Tangible Common Equity - TCE


DEFINITION of 'Tangible Common Equity - TCE'

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.

BREAKING DOWN '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.

  1. Preferred Stock

    A class of ownership in a corporation that has a higher claim ...
  2. Goodwill

    An account that can be found in the assets portion of a company's ...
  3. Intangible Asset

    An asset that is not physical in nature. Corporate intellectual ...
  4. Retained Earnings

    Retained earnings is the percentage of net earnings not paid ...
  5. Common Stock

    A security that represents ownership in a corporation. Holders ...
  6. Book Value

    1. The value at which an asset is carried on a balance sheet. ...
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