LemonTrades
TL;DR
- Treasury stock is a company’s own shares that it bought back and still holds. It isn’t related to US Treasury bonds.
- It pays no dividends, has no vote and doesn’t count in earnings per share, which is why buybacks can raise that number.
- On the balance sheet, it’s shown as a reduction of shareholders’ equity, not as an asset.
- LemonTrades tells you what moved the stocks you follow, and why, as it happens, including buyback news.
When a company buys back its shares, it can cancel them or keep them. The ones it keeps are called treasury stock.
What treasury stock means
| Outstanding shares | Treasury stock | |
|---|---|---|
| Who holds them | Investors | The company itself |
| Votes | Yes | No |
| Dividends | Yes | No |
| Counts in earnings per share | Yes | No |
| Can be sold again | Already sold | Yes, or it can be retired |
Shares issued = outstanding shares + treasury shares. That’s why annual reports often list two different share counts.
A simple example
A company has 100 million shares and earns $500 million, so earnings per share are $5.00. It buys back 10 million shares at $50, spending $500 million, and holds them as treasury stock.
| Before | After | |
|---|---|---|
| Shares outstanding | 100 million | 90 million |
| Treasury shares | 0 | 10 million |
| Profit | $500 million | $500 million |
| Earnings per share | $5.00 | $5.56 |
| Shareholders’ equity | No change | $500 million lower |
Profit didn’t change, but each remaining share earned 11% more. Interest lost on the cash spent would trim this a little.
On the balance sheet
Most companies record the shares at what they paid, as a negative number inside shareholders’ equity. It isn’t an asset, because a company can’t own a piece of itself in any useful sense. If it later resells the shares, any difference goes to equity too, not to profit, so a company can’t book a gain on trading its own stock.
Why companies buy back shares
- To return cash to shareholders, as an alternative to dividends.
- To pay staff: treasury shares can be handed out as stock awards, without creating new ones.
- To signal that management thinks the shares are cheap.
- To lift earnings per share, sometimes tied to bosses’ pay, which is why critics watch buybacks closely.
Since 2023, US companies have paid a 1% tax on most buybacks. Buybacks are also one way Alphabet returns cash alongside its small dividend.
Treasury stock vs Treasuries
The names cause endless confusion. Treasury stock is a company’s own shares. Treasuries are US government bonds, such as the 10-year Treasury. New to stocks? See what a stock is and how stock prices are set.
Sources
Education, not financial advice. See our disclaimer.
