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Treasury stock

Treasury stock is stock the company has repurchased on the open market and not yet canceled or retired.

Expanded Definition

From the name, you'd think it would be the shares of the company kept locked in the vault or buried on a desert island somewhere. Unfortunately, it is much less romantic than that.

When a company repurchases shares on the open market at full price, it uses either debt or retained earnings to fund the purchase. The amount spent to purchase these shares is recorded in the shareholders' equity portion of the balance sheet and is a negative number, representing money spent. Ideally, this would be a return of such capital to the shareholders. This negative balance is the value of the shares of treasury stock.

Treasury stock is counted among the shares issued, but is not counted as part of shares outstanding.

Treasury stock can be resold by the company (hopefully at a higher price than when it was purchased) or it can be used to cover the exercising of stock options. In this latter case, the money spent to purchase the shares can be viewed as having been transferred directly to the employees or management.

Shares of treasury stock can also be retired, reducing the share count of the company. Retired shares cannot be reissued or resold -- they're gone. If the company repurchases shares, then Fools prefer that this use be made of them.

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