Question

My teacher, asked me to find the "Tangible Equity Capital Ratio" my finance book does not refer to anything by this name? I have looked online and haven't been able to find anything similar. Do you have any idea what he could mean by this and how i could try calculating it?

Answer 1

• The tangible equity (TCE) ratio measures a firm's tangible common equity in terms of the firm's tangible assets.
• The tangible common equity (TCE) ratio is calculated by first finding the value of the firm's tangible common equity, which is the firm's common equity (less preferred stock equity) less intangible assets.
• The tangible common equity is then divided by the firm's tangible assets, which is found by subtracting the firm's intangible assets from total assets. * *
• [Note] 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.
• Hence, Tangible Equity Capital Ratio = (Common Equity - Intangible Assets)/Tangible Assets
• Preferred Stock (if existing) gets deducted from “Common Equity” as well.
• Intangible Assets are found on assets side of the Balance Sheet. These are those assets that cannot be physically touched or have physical existence. Example of Intangible asset is Goodwill, TradeMark rights, etc.
• Tangible Assets = Total Assets – Intangible Assets.