A measure of 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 (TCE) is a measure of an entity’s physical capital, which reflects a financial institution’s “immediate” ability to absorb potential losses. This measure is typically used in evaluating companies which have issued a large number of preferred stock. Additionally, a entity can use it, internally, to calculate a capital adequacy ratio which in turn is instrumental for solvency determination.
Tangible common equity is also used as an indicator of the value of an entity experiencing liquidation, by subtracting intangible assets (i.e., those that would not have much value in the liquidation exercise.
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