Tangible common equity

Tangible common equity is the amount of shareholders funds attributable to ordinary shareholders, excluding intangible assets. It can be calculated by deducting intangible assets and preference share capital from net assets. It is the amount that ordinary shareholders would receive if the company were wound up. The term common (rather than ordinary) equity reflects the American origin of the word.

Tangible common equity often used to calculate the tangible common equity ratio, which is a conservative measure (more so than tier one capital adequacy) of the financial soundness of banks.

Tangible book value per share is useful for valuation purposes as an adjusted replacement for net book value per share, which is also only really useful for sectors (such as property) in which companies value lies in the value of assets, rather than the ability to generate profit or cash flows.

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