Treasury shares (buybacks)
Treasury shares are a company’s own shares that the company has bought back and holds on its balance sheet. While held in treasury they neither vote nor collect dividends, and if they are cancelled they disappear, so profit is spread over fewer shares and earnings per share rise even though total profit does not change. Buybacks are the way of returning cash to shareholders that does not go through the dividend.
How it is calculated
A company with 100 million shares and €190 million of profit has EPS of €1.90. It buys back 5 million shares and cancels them: 95 million remain and the same profit is spread over fewer shares, EPS of €2.00, 5.3% more without the company earning one euro more. If it paid €20 per share it spent €100 million; if the share was really worth €15, it destroyed €25 million of value for the shareholders who stay. A buyback only creates value when shares are bought below their value.
The figures in the example are invented and rounded so the arithmetic can be redone by hand. They are not data from any real company.
What it is NOT
It is not profit: the rise in EPS after a buyback is arithmetic, not operational, and comparing EPS across two years without looking at the share count is misleading. Nor is it always shareholder return: many companies buy back exactly what they issue to pay employees in shares, and the share count does not fall. And treasury shares are not an investment by the company: they are equity withdrawn, which on the balance sheet is deducted from shareholders’ funds.
Formula
EPS after cancellation = net income ÷ (shares − cancelled) See also
Explained in depth
On real data
How earnings per share move with the share count: P/E and EPS calculator.
See it on real data
Celsmar computes this from the accounts companies file with their regulator, and shows which line every figure comes from. Free to start, no card.
Definition for informational purposes. It is not financial advice nor a recommendation to buy or sell.