Return on equity (ROE) and return on capital employed (ROCE) both measure how effectively a company turns the capital invested in it into profit, but each defines "capital" differently, and the difference is what makes them complementary rather than interchangeable.

ROE is net profit divided by total shareholders' equity, expressed as a percentage. It measures return specifically on the capital shareholders have contributed and retained in the business, after every other claim on the company — debt repayment, tax — has already been accounted for in arriving at net profit.

ROCE is operating profit divided by capital employed (broadly, total assets minus current liabilities), expressed as a percentage. It measures return on the full capital base funding the business — both equity and debt — before the effect of how that capital happens to be financed. Because it uses operating profit rather than net profit, ROCE is also unaffected by a company's tax rate or its finance costs, making it more directly comparable across companies with different capital structures.

The relationship between the two is informative on its own. A company with ROE well above ROCE is typically using a meaningful amount of debt: borrowing costs less than the returns generated on that borrowed capital, and the gap between the two enlarges the return left over for shareholders specifically. This app's DuPont breakdown, shown on each company's detail page, decomposes ROE into exactly three factors that explain where that return comes from: net margin (how much profit is kept per rupee of sales), asset turnover (how much revenue is generated per rupee of assets), and equity multiplier (how many rupees of assets are funded by each rupee of equity — the leverage effect). Multiplying the three together reconstructs ROE, making visible whether a given ROE is driven mainly by profitability, by efficient use of assets, by leverage, or by some combination.

Both figures are calculated from a single reporting period's numbers, so a one-off event — a large asset sale, a major write-down — can move either sharply in a way that doesn't reflect an ongoing change. Reading either across several periods, rather than one period alone, shows whether a given level is typical for that company or an outlier.