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Tangible Common Equity Ratio

What is the tangible common equity ratio?

The tangible common equity ratio is the ratio of a company’s tangible equity to its tangible assets. It doesn’t follow generally accepted accounting principles, or GAAP, and hence the method of calculation may vary.

  • The lower the TCE ratio, the more leveraged the company.

The tangible common equity ratio, or TCE ratio, is a ratio of a company’s tangible equity divided by its tangible assets, which can be broken down into the following equation:

(Common Shareholder's Equity – Intangible Assets) divided by (Total Assets – Intangible Assets).

The TCE ratio is essentially a measure of leverage. A low ratio indicates possible overleveraging, and a high ratio indicates less leverage compared with tangible assets. However, no clear benchmark value exists, and the TCE ratio should not be used to substitute for traditional GAAP measures.