ROCE vs ROE: which matters more when picking Indian stocks?
Return on equity (ROE) measures profit on the shareholders’ money. Return on capital employed (ROCE) measures profit on all the money in the business, borrowed and owned. The difference matters because debt can make ROE look better than the business really is.
A simple example
Two shops each earn ₹20 lakh on ₹1 crore of capital. The first is funded fully by its owners, so its ROE and ROCE are both about 20%. The second borrowed ₹60 lakh, so its owners put in only ₹40 lakh. After interest its ROE can look like 35%, even though the shop is no better. ROCE shows both at about 20%.
Large caps with the highest ROCE and modest debt
| Company | Sector | ROCE | ROE | Debt/equity |
|---|---|---|---|---|
| Procter & Gamble Hygiene and Health Care Ltd | Consumer Staples | 135.4% | 114.9% | 0x |
| Colgate-Palmolive (India) Ltd | Consumer Staples | 107.4% | 81.6% | 0.03x |
| ICICI Prudential Asset Management Company Limited | Financials | 104.4% | 85.8% | 0x |
| Gillette India Ltd | Consumer Staples | 84.6% | 66.4% | 0x |
| SBI Funds Management Ltd | Financials | 66.2% | 43% | 0x |
| Hindustan Zinc Ltd | Materials | 62.4% | 76.9% | 0.39x |
| Page Industries Limited | Consumer Discretionary | 61.5% | 52.5% | 0.18x |
| Britannia Industries Ltd | Consumer Staples | 61.3% | 53.2% | 0.27x |
| GE Vernova T&D India Ltd | Industrials | 59.2% | 55.3% | 0.01x |
| Nestle India Ltd | Consumer Staples | 56.1% | 76.3% | 0.09x |
| Tata Consultancy Services Ltd | Information Technology | 55.5% | 48.2% | 0.1x |
| GlaxoSmithKline Pharmaceuticals Ltd | Health Care | 55.4% | 49.1% | 0.01x |
| Anand Rathi Wealth Ltd | Financials | 48.6% | 46.6% | 0.08x |
| 3M India Ltd | Industrials | 47.5% | 28.9% | 0.1x |
| HBL Engineering Ltd | Industrials | 46.6% | 44.1% | 0.03x |
| Oracle Financial Services Software Ltd | Information Technology | 43.5% | 32.6% | 0x |
| Abbott India Ltd | Health Care | 41.9% | 34.5% | 0.04x |
| BSE Ltd | Financials | 41.4% | 43.9% | 0x |
| Indian Railway Catering and Tourism Corporation Ltd | Communication Services | 41.1% | 35% | 0.02x |
| Nippon Life India Asset Management Ltd | Financials | 40.5% | 34.5% | 0.02x |
When ROE runs far ahead of ROCE
These companies show an ROE more than 8 points above their ROCE and carry more debt than equity. That gap is not automatically bad, but it means borrowing is doing part of the work.
| Company | ROE | ROCE | Debt/equity |
|---|---|---|---|
| Bajaj Finance Ltd | 17.6% | 5.1% | 3.72x |
| Shriram Finance Limited | 16.4% | 4.2% | 3.8x |
| Tata Capital Ltd | 11.9% | 2.5% | 5.02x |
| Cholamandalam Investment and Finance Company Ltd | 19.3% | 3.1% | 6.93x |
| Muthoot Finance Ltd | 30.4% | 8.7% | 3.82x |
| Power Finance Corporation Ltd | 15.8% | 3.7% | 5.84x |
| Aditya Birla Capital Ltd | 11.2% | 2.6% | 4.88x |
| Indian Railway Finance Corp Ltd | 12.8% | 1.4% | 7.69x |
| Lloyds Metals and Energy Ltd | 31.3% | 19.4% | 1.05x |
| REC Limited | 20% | 3.5% | 6.05x |
Which should you use?
Use ROCE to judge the quality of the business and ROE to judge what shareholders actually earn. The strongest companies usually show both above 15%, sustained for several years, with little debt. For banks, ROE and return on assets are the right measures, because borrowing is their product.
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DecideChart is an AI-based research tool from Akshay Lakshay Kotish Private Limited. It is not linked to SEBI, BSE or NSE and does not give investment advice. Figures come from open market data and can lag company filings.