ROE vs ROCE — Which Matters More for Indian Stocks?

ROE and ROCE are the two headline measures of how well a company turns capital into profit — the core of what investors call "quality".

The difference

Return on Equity (ROE) = Net Profit ÷ Shareholders' Equity — the return to owners. Return on Capital Employed (ROCE) = EBIT ÷ (Equity + Debt) — the return on all capital, debt included. ROE can be flattered by heavy borrowing; ROCE can't, which is why it's often the more honest quality gauge.

Using them together

The best businesses show both high and consistent — typically 18%+ ROE and ROCE with low debt. That combination is what powers long-term compounding. Screen for it directly: quality compounders and debt-free, profitable stocks.

Always read ROE/ROCE next to valuation (PE) — a great business at a terrible price is still a poor investment.