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Lease machinery, equipment and fit-outs from ₹25 lakh to ₹100 crore.
Check eligibilityWhat ROCE measures
ROCE compares operating profit with the long-term capital that produced it. Because it counts debt as well as equity, it judges the business rather than the funding mix. It rests on four parts.
1
EBIT: earnings before interest and tax, the profit from operations before any funding costs.
2
Capital employed: total assets less current liabilities, the long-term funds tied up in the business.
3
The same figure seen from the funding side: shareholders' equity plus non-current debt.
4
The benchmark: a ROCE above the cost of capital suggests the business earns more than its funding costs.
ROCE is most useful in capital-heavy sectors such as manufacturing, logistics and healthcare, where large sums sit in plant and equipment. Track it over time and against peers, not as a single number.
When ROCE is the right lens
ROCE suits questions about how well all capital is used. When the question is about shareholders' returns alone, return on equity fits better.
WHAT CHANGES
Use ROCE
Use ROE
Whose return
All capital providers, debt and equity
Shareholders only
Comparing companies
Peers with very different leverage
Peers with similar funding mixes
Capex decisions
Whether a new asset earns its keep
The effect on shareholders' returns
Effect of debt
Largely neutral
Boosts or dents it
How to calculate ROCE
ROCE = EBIT ÷ capital employed × 100, where capital employed is total assets − current liabilities. Many analysts use the average of opening and closing capital employed, so a large purchase late in the year does not distort the result.
Leases under Ind AS 116.
A lease adds a right-of-use asset and a lease liability, so capital employed rises. EBIT is also higher than with rentals expensed, because interest on the lease liability sits below EBIT.
Leases under AS 19.
Operating lease rentals are charged in full within EBIT and the asset stays off the balance sheet, so capital employed is lower.
Compare ROCE across companies only on the same basis: same framework, same definition of capital.
Where ROCE shows up
Testing a new line against current returns
ILLUSTRATIVE
A manufacturer earns EBIT of ₹18 crore. Its total assets are ₹150 crore and current liabilities ₹30 crore, so capital employed is ₹120 crore and ROCE is 15%. A new line costing ₹30 crore is expected to add ₹3 crore of EBIT, a 10% return on its own. Bought with long-term funds, it takes ROCE to ₹21 crore ÷ ₹150 crore = 14%. The CFO also models leasing the line. There the effect on ROCE depends on the rental and on whether the company reports under Ind AS 116 or AS 19, so both routes are tested on the same basis.