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Treasury Stock
Written by Kenny Foo   
Friday, 06 March 2009 16:35

Treasury stock or treasury shares are stock or shares bought back by its issuing companies to reduce the amount of outstanding stock on the stock market.

 The total amount of treasury stock will be deducted from share capital and retained profit to obtain net assets or shareholders' equity for a company. Corporations and companies treat share buy back or stock repurchase as one of the tax-efficient  method to reward cash into shareholders' hands, rather than pay cash dividends to shareholders which will be subject to taxation. In this case, shareholders receive an asset that might appreciate in value faster than cash saved in a bank account. When companies feel that their stock is undervalued on the stock market, they will perform share buy back or stock repurchase to reward the shareholders. After buy back the stock, these stock will be considered as treasury stock and recorded in balance sheet. Companies can choose to retire the share , hold the shares for later resale, use as incentive compensation plan to reward employees or even use as bonus share issue to reward shareholders to get additional shares without paying any penny.  Sometimes, some companies will use buy back shares to increase treasury stock for takeover threat prevention.

 

 



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Last Updated ( Friday, 06 March 2009 17:02 )
 
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