common equity

CFA Level I
#1

Do you know why treasury stock value is subtracted from sum of par price, additional paid in capital, retained earnings to get common equity?

#2

when a company purchases shares back form the option market these shares go into the treasury stock…all the shares in the treasury stock are not considered shares outstanding

#3

I’m a corporation. Today I sell you 1000 shares of common stock. Next weel I buy back 100 shares. I subtract out the value of those 100 treasury shares to reflect the value of the net 900 outstanding

#4

When a company buys back its shares and puts them into treasury, it doesn’t make sense to consider those shares as part of the company’s book value in computing ratios like ROE. If the company had to fork over cash to shareholders to buy back their shares but this had no effect on reducing the book value of their equity, share buybacks would never be able to increase ROE.

#5

Thanks for replies. Now I understood better. So, treasure stock value is treasury stock value = Number of shares bought * Market price at that time. Basically this transaction causes cash to be lower in assets and share holder equity to have treasury stock item to refect it. Then we find outstanding shares by subtracting number of treasury stocks to find book value . Let me know if I am wrong.