While analyzing a balance sheet, a trader will always find the treasury stock page in the shareholders’ equity section. That treasury stock represents the total cost of the shares issued by the company which later required back. The company can reacquire the stocks through a share repurchase program or other ways.
These stocks are different from retired stocks that removed entirely by the company form the balance sheet. They can be reissued in the future.
Repurchased Stock
It is a normal practice for companies to buy back their stocks. They usually do that to boost their current shares price.
Once they buy back those shares, the companies can either, keep them and sell them later to the public when they need cash or they can use the shares in acquisition to buy competitors. One last chance they get is to retire those shares. That way, they can reduce their total outstanding share count permanently.
Retiring those stocks will make the remaining share gains a bigger ownership percentage. Which also means a bigger percentage of dividend and profit.
The real-world successful example of repurchasing stock strategy is the one done by conglomerate Henry Singleton. When the share price of his company was aggressively dropping, he purchased the stock aggressively. Later, after the stock overvalued, he issued it liberally bringing his company huge cash.
Treasury Stock Future
There has been a lot of discussion about how companies carry treasury stock on the balance sheets. Most of that discussion happen in the accounting industry. Currently, companies carry treasury stock at historical cost.
Some people, however, argue that the company still can sell them at the current price on the open market or use them to buy firms. Thus, these people think that shares should represent the current market value.