Why is treasury stock subtracted from stockholders equity?
Thanks!
It’s stock that the company has bought back, reducing the (effective) number of shares outstanding.
Think of it this way:
- Common Stock, $100 par, 1,000,000 million shares authorized, 500,000 shares outstanding means that the company owes capital back to, say, 5,000 people (at 100 shares apiece)
- Treasury Stock, 200,000 shares means “Ha ha! No we don’t! We only owe capital back to 3,000 people (at 100 shares apiece)! Made ya look!”
So, if in a question I have info that goes something like “Xyz has 5000 outstanding and Treasury stock =2000” Does that mean outstanding are equal to 3k only?
Yes
no
Outstanding shares represent part ownership and are held by public/investors where as treasury stocks are held by corporation itself by purchasing back from secondary market (reacquired).
Outstanding shares pay dividends, have voting rights and are traded in secondary market but treasury stock dont. So dont mess outstanding shares with treasury stock/share.
5000 outstanding shares means currently 5000 shares are held by public/investors etc. if there are 2000 treasury stock then it means that corporation issued 7000 shares and then reaquired 2000 shares and now 5000 shares are outstanding. Assuming 10,000 authorized shares it would look like that:
Authorized shares 10,000
Shares issued 7,000
Treasury Stock 2,000
then
Outstanding shares 5,000
No, It means total no. of shares is 7000.In which 5000 is outstanding and 2000 may have come from a repurchase or buyback from shareholders or it may have never been issued to the public in the first place.
By that, as ‘outstanding’ term is used two times in the question for two different items, it would be correct if we say Total shares issued were 5000 , out which treasury stock is 2000 and outstanding stock is 3000 . This is exactly in line with Raza Syed and edupristine
It depends, Whether the treasury stock has been purchased after the issuance, Or it has been seperated during the issuance.