What happens to a company’s outstanding shares when treasury stock increases?

What happens to a company’s outstanding shares when treasury stock increases?

• A. Remains unchanged
• B. Increases
• C. Decreases
• D. Fluctuates randomly

Answer: (C)

When a company acquires treasury stock, it is buying back its own shares from the marketplace, which reduces the total number of outstanding shares available to the public. Outstanding shares are calculated as total shares issued minus treasury shares. Therefore, when treasury stock increases, the number of outstanding shares decreases, as those repurchased shares are held in the company's treasury and are not considered part of the outstanding shares. This reduction in outstanding shares can have various implications, such as increasing the earnings per share (EPS) metric for the remaining shares, since the same profit is now distributed among fewer shares. It is important to understand this relationship, as it plays a crucial role in financial analysis and valuation.

When a company acquires treasury stock, it is buying back its own shares from the marketplace, which reduces the total number of outstanding shares available to the public. Outstanding shares are calculated as total shares issued minus treasury shares. Therefore, when treasury stock increases, the number of outstanding shares decreases, as those repurchased shares are held in the company's treasury and are not considered part of the outstanding shares.

This reduction in outstanding shares can have various implications, such as increasing the earnings per share (EPS) metric for the remaining shares, since the same profit is now distributed among fewer shares. It is important to understand this relationship, as it plays a crucial role in financial analysis and valuation.