ROTE = Net income / Average tangible common equity ; Tangible equity = Total equity - Goodwill - Intangibles
ROTE strips goodwill out of equity for a cleaner return on real capital.
What it is
Return on tangible equity (ROTE) measures net income against tangible equity, which is shareholders' equity minus goodwill and other intangible assets. It shows the return a company earns on the hard, physical capital owners actually funded. It is a tougher version of return on equity (ROE).
Why it matters
Companies that grow by acquisition pile up goodwill, which inflates equity and makes ordinary ROE look lower than the underlying business really is. ROTE removes that distortion and is widely used to compare banks and serial acquirers. A high ROTE signals the core operations generate strong returns on real capital.
How it's calculated
Divide net income (often income available to common shareholders) by average tangible common equity, where tangible equity equals total equity minus goodwill and intangible assets (and minus preferred equity when isolating common holders).
How Quintarthai uses it
Equity, net income, goodwill, and intangibles needed for ROTE are shown on the Financials and Ratios tabs of a company deep-analysis page.
Cross-border note. ROTE is a headline metric for both US and Canadian banks; both report under similar fair-presentation standards, but compare each bank in its own currency since CAD and USD results are not directly additive.
FAQ
How is ROTE different from ROE?
ROE divides profit by total shareholders' equity. ROTE divides by tangible equity, which excludes goodwill and intangibles. For an acquisition-heavy company ROTE is usually higher than ROE.
Why is ROTE popular for banks?
Banks frequently grow by buying other banks, creating goodwill. ROTE strips that out so investors can compare how efficiently each bank earns on its real, loss-absorbing capital.
Check your understanding
For a bank that has grown largely by acquiring other banks, how will ROTE typically compare to ordinary ROE, and why?
Acquisitions create goodwill that inflates total equity; stripping it out lowers the denominator, so ROTE comes out higher than ROE for serial acquirers.