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Tangible Common Equity Ratio (TCE)

Tangible Common Equity Ratio (TCE)

What is the 'Tangible Common Equity Ratio - TCE'

The tangible common equity ratio (TCE) is a ratio used to determine how much losses a bank can take before shareholder equity is wiped out. The Tangible Common Equity (TCE) ratio is calculated by taking the value of the company's total equity and subtracting intangible assets, goodwill and preferred stock equity and then dividing by the value of the company's tangible assets. Tangible assets is the company's total assets less goodwill and intangibles.

Explaining 'Tangible Common Equity Ratio - TCE'

This ratio became popular when evaluating banks during the credit crisis in 2008. Its conservative approach has made it a very risk free way for investors to evaluate worst case scenarios of their investments.


Tangible Common Equity Ratio (tce) FAQ

What is tangible equity in banking?

Tangible common equity (TCE) measures a company's physical capital, and is used to determine if a financial institution can deal with losses. It is calculated by subtracting intangible assets (including goodwill) and preferred equity from the company's book value.

Is equity a tangible asset?

Key Takeaways. Shareholder equity and net tangible assets both show the value of a company. How they differ is that intangible assets, such as goodwill, are part of shareholder equity while net tangible assets are not. Net tangible assets is the theoretical value of a company's physical assets.

What is the common equity ratio?

The tangible common equity (TCE) ratio is a measure of the tangible assets of a firm. Divide the tangible common equity by the firm's tangible assets, which can be derived by subtracting the firm's intangible assets from total assets.

Are loans tangible assets?

Physical tangible assets have true physical substance, like furniture, fixtures, equipment, and premises. Financial tangible assets have a legal claim on future income or underlying assets, like loans and investments.

What is asset tangibility?

Asset Tangibility is the ratio of (0.715 × Receivables + 0.547 × Inventories + 0.535 × Fixed Capital) to the book value of total assets. As the make-up of corporate assets shifts toward intangibles, sacrificing investment for cash will impair growth.

What is a common equity Tier 1 ratio?

The Tier 1 common capital ratio is a measurement of what makes up a bank's equity capital, compared with its total risk-weighted assets, that how strong a bank is financially.

What does return on tangible equity mean?

Return on tangible equity (ROTE) (also return on average tangible common shareholders' equity (ROTCE)) measures the return rate of tangible common equity.

Further Reading

A cost–benefit analysis of Basel III: Some evidence from the UKA cost–benefit analysis of Basel III: Some evidence from the UK
www.sciencedirect.com [PDF]
… Likewise, the most commonly used variable for liquidity is the Loans-to-Deposits ratio. However, under Basel III, the focus is on very different ratios. For the capital base, the first breakthrough in Basel III is to focus on the ratio of tangible common equity capital (ie paid …

The impact of Basel III on lending rates of EU banksThe impact of Basel III on lending rates of EU banks
search.proquest.com [PDF]
… Likewise, the most commonly used variable for liquidity is the Loans-to-Deposits ratio. However, under Basel III, the focus is on very different ratios. For the capital base, the first breakthrough in Basel III is to focus on the ratio of tangible common equity capital (ie paid …

A valuation of a US Regional bank's common stockA valuation of a US Regional bank's common stock
csus-dspace.calstate.edu [PDF]
… Likewise, the most commonly used variable for liquidity is the Loans-to-Deposits ratio. However, under Basel III, the focus is on very different ratios. For the capital base, the first breakthrough in Basel III is to focus on the ratio of tangible common equity capital (ie paid …

The Role of Fair Value Accounting in the Global Financial Crisis: Evidence from US Global Systemically Important BanksThe Role of Fair Value Accounting in the Global Financial Crisis: Evidence from US Global Systemically Important Banks
papers.ssrn.com [PDF]
… Likewise, the most commonly used variable for liquidity is the Loans-to-Deposits ratio. However, under Basel III, the focus is on very different ratios. For the capital base, the first breakthrough in Basel III is to focus on the ratio of tangible common equity capital (ie paid …

Corporate finance and corporate governanceCorporate finance and corporate governance
onlinelibrary.wiley.com [PDF]
… Likewise, the most commonly used variable for liquidity is the Loans-to-Deposits ratio. However, under Basel III, the focus is on very different ratios. For the capital base, the first breakthrough in Basel III is to focus on the ratio of tangible common equity capital (ie paid …

Initiatives and outcomes of quality management implementation across industriesInitiatives and outcomes of quality management implementation across industries
www.sciencedirect.com [PDF]
… Likewise, the most commonly used variable for liquidity is the Loans-to-Deposits ratio. However, under Basel III, the focus is on very different ratios. For the capital base, the first breakthrough in Basel III is to focus on the ratio of tangible common equity capital (ie paid …


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Section 508

WCAG 2.0

Section 508