ROE and ROCE: How well the company uses its money
How to calculate return on equity and return on capital employed, what good ROE looks like, and why ROE built on debt is less impressive.
ROE tells you how hard your money works
| Measure | FY20 | FY21 | FY22 | FY23 | FY24 |
|---|---|---|---|---|---|
| Net profitleft after interest and tax, ₹ crore | 90 | 110 | 128 | 150 | 174 |
| Equityshareholders’ money, ₹ crore | 600 | 660 | 720 | 790 | 870 |
| ROEnet profit ÷ equity | 15.0% | 16.7% | 17.8% | 19.0% | 20.0% |
| ROCEoperating profit ÷ (debt + equity) | 21.4% | 24.0% | 25.6% | 27.6% | 29.7% |
Return on equity (ROE) is net profit ÷ shareholders’ money. A company with 20% ROE earns ₹20 a year on every ₹100 its owners have in it. ROCE does the same using all capital, debt included.
What to look for
- ROE: above 15% is good; above 20% for years is excellent.
- ROCE: should be well above the interest rate the company pays.
- Rising ROE means the business is getting better at turning money into profit.
High ROE built on heavy debt is less impressive. Check debt alongside it.
In FY24 net profit was ₹174 crore and equity ₹870 crore. What is the ROE?
- About 20%
- About 5%
- About 50%
Show the answer
About 20%. 174 ÷ 870 = 0.20, or 20%. The company earned ₹20 for every ₹100 of shareholders’ money.
What the numbers showed
FY23: ₹150 crore of profit on ₹790 crore of equity is 19%. ROE has risen every year, a sign of a business getting stronger.
High ROE built on heavy debt is less impressive. Check debt alongside it.
Practise ROE and ROCE, free
Reading about it is step one. In MarketSeekho you look at a company’s numbers, make a call, say why, and get graded on your reasoning, not luck.
Common questions
What is ROE and ROCE?
Return on equity (ROE) is net profit ÷ shareholders’ money. A company with 20% ROE earns ₹20 a year on every ₹100 its owners have in it. ROCE does the same using all capital, debt included.
What should I look for in roe and roce?
ROE: above 15% is good; above 20% for years is excellent. ROCE: should be well above the interest rate the company pays. Rising ROE means the business is getting better at turning money into profit.
In FY24 net profit was ₹174 crore and equity ₹870 crore. What is the ROE?
About 20%. 174 ÷ 870 = 0.20, or 20%. The company earned ₹20 for every ₹100 of shareholders’ money.
How can I practise roe and roce for free?
MarketSeekho has a free four-page chapter on ROE and ROCE (learn, answer a question, spot it in a company’s numbers, then make a call) and an unlimited Better business practice game graded on your reasoning. No sign-up or money needed.