Return On Debt (ROD)

Return On Debt (ROD) is a measure of a company's net income versus the amount of debt it has issued. Return on debt (ROD) is not a commonly used financial reporting factor. 

Return On Debt (ROD)

Return On Debt (ROD) is a measure of a company's net income versus the amount of debt it has issued.

 


Return On Debt Formula

Return On Debt formula:  ROD = Net Income / Long Term Debt

Interpretation of Return On Debt

Return on debt (ROD) is not a commonly used financial reporting factor. However, it is a necessary factor when using the Adjusted Present Value (APV) discounted cash flow method for valuing levered assets. The APV method is often used in a leveraged buyout as a way of valuing a firm that has a changing capital structure.

Companies that carry significant amounts of debt relative to capital and/or assets are more at risk during an economic downturn when earnings are likely to decline and credit measures may be tightened.


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