Treasury stock

Treasury stock are shares that have been issued by a firm, but are being kept ‘in treasury’. This just means they are being kept for possible subsequent reissue. The reasons vary. It might be that the firm has done a share buyback (to boost earnings per share and return cash to shareholders) but doesn’t want to cancel the shares it is buying back. Or perhaps the shares are being kept to one side to be used as part of an employee remuneration deal later.

These treasury shares don’t carry voting rights and don’t pay dividends and should not normally be used in ratio calculations such as earnings per share. The main advantage of them is that the company has already gone through the administrative hassle of issuing them. This makes a subsequent issue cheaper and faster than a full issue of brand new shares, which is the only option once shares are cancelled.

Merryn

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