Samiksha Jaiswal (Editor)

Tangible common equity

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Tangible common equity (TCE) is the subset of shareholders' equity that is not preferred equity and not intangible assets.

Contents

TCE is an uncommonly used measure of a company's financial strength. It indicates how much ownership equity owners of common stock would receive in the event of a company's liquidation. During the financial and economic crisis of 2008–2009, it gained public popularity as a measure of the viability of large commercial banks.

TCE, when used in a ratio with tangible common assets, is a measure of a bank's ability to absorb losses (e.g., homeowners defaulting on mortgages) before becoming insolvent. It is one of the factors considered by the Office of the Comptroller of the Currency to determine if a bank has become insolvent.

Formulae

  • TCE = total equity – intangible assets – goodwill – preferred stock
  • TCE ratio = TCE / (total assets)
  • Leverage ratio = (total assets – intangible assets – goodwill) / TCE

    • Example

    On February 27, 2009, the U.S. Government converted preferred shares to common shares in order to increase Citigroup's tangible common equity. In this example, preferred stock equity is decreased, and total equity remains the same, increasing the TCE.

    References

    Tangible common equity Wikipedia
    (Text) CC BY-SA