Treasury Stock vs. Total Assets
Original post by Eric Feigenbaum of Demand Media
Publicly traded corporations often repurchase shares of their stock to reduce the total number of outstanding shares. These shares can later be used to raise more equity capital, or simply kept to ensure the company doesn't come under the control a shareholder or group of shareholders. Treasury stock has value and is an important asset. However, it's one of many assets as total assets include cash, real estate equipment and intellectual property rights.
Treasury Stock Valuation
Treasury stock is usually recorded as being whatever a company paid for it. For example, if a company repurchased 100,000 shares for $25 each, the treasury stock would be worth $2.5 million. However, later on when a company is looking at ways to increase equity, it may choose to look at treasury stock as worth what it can sell the stock for on a public exchange. So if the company's shares increased to $30 a share on the open market, it could sell the shares at market price and make a 20 percent profit.
Assets come in many forms and include almost anything a company can use or sell. Some of the more valuable assets are real estate, securities, commodities, and even subsidiary companies. However, things as small as computers and office equipment are also assets. Additionally, product inventory and intellectual property rights such as patents on technology or copyrights on screenplays also constitute assets.
A company's total assets involves a summation of all of its various forms of assets. Usually, for accounting purposes, only sellable assets are included. However, when appraising a business for sale to an investor or buyer, companies frequently account for human capital -- the asset of the knowledge and capability of its employees. Market and revenue potentials are also typically included.
For reporting purposes, repurchasing treasury stock is considered neither a gain nor a loss. Instead, accounts record it as a contra-equity transaction -- reducing the company's stated stockholder equity by the amount of repurchased treasury stock. For public accounting and financial reporting purposes, treasury stock is not included in a company's assets.
- Meyers, Harrison, Pia: Intangible Assets and Intellectual Property
- Accounting Glossary: Total Assets
- Business Accounting Guides: Treasury Stock
- Principles of Accounting: Treasury Stock
- Jacksonville State University: Stock Transactions
About the Author
Eric Feigenbaum started his career in print journalism, becoming editor-in-chief of "The Daily" of the University of Washington during college and afterward working at two major newspapers. He later did many print and Web projects including re-brandings for major companies and catalog production.
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