Treasury stock consists of shares that a company initially issued to the public and then repurchased. The repurchase can be executed for several strategic reasons, such as to consolidate ownership, to reduce the dilution effect of outstanding shares, or to increase metrics like earnings per share (EPS). Treasury stock does not count as outstanding shares in the company's financial metrics and therefore does not carry voting rights or receive dividends. For example, a company might have 1,000,000 shares outstanding and decide to buy back 100,000 shares, putting those into treasury and reducing outstanding stock to 900,000 shares, boosting EPS and shareholder value in the process.
In financial reporting and analysis, these treasury shares are listed on the balance sheet as part of stockholder's equity, typically as a deduction (negative equity) since these are no longer considered external equity contributed by shareholders. Depending on jurisdiction or corporate policies, these shares might be reissued or retired permanently. This makes treasury stock a vital concept in corporate finance, management strategy, and accounting, as it directly impacts financial performance and governance.