Return on equity (ROE) and return on capital (ROC) measure very similar concepts, but with a slight difference in the underlying formulas. Both measures are used to decipher the profitability of a company based on the money it had to work with.
Return on equity measures a company's profit as a percentage of the combined total worth of all ownership interests in the company. For example, if a company's profit equals $2 million for a period, and the total value of the shareholders' equity interests in the company equals $100 million, the return on equity would equal 2% ($2 million divided by $100 million).
Return on capital essentially is the same formula as return on equity, but with the addition of one component. Return on capital, in addition to using the value of ownership interests in a company, also includes the total value of debts owed by the company in the form of loans and bonds.
For example, if the company in the first example also owed $100 million in debts, the return on capital would drop to 1% ($2 million divided by the sum of $100 million in equity and $100 million in debts).
Both measures are wellknown and trusted benchmarks used by investors and institutions to decide between competing investment options. All other things being equal, most seasoned investors would choose to invest in a company with a higher ROE and ROC.
For more on this topic, read Looking Deeper into Capital Allocation and Keep Your Eyes on the ROE.
This question was answered by Ken Clark

What level of return on equity is common for a company in the banking sector?
Discover what the average return on equity (ROE) ratio is for companies in the banking industry, and understand the significance ... Read Answer >> 
Should I expect growth or income from buying stock in the consumer packaged goods ...
Find out how annual returns are expressed in financial statements. How do fundamental investors measure annual returns? What ... Read Answer >> 
What is the difference between cost of equity and cost of capital?
Read about some of the differences between a company's cost of equity and its cost of capital, two measures of its required ... Read Answer >> 
What is the average return on equity for a company in the financial services sector?
Learn the importance of calculating a company's return on equity and what businesses in the financial services industry average ... Read Answer >> 
What is the difference between a company's equity and its shareholders' equity?
Understand the difference and the interrelationship between shareholders' equity in a company and the company's actual total ... Read Answer >> 
What is the difference between ROCE and ROE?
Discover how investors and analysts utilize the return on equity and return on capital employed ratios to gauge financial ... Read Answer >>

Economics
How Return On Equity Can Help You Find Profitable Stocks
It pays to invest in companies that generate profits more efficiently than their rivals. This is where ROE comes in. 
Professionals
Return on Investment Ratios
CFA Level 1  Return on Investment Ratios. Operating profitability looks at two forms of ratios. This section covers the return on investment ratios, such as ROA and ROE. 
Markets
Profitability Indicator Ratios: Return On Equity
By Richard Loth (Contact  Biography)This ratio indicates how profitable a company is by comparing its net income to its average shareholders' equity. The return on equity ratio (ROE) measures ... 
Investing Basics
Explaining Market Value of Equity
Market value of equity is the total value of all the outstanding stock as measured in the stock market at a particular time. 
Professionals
Return on Equity and the Dupont System
CFA Level 1  Return on Equity and the Dupont System. Learn how the DuPont system shows the interrelationship between financial ratios. Shows how to calculate and manipulate the DuPont Formula. 
Stock Analysis
Analyzing UPS's Return on Equity (ROE) (UPS)
Learn about UPS's return on equity (ROE), an important metric for investors. It is useful to compare the historical ROE and in relation to peers. 
Professionals
Risk and Return Measures
Risk and Return Measures 
Fundamental Analysis
How Do Tech Companies Measure ROA And ROE?
The return on Assets (ROA) and return on equity (ROE) are often used metrics to measure the returns generated by a company. 
Fundamental Analysis
The Value of Profitability Ratios
How is a company being run? Is it generating profits? The answer to these questions lies in analyzing the profitability ratios of a company. 
Professionals
Rates of Return
FINRA/NASAA Series 66 Section 1  Rates of Return. In this section internal rate of return (IRR), real return, expected return and riskadjusted return.

Return On Equity  ROE
The amount of net income returned as a percentage of shareholders ... 
Return on Market Value of Equity  ROME
Return on market value of equity (ROME) is a comparative measure ... 
Equity Market Capitalization
A measure of the total market value of an equity market. The ... 
Return On Average Equity  ROAE
An adjusted version of the return on equity (ROE) measure of ... 
Return On Capital Gains
The return that one gets from an increase in the value of a capital ... 
Equity
Equity is the value of an asset less the value of all liabilities ...