traced back to the early 20th century, but it became a common capital operation method after the 1980s with the development of financial markets and changes in corporate governance concepts.
Categories and Characteristics: Treasury stock can be divided into two categories: 1. Permanent Treasury Stock: Shares repurchased by the company that will not be reissued, typically used to reduce the total share capital. 2. Temporary Treasury Stock: Shares repurchased by the company that may be reissued in the future, often used for employee incentive plans or future financing. The main characteristics of treasury stock include: not participating in dividend distributions, not having voting rights, and not being included in the calculation of earnings per share (EPS).
Case Studies: 1. Apple Inc.: Apple has conducted several large-scale stock repurchases in recent years to reduce the number of outstanding shares, increase EPS, and enhance shareholder value. 2. Microsoft Corporation: Microsoft has also used stock repurchase programs to buy back shares and use them for employee stock incentive plans, reducing the number of outstanding shares in the market while incentivizing employees.
Common Questions: 1. Does treasury stock affect shareholders' voting rights? Treasury stock does not have voting rights, so it does not affect the voting rights of existing shareholders. 2. Does treasury stock affect the company's financial statements? Treasury stock reduces the number of outstanding shares, affecting the calculation of EPS, but it does not directly impact the company's balance sheet.
