BROWSE

Tangible Common Equity – TCE

Definition

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

Tangible Common Equity - TCE

What is 'Tangible Common Equity - TCE'

Tangible common equity (TCE) is a measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. Tangible common equity (TCE) is calculated by subtracting intangible assets, goodwill and preferred equity from the company's book value. Measuring a company's TCE is particularly useful for evaluating companies that have large amounts of preferred stock, such as U.S. banks that received federal bailout money in the 2008 financial crisis. In exchange for bailout funds, those banks issued large numbers of shares of preferred stock to the federal government. A company can boost TCE by converting preferred shares to common shares.

Explaining 'Tangible Common Equity - TCE'

Using tangible common equity to calculate a capital adequacy ratio is one way of evaluating a bank's solvency and is considered a conservative measure of a company's value. Another way to evaluate a bank's solvency is to look at its tier 1 capital, which consists of common shares, preferred shares, retained earnings and deferred tax assets.


Further Reading


Bank capital: Lessons from the financial crisis
onlinelibrary.wiley.com [PDF]
… able to show strong capitalization while holding a limited amount of tangible common equity, which is … banks with higher quality capital were viewed more positively by equity market participants … variables, the severity of the financial crisis and its economic repercussions across …

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]
… able to show strong capitalization while holding a limited amount of tangible common equity, which is … banks with higher quality capital were viewed more positively by equity market participants … variables, the severity of the financial crisis and its economic repercussions across …

Macroeconomic impact of Basel IIIMacroeconomic impact of Basel III
papers.ssrn.com [PDF]
… able to show strong capitalization while holding a limited amount of tangible common equity, which is … banks with higher quality capital were viewed more positively by equity market participants … variables, the severity of the financial crisis and its economic repercussions across …

The economics of small business finance: The roles of private equity and debt markets in the financial growth cycleThe economics of small business finance: The roles of private equity and debt markets in the financial growth cycle
www.sciencedirect.com [PDF]
… able to show strong capitalization while holding a limited amount of tangible common equity, which is … banks with higher quality capital were viewed more positively by equity market participants … variables, the severity of the financial crisis and its economic repercussions across …

The measurement and determinants of brand equity: A financial approachThe measurement and determinants of brand equity: A financial approach
pubsonline.informs.org [PDF]
… able to show strong capitalization while holding a limited amount of tangible common equity, which is … banks with higher quality capital were viewed more positively by equity market participants … variables, the severity of the financial crisis and its economic repercussions across …

Financial reporting, supplemental disclosures, and bank share pricesFinancial reporting, supplemental disclosures, and bank share prices
www.jstor.org [PDF]
… able to show strong capitalization while holding a limited amount of tangible common equity, which is … banks with higher quality capital were viewed more positively by equity market participants … variables, the severity of the financial crisis and its economic repercussions across …



Q&A About Tangible Common Equity – TCE


What is TCE?

Tangible common equity (TCE) is a measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses.

What ratio uses tangible common equity as its denominator?

Capital adequacy ratio.

How can you calculate TCE?

Subtract intangible assets, goodwill and preferred equity from the company's book value.

What does tangible common equity help you evaluate?

It helps you evaluate companies that have large amounts of preferred stock.

Which other ratios are useful in evaluating bank solvency and liquidity?

Tier 1 capital ratios

How can banks increase their TCE?

Convert preferred shares into common shares.

How do you compute ROTE?

You divide net earnings applicable to common shareholders by average monthly tangible common equity.

What kind of measure is considered conservative when evaluating bank solvency?

Tangible Common Equity Ratio

What is the definition of Tangible Common Equity?

Tangible common equity is defined as total shareholders' equity less preferred stock, goodwill, and identifiable intangible assets.

How do tier 1 capital ratios differ from tangible common equity ratios ?

Tier 1 capital ratios include retained earnings and deferred tax assets .

What does ROTE measure?

The rate of return on tangible common equity measures the rate of return on the tangible assets that are available to all investors.

Why do banks issue preferred shares?

Banks issue preferred shares in exchange for bailout funds from the federal government during the 2008 financial crisis.

Leave a Reply

Your email address will not be published. Required fields are marked *