Treasury stocks, explained

Treasury stock (also called treasury shares or reacquired stock) refers to previously issued shares that a company has bought back.

It’s often helpful to talk about it in the context of different stock types. All shares that have been sold or distributed are known as issued shares. Within this category are outstanding shares (those held by external investors) and treasury shares (once-outstanding shares repurchased by the company). 

Treasury stock doesn’t enjoy the same benefits as its outstanding counterpart: it isn’t publicly traded, and carries no dividend entitlement or voting rights. It’s also recorded as a contra equity account, reducing shareholders’ equity on the balance sheet.

It may seem counterintuitive for a company to repurchase its own stock, but there are many benefits for doing so:

• By creating scarcity, a company could boost the value of outstanding stock when it takes shares off the market.
• A share buyback can send a powerful signal to market participants that the company is confident that its stock is undervalued.
• Fewer shares in the market effectively means that the earnings per share (EPS) of remaining shares is boosted.
• Fewer shares available to buy can also mitigate the risk of a takeover by external investors.

As such, some may view stock buybacks to increase treasury stocks as strategic—but it’s not always beneficial. Repurchasing stock costs money, which can eat into a company’s available liquidity and increase its financial risk. 

There’s no guarantee that it has the desired impact, either: the stock may not, in fact, be undervalued. Poorly timing such a buy may result in a loss of value and weaken investors’ trust in the company’s management.

In May 2025, Apple announced a new $100 billion share repurchase plan, aiming to boost shareholder value. This marked a reduction from the record-breaking $110 billion plan authorized one year earlier. As a result, AAPL stock declined shortly after the announcement, as investors expressed concerns over the smaller buyback and Apple’s cautious outlook amid President Trump’s escalating trade tariffs.

Additionally, in certain situations, adding to treasury stock may be perceived as a performative move designed only to boost EPS.

As we touched on earlier, issued shares refer to all of the shares the company has created and distributed—whether to the public, insiders or institutional investors. By definition, a treasury share has to be issued before being repurchased, so it falls into this category.

However, a treasury stock is not an outstanding share. An outstanding share is a share held by any investor other than the company. In other words, it’s the issued shares minus the treasury shares.

Again, treasury shares aren’t as ‘powerful’ as their non-treasury counterparts. They don’t earn dividends, nor do they have any voting rights—you can think of them as dormant until they’re reissued. Treasury shares are also excluded from earnings per share calculations.

Conversely, outstanding shares act as one might expect: they allow their holders to weigh in on key decisions such as board of director elections, changes to corporate charters or major actions like mergers and acquisitions. They represent fractional ownership of the company, and entitle the holder to dividend payouts (depending on the organization’s policy).

When it comes to accounting, treasury stock is recorded in a special account called a contra equity account, which reduces shareholders’ equity on the balance sheet. It makes sense, as any treasury shares acquired by the company are bought with corporate funds, thereby reducing the equity available to shareholders.

It’s perhaps best to illustrate this with an example: suppose that ExampleCorp has $10m in outstanding stock and repurchases $2m. The treasury share account will now show -$2m, meaning that the total available equity would be reported as $8m.

This provides a much more realistic picture of the company for the purposes of reporting, financial analysis and compliance. Consider an earnings per share (EPS) calculation, which is performed by dividing the company’s net income by its number of outstanding shares.

Let’s assume that we ignore the distinction between ExampleCorp’s outstanding and treasury shares. It has a total of 100,000 shares, each valued at $100 (for a total market capitalization of $10m). Its net income is $5m, resulting in an EPS of $50 per share.

Let’s now factor in the $2m (20,000) in treasury shares. With a net income of $5m, divided by 80,000 (the remaining outstanding amount), we arrive at an EPS of $62.5.

The second figure provides a more accurate representation. The company has earned $5m in both examples—but the latter calculation (which takes into account the stock repurchase) correctly reflects that the company’s profits are divided up between fewer shareholders: remember that treasury stock does not pay dividends, nor does it participate in earnings.

Not all shares are created equal, and the distinction between treasury stock and outstanding stock is a perfect example of this discrepancy.

When a company repurchases its own stock, that stock loses some of the rights one traditionally associates with shares—namely, voting and dividend rights. Though this may appear to be a net negative, it isn’t. Among other benefits, this can create artificial scarcity (reducing available stock), boost EPS, and signal to market participants that the company is confident in its future growth.

Treasury shares are outstanding shares that a company has repurchased. 

Once repurchased, these shares are held by the company and are not considered when calculating earnings per share (EPS) or dividends. They remain on the company’s balance sheet under shareholders' equity as a contra equity account, reducing total equity.

No—treasury shares are ineligible for dividends. As they’re held by the company, it would be redundant for them to pay it dividends.

There are many reasons for which a company may repurchase its own stock: doing so boosts the earnings per share (EPS) metric, consolidates ownership and can signal to the market that the company’s management.

Yes, treasury stock can be reissued at a later date, e.g., via employee plans, secondary offerings or mergers and acquisitions.

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