Decoding RoIC, RoE, and RoCE

I find Dalal Street magazine’s stories highly insightful. I came across a section on RoIC in the last issue. Could you help me understand how it differs from RoE and RoCE? - Richa Joshi [EasyDNNnews:PaidContentStart]

Editor Responds: We appreciate your kind words of encouragement. Return on Invested Capital (RoIC), Return on Equity (RoE), and Return on Capital Employed (RoCE) are key profitability metrics, but they measure efficiency from different perspectives. RoIC evaluates how effectively a company generates returns from all invested capital—both equity and debt. It is widely considered a comprehensive measure of value creation, especially when compared against the firm’s cost of capital.

RoE focuses solely on shareholders’ equity. It highlights how efficiently a company uses owners’ funds to generate profits, making it a favourite among equity investors. RoCE, meanwhile, measures return on total capital employed (equity plus debt) but is typically based on operating profit (EBIT). It helps gauge how well core operations utilize capital before financing costs. In short, while RoE shows shareholder returns, RoCE emphasizes operating efficiency, and RoIC offers the most holistic view of overall capital productivity.

[EasyDNNnews:PaidContentEnd] [EasyDNNnews:UnPaidContentStart]

[EasyDNNnews:UnPaidContentEnd]