How does Treasury Stock impact cashflow?

Dawn’s question:

What information is disclosed on the 1120S, Schedule L, line 26, “cost of treasury stock”? Is this ever relevant to the lending process?

Linda says:

Treasury stock means stock that had been issued and was bought back by the company. So it will always be blank unless they bought their own stock back from shareholders at some point.

As long as there is no change between the beginning and ending balance, it has no cashflow impact that year. If there is a difference, then the amount of the increase does represent a use of the company cashflow that year. If there is and it is significant, you might ask about their plans for continuing to buy back their own stock. To the extent they are spending their money on that, it is not available to pay debt.

It is likely to be extremely rare so will not generally be an issue.

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Linda Keith, CPA

Linda Keith CPA is an expert in credit risk readiness and credit analysis. She trains banks and credit unions throughout the United States, both in-house and in open-enrollment sessions, on Tax Return and Financial Statement Analysis.
She is in the trenches with lenders, analysts and underwriters helping them say "yes" to good loans.
Creator of the Tax Return Analysis Virtual Classroom at www.LendersOnlineTraining.com, she speaks at banking associations on risk management, lending and director finance topics.