Treasury Stock Method

For earnings per share calculations, the dilutive effect of options and warrants and their equivalents is applied using the treasury stock method. The treasury stock method assumes that the proceeds from the exercise of stock options, warrants, and their equivalents will be used by the corporation to repurchase treasury shares at the prevailing (or average) market price, resulting in an incremental increase in shares outstanding, but not the full amount of shares that are issued on exercise of the common stock equivalents. See also diluted earnings per share and if-converted method.