ROE vs ROCE – Which Ratio to Trust for Quality Investing?

📈 Both ROE (Return on Equity) and ROCE (Return on Capital Employed) are key profitability indicators – but they reveal different truths. 🔹 ROE = Net Profit / Shareholders’ Equity Shows how efficiently a company is using shareholder funds. ⚠️ But ROE can be artificially inflated by high debt. 🔹 ROCE = EBIT / (Equity + Debt – Cash) It shows how effectively total capital (including debt) is used. ✅ A better indicator of business efficiency, especially for capital-intensive sectors like manufacturing, infra, etc. 📌 Thumb Rule: ROE > 15% and stable → Good ROCE > 15% and higher than ROE → Excellent capital allocation ROE >> ROCE → Check for high leverage 🧠 For long-term investments, I prefer high and consistent ROCE over just a high ROE.