Assignment No.2

The Tripudiate Managers
Treasury Stock


Introduction: (M B 115 Ritu Sian Sec B)
A treasury stock or reacquired stock is stock which is bought back by the issuing company, reducing the amount of outstanding stock on the open market ("open market" including insiders' holdings).
Stock repurchases are often used as a tax-efficient method to put cash into shareholders' hands, rather than paying dividends. Sometimes, companies do this when they feel that their stock is undervalued on the open market. The United Kingdom equivalent of treasury stock as used in the United State. Treasury stocks in the UK refers to government bonds or gilts

Disscussion:(M B 55 Rajat Parashar Sec A)
Every company has an authorized amount of stock it can issue legally. Of this amount, the total number of shares owned by investors, including the company's officers and insiders (the owners of restricted stock), is known as the shares outstanding. The number available only to the public to buy and sell is known as the float.

Treasury stocks are shares that were once a part of the float and shares outstanding but were subsequently repurchased by the company and decommissioned. These stocks do not have voting rights and do not pay any distributions. A company can decide to hold onto treasury stocks indefinitely, reissue them to the public, or even cancel them.



Accounting for treasury stock
On the balance sheet, treasury stock is listed under shareholder equity as a negative number. The accounts may be called equity reduction or contra-equity.
One way of accounting for treasury stock is with the cost method. In this method, the paid-in capital account is reduced in the balance sheet when the treasury stock is bought.

Buying back share
Benefits
In an efficient market, a company buying back its stock should have no effect at all on its stock price. If the market fairly prices a company's shares at $50/share, and the company buys back 100 shares for $5,000, it now has $5,000 less cash but there are 100 fewer shares outstanding; the net effect should be that the value per share is unchanged
If the market is not efficient, the company's shares may be underpriced. In that case a company can benefit its other shareholders by buying back shares.
After buyback:
The company can either retire the shares (however, retired shares are not listed as treasury stock on the company's financial statements) or hold the shares for later resale. Buying back stock reduces the number of outstanding shares.
Conclusion: ( M B 182 Vidhi Walia Sec “C”)Treasury stock is often created when shares of a company are initially issued. In this case, not all shares are issued to the public, as some are kept in the companies treasury to be used to create extra cash should it be needed. Another reason may be to keep a controlling interest within the treasury to help ward off hostile takeovers.

Alternatively, treasury stock can be created when a company does a share buyback and purchases its shares on the open market. This can be advantageous to shareholders because it lowers the number of shares outstanding. However, not all buybacks are a good thing.

Submitted To:

Gurdeepak Sir

Submitted By:
Rajat Parashar(M B 55 Sec “A”)
Ritu Sian (M B 115 Sec “B”)
Vidhi Walia (M B 182 Sec “C”)