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 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.