What if
1.roce is greater than roe means and
2.roe greater than roce means and
how to interpret it?
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ROE= PAT/Sh. Equity
ROE shows only the the return on Equity investments. It does not consider the effect of Debt. So, it maybe possible that a company has a very high ROE but this high ROE is on account of High Leverage i.e Debt.
For example: A company has own funds i.e Shareholder’s equity. Rs. 1000 and Debt funds or Loan of Rs. 4000
ROE= 15000/1000= 15%
Wheras, ROCE= PAT/ Capital employed i.e Debt + Equity
ROCE= 15000/1000+4000
= 3%
See the difference, with Debt your ROE becomes 15%
So, ROCE is a better measure as it considers Debt into consideration which is one of the most important factors while considering investing in any company.
Thank you sir