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A credit analyst at a bank will measure the cash generated by a business (before interest expense and excluding depreciation and any other non-cash or extraordinary expenses). The debt service coverage ratio divides this cash flow amount by the debt service (both principal and interest payments on all loans) that will be required to be met. Commercial Bankers like to see debt service coverage of at least120 percent. In other words, the debt service coverage ratio should be1.2 or higher to show that an extra cushion exists and that the business can afford its debt requirements.
The debt service coverage ratio or DSCR is a financial ratio that measures a company's ability to service its current debts by comparing its net operating income with its total debt service obligations.
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Mr. Vinod
DSCR is ratio in relation to monitory earnings which are available to service the debts after meeting the operating expenses and with an allowance for owners' needs also i.e repayment of interest and principal amount; when the cash returns are more the repayments are assured.
The debt service coverage ratio measures the ability of a revenue-producing property to generate sufficient cash to pay for the cost of all related mortgage payments.
