Updated on March 13, 2023
Treasury stocks refer to such shares that are retained by the company.
Details related to treasury stock
Treasury stock is also referred to as the reacquired stock that is held in the balance sheet of the company under the ‘contra-equity’ account. This stock is in the nature of unissued capital that can be issued by the company at a later stage. Treasury stock can be used by the company in any of the below-given ways:
a. Held indefinitely in the books of accounts
b. To be reissued to raise additional capital
c. To be cancelled at any later stage
As per regulations, the treasury stock cannot exceed the maximum proportion of the company’s total capitalization.
Why is treasury stock important?
Holding treasury stock can be beneficial in following ways:
a. Use it to improve the financial ratios of the company like the EPS.
b. Prevent any situation of hostile takeovers
c. Keep the controlling interest of the company safe
d. Safeguard the company’s shares from undervaluation
e. Resell the shares at the most opportune time.