CMA Study Group

Treasury Stock

  • 1.  Treasury Stock

    Posted 10-29-2020 02:38 AM
    Hello Friends,

     My query is regarding "Treasury Stocks", do we consider it while calculating "DPS", "EPS" and "Return on Common Equity", if the company holds such stocks in its books.

    Thanks & Regards

  • 2.  RE: Treasury Stock

    Posted 10-29-2020 09:28 AM
    For DPS and EPS, the answer is "Yes".  Those calculations use common shares outstanding in the denominator.  Common shares outstanding = Common shares issued - Treasury stock.

    Return on Common Equity is a little different.  You still need to factor in treasury stock, but in this calculation, it's probably easier to start with total equity and subtract out preferred equity.

    Hope this helps and good luck!

    Michael Ramsey
    Omaha NE
    United States

  • 3.  RE: Treasury Stock

    Posted 10-30-2020 11:08 AM
    The term "Stock" in Treasury Stock is a bit misleading in my opinion.  It is simply common stock no long outstanding and now back with the entity.  It doesn't add value or "stock" to the company but reduces it.  Treasury Stock is a Contra Equity Account and reduces (debits) equity.  So you have to take that into account when doing the calcs if the details are not given.  Treasury Stock should be called Repurchased Shares.

    John Stuller
    Ojai CA
    United States