Definition of Treasury Stock Method



Treasury stock method is a method of calculating the number of new shares that can be potentially be formed with warrants and options that are in-the-money. An option is in the money if the exercise price is lower than the current market price means a holder of the option can exercise the option and buy the share at a lower price (the exercise price) and sell it in the market at a market rate.

 


At the time of calculating the diluted EPS, the companies use the treasury stock method to estimate the notional number of shares.


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