Tangible Common Equity

Category

Balance Sheet

Units

Currency

Formula

Total Common Equity − Goodwill − Other Intangible Assets

US-GAAP elements

StockholdersEquityPreferredStockValueGoodwillIntangibleAssetsNetExcludingGoodwill

Reference

Non-GAAP measure when presented by a company: Regulation G and Regulation S-K Item 10(e)

Source

Reported in SEC EDGAR filings (US-GAAP XBRL taxonomy)

Tangible common equity (TCE) is the portion of a company's shareholders' equity that belongs to common stockholders after removing preferred equity, goodwill, and other intangible assets. It estimates the book value that would remain for common shareholders if assets that cannot be readily sold, such as acquisition goodwill and acquired intangibles, were worth nothing.

TCE is not a GAAP line item. It is calculated from figures reported in SEC filings, and when a company presents it in an earnings release or filing, the SEC's non-GAAP rules apply.

The starting point is stockholders' equity attributable to the parent, tagged StockholdersEquity in XBRL. Preferred stock, often tagged PreferredStockValue, is subtracted to reach common equity, and then Goodwill and other intangibles, such as IntangibleAssetsNetExcludingGoodwill, are subtracted. Noncontrolling interests are excluded because they belong to other owners of subsidiaries. When a company publishes TCE itself, Regulation G and Regulation S-K Item 10(e) require it to reconcile the figure to the most directly comparable GAAP measure, usually total stockholders' equity.

Definitions differ in details, so check a company's reconciliation before comparing. Many banks net the deferred tax liabilities associated with intangibles against the deduction, and banks commonly leave mortgage servicing rights in the figure even though they are intangible. Some analysts also subtract other items such as deferred tax assets. Because internally developed intangibles are generally not recorded, TCE penalizes companies that grow by acquisition relative to those that grow organically.

TCE is most widely used in bank analysis. Divided by tangible assets, it gives the tangible common equity ratio, a conservative capital measure that focuses on the loss-absorbing capacity available to common shareholders. Divided by shares outstanding, it gives tangible book value per share, the basis for price-to-tangible-book valuation. TCE is not the same as regulatory capital measures such as common equity tier 1, which follow separate banking rules.