A ratio that relates tangible common equity (TCE) to tangible assets (TAs). It is used as a measure of an entity’s tangible common equity in terms of its tangible assets. Therefore, it provides an estimate of sustainable losses (i.e., the ability to absorb losses) before common equity is wiped out. Tangible common equity indicates an entity’s capital (equity) that constitutes a portion of equity holdings distinguished from preferred equity and equity attributable to intangible assets. In other words, it a portion of equity that is left after subtracting intangible assets (including goodwill) and preferred equity from the entity’s book value (nominal book value).
Tangible common equity ratio (TCE/ TA) is a gauge of an entity’s capital adequacy and capital position.
