The last element that appears on the balance sheet is the cost of shares reacquired for compensation plans, also known as a company’s treasury stock. Treasury stock represents stock that has been repurchased by the issuer for some intended purpose. For example, companies that buy back their shares do the following:
■ Take advantage of current market conditions and lower stock prices. Reacquisition of shares at low prices eliminates future dividend pay- ments to existing shareholders, therefore enhancing future cash flow.
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■ Enhance future earnings per share. If shares of stock are no longer outstanding, they are removed from the computation of earnings per share. Fewer outstanding shares increases earnings per share in sub- sequent accounting periods. Companies often seek opportunities to enhance this measure.