Question

What is treasury stock? What reasons might a company hold treasury stock?

Answer 1

Purchasing own shares from the secondary market by a company is treasury stock. A company can go into this buy-back at any time after the issue of shares.

Reasons: There are 4 reasons behind this repurchasing. These are as below:

Point 1) This is the way of distribution excess cash to shareholders.

Point 2) This is a signal to the stock market that company’s shares are worthy enough for purchasing.

Point 3) This is the way of holding shares for purchasing other company.

Point 4) This is the way of distribution of shares to employees – stock option plan.