ROE vs ROIC: telling a good business from well-used debt

Both measure profitability — how much a company earns on capital. But they answer different questions, and mixing them up makes you overpay for a company that only looks profitable.

ROE — the shareholder's return

ROE = Net income ÷ Shareholders' equity

ROE (Return on Equity) tells you how much profit the company earned on the owners' money. It's the metric shareholders feel directly. The catch: it can be inflated by leverage. A company that borrows to operate on little equity shows a high ROE — one that embeds debt risk, not just business quality.

ROIC — the return of the operation

ROIC = NOPAT ÷ Invested capital

ROIC (Return on Invested Capital) measures the return of the operation itself, regardless of how it's financed. It uses NOPAT (operating profit after tax, before financial expenses) over invested capital (debt + equity − cash). By ignoring financing structure, ROIC answers the question that matters most: is this business good?

Reading them together. ROE well above ROIC usually signals leverage — debt is amplifying the return (and the risk). ROIC above ROE shows up in companies with lots of cash or low debt (cash inflates equity and dilutes ROE, but doesn't count as operating capital). A consistently high ROIC, year after year, is the fingerprint of a real competitive advantage.

Real B3 examples (2024)

Ticker	Company	ROIC	ROE
WEGE3	WEG	38.0%	30.6%
VALE3	Vale	18.7%	15.9%
TOTS3	Totvs	18.7%	15.3%
LREN3	Lojas Renner	12.8%	11.5%
RENT3	Localiza	9.8%	7.0%

WEG's 38% ROIC (vs. 30.6% ROE) shows a company that earns a lot on little operating capital and still carries cash — the picture of a high-quality business, not of well-used debt. Single-digit returns, year after year, warrant caution: they may not even cover the cost of capital.

How Dados B3 computes it

ROIC is the most elaborate indicator in our database, and therefore the most exposed: we publish NOPAT (with the effective tax rate, capped between 0% and 45%), invested capital (gross debt + equity − cash − financial investments), and use the average capital between the start and end of the year. Every source CVM account is recorded. Extreme returns (|ROIC| above 200%, typical of shell holdings) come flagged — the number travels with its "trust less" warning.

Create a free key

Honest limitations

Banks and insurers have no ROIC (there's no "invested capital" in the operating sense — debt is the business); for them, ROE is the ruler.
ROE and ROIC are backward-looking: they measure the past, not the future.
Not investment advice. High profitability at a high price can still be a bad deal.