Learn·Ratios & valuation
What is the difference between ROE and ROCE?
ROE (return on equity) measures profit generated on shareholders’ money alone; ROCE (return on capital employed) measures operating profit on all long-term capital — equity and debt together. Read side by side, they separate businesses that earn well from businesses that merely borrow well.
What each ratio isolates
ROE divides net profit by shareholders’ equity: the return an owner’s rupee earned. ROCE divides operating profit (EBIT) by equity plus debt: the return the business earns on everything invested in it, before deciding how the financing is split. A company can raise its ROE simply by adding debt — the same profit spread over less equity — which is why a high ROE with a much lower ROCE is a leverage story, not an operating one.
When the two are high and close, the business itself earns strong returns without leaning on borrowed money. The gap between them, tracked over years, is one of the fastest reads on how a company really makes its returns.
Where the comparison does not apply
For banks and NBFCs the ROE-versus-ROCE lens fails by construction: borrowing money is their raw material, not a financing choice, so “capital employed” and EBIT lose their meaning. Lenders are assessed on ROE alongside ROA, net interest margins and asset quality instead — comparing a bank’s ROCE to a manufacturer’s is a category error.
For everyone else, return ratios read best over full cycles and against the company’s cost of capital. Solomo’s company pages compute return ratios from reported financials across the listed universe, and the screener filters on both ROE and ROCE — including screening for the high-and-close pattern directly.
Frequently asked questions
Can ROCE be lower than ROE?
Yes, and it is common in leveraged companies: debt magnifies the equity return while diluting the return on total capital. The reverse — ROCE above ROE — typically appears in companies with large cash holdings or unusually low leverage.
Why do different sources show different ROE for the same company?
Definitions vary: opening, closing or average equity in the denominator; standalone or consolidated profits; whether exceptional items are stripped out. As with P/E, comparisons require identically computed numbers.
What counts as capital employed?
Most commonly equity plus long-term debt (equivalently, total assets minus current liabilities). Definitions differ at the margins — short-term borrowings, cash — which is another reason cross-source ROCE numbers rarely match exactly.
Explore the data
Screen by ROE, ROCE and leverage togetherWhat is the P/E ratio?How to read an annual reportEducational content derived from public exchange filings and regulations. Not investment advice.