Tangible common equity

Tangible common equity (TCE), the subset of shareholders' equity that is not preferred equity and not intangible assets,[1][2] 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.

When used in a ratio with tangible common assets, it measures 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.

Formula

  • TCE = total equity – intangible assets – goodwill – preferred stock[citation needed]
  • tangible assets = total assets – intangible assets – goodwill – preferred stock
  • TCE ratio = TCE ⁄ tangible assets[citation needed]
  • Leverage ratio = (total assets – intangible assets – goodwill) ⁄ TCE[citation needed]

Example

On February 27, 2009, the U.S. Government converted preferred shares to common shares to increase Citigroup's tangible common equity.[3] In this example, the company's total equity remained the same, but its preferred equity decreased, thereby increasing common equity (and TCE).

See also

References

  1. ^ "Tangled Tangibles", by Tracy Alloway an FT Alphaville November 23, 2008 blog entry
  2. ^ "Tangible Common Equity for Beginners" from baselinescenario.com
  3. ^ "Citi to Exchange Preferred Securities for Common, Increasing Tangible Common Equity to as Much as $81 Billion", Wall Street Journal, February 27, 2009
Stub icon

This economic term article is a stub. You can help Wikipedia by adding missing information.

Content Disclaimer

Informasi ini disarikan dari Wikipedia dan disajikan kembali untuk tujuan edukasi. Konten tersedia di bawah lisensi CC BY-SA 3.0. Kami tidak bertanggung jawab atas ketidakakuratan data yang bersumber dari kontribusi publik tersebut.

  1. The information displayed on this website is sourced in part or in whole from Wikipedia and has been adapted for the purpose of restating it. We strive to provide accurate and relevant information, however:
  2. There is no guarantee of absolute accuracy. Wikipedia is an open, collaborative project that can be edited by anyone, so information is subject to change.
  3. It is not intended to constitute professional advice. The content displayed is for informational and educational purposes only. For important decisions (e.g., medical, legal, or financial), please consult a professional.
  4. Content copyright. Wikipedia is licensed under the Creative Commons Attribution-ShareAlike License (CC BY-SA). This means that content may be reused with appropriate attribution and shared under a similar license.
  5. Responsible use. Any risk arising from the use of information from this website is entirely the responsibility of the user.