Tangible common equity ratio is mathematically defined as: (common shareholder's equity - intangible assets) divided by (total assets – intangible assets). Also, this can be interpreted as tangible equity divided by tangible assets. This is a non-GAAP measure and hence the method of calculation may vary. The tangible common equity ratio is essentially a measure of leverage. A low ratio indicates possible overleveraging and a high ratio indicates less leverage compared to tangible assets. However, no clear benchmark value exists, and the tangible common equity ratio should not be used to substitute for traditional GAAP measures.
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