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Treasury stock is stock that an issuing company repurchases from its shareholders.
The company may choose to repurchase if it has cash available, as an alternative to investing it in expanding the business. Or it may issue bonds to raise the money it needs to repurchase, which changes the company's debt-to-equity ratio.
In most cases, the company offers to pay a premium, or more than the market price, to build its cache of Treasury stock.
Reducing the number of outstanding shares boosts the per-share value of the remaining shares and tends to increase the market price of the stock. That results, in part, because no dividends are paid on Treasury stock and it's not included in earnings-per-share calculations, boosting that ratio.
A company may buy back its stock for a number of other reasons, ranging from preventing a hostile takeover to having shares available if employees exercise their stock options.
It may also choose to resell the shares or use them to meet the demand for shares from holders of convertible securities.