Treasury shares example
Let’s say company ABC has an equity balance of $900,000 and 5000 treasury shares. It also has 200,000 shares in circulation. However, it believes its stock is undervalued and so decides to buy back 10,000 of its own shares to increase demand and raise the share price.
The current cost per share is $5, so ABC is buying back shares to the value of $50,000. This means $50,000 will be deducted from the company’s cash balance, while the treasury stock will increase by 10,000. The balance sheet now reflects a new equity value of $850,000 and ABC now has 15,000 treasury shares.