RoCE (Return on Capital Employed) - Utility Of This Financial Ratio Explained With Examples

Article: https://getmoneyrich.com/roce-vs-roe/

For share market investors, it is useful to know what is RoCE. Moreover, seeing “RoCE vs ROE” in conjunction can unearth future potential of a company.

By simply looking at ROE and RoCE formula, immediate difference between the two can be identified.

WHAT IS ROE AND ROCE?
Both these metrics are a measure of company’s profitability. Means, they highlight how well the company uses its funds (capital). But ROCE gives a better measure of company’s profitability than ROE. How?

ROE: Return on Equity (ROE) is a measure of how much net profit company is making for every invested Rupee of shareholders money. ROE highlights the profitability from the point of view of ‘investors’ only. High ROE does not necessarily mean that the overall business is also profitable.

RoCE: Return on Capital Employed (RoCE) is a measure of how much operating profit (EBIT) company is making for every Rupee of capital used for its operations. RoCE highlights the profitability of the overall business. High RoCE invariably means that the business is profitable. But there are limitations.

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