Enter the annual net income ($) and the average long-term debt ($) into the Return on Debt Calculator. The calculator will evaluate and display the Return on Debt.

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## Return on Debt Formula

The following formula is used to calculate the Return on Debt.

ROD = ANI / ALD * 100

- Where ROD is the Return on Debt (%)
- ANI is the annual net income ($)
- ALD is the average long-term debt ($)

To calculate the return on debt, divide the annual net income by the average long-term debt, then multiply by 100.

## How to Calculate Return on Debt?

The following example problems outline how to calculate Return on Debt.

Example Problem #1:

- First, determine the annual net income ($).
- The annual net income ($) is given as: 50,000.

- Next, determine the average long-term debt ($).
- The average long-term debt ($) is provided as: 375,000.

- Finally, calculate the Return on Debt using the equation above:

ROD = ANI / ALD * 100

The values given above are inserted into the equation below and the solution is calculated:

ROD = 50,000 / 375,000 * 100 = 13.33 (%)

## FAQ

**What is the significance of calculating Return on Debt (ROD)?**

Calculating Return on Debt helps businesses and investors understand the efficiency with which a company is using its debt to generate net income. It’s a measure of financial performance that indicates how well a company can turn its debt into profits, which is crucial for assessing the financial health and operational efficiency of a business.

**Can Return on Debt be negative, and what does it signify?**

Yes, Return on Debt can be negative if a company has a negative annual net income, meaning it is operating at a loss. A negative ROD indicates that the company is not generating enough income to cover its debts, which could be a red flag for investors and creditors about the company’s financial stability and risk level.

**How does Return on Debt compare to other financial metrics like ROI or ROE?**

Return on Debt (ROD) specifically measures the efficiency of a company’s debt usage in generating profits. In contrast, Return on Investment (ROI) measures the overall efficiency of an investment in generating profits, and Return on Equity (ROE) measures the profitability of a company from the shareholders’ perspective. Each metric provides insights into different aspects of financial performance, with ROD focusing on debt management, ROI on investment returns, and ROE on equity efficiency.