what is tangible common equity tce 
tangible common equity tce is a measure of a company s physical capital which is used to evaluate a financial institution s ability to deal with potential losses it is often used when analyzing financial firms that do not normally have a relatively large amount of tangible assets tangible common equity is calculated by subtracting intangible assets including goodwill and preferred equity from the company s book value understanding tangible common equitycompanies own both tangible physical and intangible assets a building is tangible for instance while a patent is intangible the same can be said about a firm s equity financial companies are most often evaluated using tce measuring a company s tce is particularly useful for evaluating companies that have large amounts of preferred stock such as u s banks that received federal bailout money in the 2008 financial crisis in exchange for bailout funds those banks issued large amounts of preferred stock to the federal government 1 a bank can boost tce by converting preferred shares to common shares using tangible common equity can also be used to calculate a capital adequacy ratio as one way of evaluating a bank s solvency and is considered a conservative measure of its stability tce is not required by gaap or bank regulations and is typically used internally as one of many capital adequacy indicators 2special considerationsthe tce ratio tce divided by tangible assets is a measure of capital adequacy at a bank the tce ratio measures a firm s tangible common equity in terms of the firm s tangible assets it can be used to estimate a bank s sustainable losses before shareholder equity is wiped out depending on the firm s circumstances patents might be excluded from intangible assets for the purposes of this equation since they at times can have a liquidation value another way to evaluate a bank s solvency is to look at its tier 1 capital which consists of common shares preferred shares retained earnings and deferred tax assets banks and regulators track tier 1 capital levels to assess the stability of a bank notably lower risk assets held by a bank such as u s treasury notes carry more safety than low grade securities regulators do not require regular submissions of tier 1 capital levels but they come into play when the federal reserve conducts stress tests on banks 3example of tangible common equitysay that xyz bank had for the fiscal year 2021 a book value of 273 8 billion its goodwill was 69 01 billion intangible assets 2 2 billion and preferred stock 24 billion thus xyz bank s tangible common equity at the end of 2021 was 178 59 billion 273 8 billion 69 01 billion 2 2 billion 24 billion many banks break out tangible common equity in the supplemental documents on their financial statements 