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What is return on tangible equity?

Return on tangible equity

Return on tangible equity (ROTE) describes the return generated on money shareholders have invested in a company.

Where have you heard about return on tangible equity?

Sometimes referred to as “return on average tangible common shareholders’ equity”, it’s unlikely you’ll be familiar with the term unless you’ve looked into a company’s financial records.

You might however be familiar with tangible equity, as it was widely used as a measure to assess commercial banks that required bailouts during the 2008 global financial crisis.

What you need to know about return on tangible equity.

Return on tangible equity is calculated by dividing net earnings by average tangible equity.

Tangible equity is also known as “tangible common equity” and “tangible common shareholders’ equity”, and refers to the amount shareholders have invested in common stock.

Like all calculations designed to assess a company’s financial health, return on tangible equity shouldn’t be viewed in isolation.

Find out more about return on tangible equity.

Learn more about how tangible equity is calculated and what it says about a company’s liquidity.

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