University of Central Florida (UCF) FIN3403 Business Finance Practice Exam 3

Treasury stock refers to shares that a company has repurchased from its shareholders. When a company buys back its own shares, those shares become treasury stock and are held in the company's treasury. This action can serve multiple purposes: it can help manage the company’s capital structure, provide shares for employee compensation plans, or mitigate the negative effects of dilution from stock options and convertible securities. Importantly, treasury stock does not have voting rights and does not pay dividends, as these shares are essentially non-existent in the eyes of outside investors.

Understanding treasury stock is crucial because it indicates a company's decision to return value to shareholders, either by reducing the number of shares outstanding or by signaling confidence in its own financial strength. It is distinct from newly issued shares, common stocks held by investors, and securities held by the Treasury Department, which refer to very different concepts in finance.