Return On Debt - ROD

What is 'Return On Debt - ROD'

1. A measure of a company's performance or net income as related to the amount of debt it has issued.

2. The amount of profit generated for each dollar that a company holds in debt.

3. 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.

BREAKING DOWN 'Return On Debt - ROD'

Return on debt (ROD) is a complex financial modeling skill and not a commonly used financial reporting factor.

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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