Finance Growth, Operations and Cash Flows through Debt - Finance Exit and Harvest Strategies through Equity & Value Creation
Equipment loans
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Return on Debt (ROD)
Definition: ROD measures the profitability of using borrowed funds.
Calculation: ROD is typically calculated by dividing a company's total interest expense by its average total debt.
Significance: It indicates how effectively a company uses borrowed funds to generate profits. A higher ROD suggests that a company is generating more profit from its debt than the cost of borrowing.
Formula: ROD = Interest Expense / Average Total Debt.
In essence: ROC assesses the overall return on all capital (both debt and equity), while ROD focuses on the profitability of the debt portion of that capital.
