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What is DSCR (Debt Service Coverage Ratio) and how it is calculated?
Measure of the cash flows, available to pay current debt obligations.
EBIT (1-t)
Interest Cost
How to Calculate the Debt Service Coverage Ratio
In order to calculate the debt service coverage ratio, you need to know:
The net operating income (NOI) the business earned during the previous months (or whatever measure of cash flow the lender defined in the bank loan covenant)
The amount of principle, interest, and sometimes lease payments (Debt Service) paid to the lender and others for the previous months
Divide the NOI by the Debt Service and you will have a value which should be taken to the second decimal point.
For example, if a business NOI was $, and its Debt Service for the same period is,, then the Debt Service Coverage Ratio would be1. to1. ($, divided by,). If the lender requires a debt service coverage ratio of1. to1.0, this business would exceed the requirement and be in compliance with its bank loan covenant. If on the other hand, the debt service coverage ratio was less than1.0, then the borrowing business would be producing ‘negative cash flow’ which is not desirable.
1. The debt ratio = total liabilities / total assets are percentage and expresses the ratio of how the administration adopted on third party funds to finance asset structure
2. ownership ratio = total equity / total assets and be a percentage and reflect the ratio of how the administration adopted the angel funds and other reserves
In finance assets structure
3. The coverage ratio of total debt = total Asolo short-term / short-term liabilities total and be the number of times and reflect the extent of current assets to cover short-term commitments and that the capacity of less than one year
company's ability to service its current debts by comparing its net operating income with its total debt service obligations.
DSCR = Net Operating Income / Total Debt Service
DSCR is the ratio calculated for identifying a company's ability to cover the current debt liabilty, i.e. the principal and interest. The formula is simple, calculate the net operating income (fund available for servicing the debt) and divide it by the current principal payment plus interest (Annually, to which such Net operating income corresponds).
DSCR= Net operating Income
Principal + Interest
DSCR is the ratio calculated for identifying a company's ability to cover the current debt liabilty, i.e. the principal and interest.
DSCR= Net operating Income Principal + Interest
To calculate the debt service coverage ratio, simply divide the net operating income (NOI) by the annual debt. What this example tells us is that the cash flow generated by the property will cover the new commercial loan payment by1.x. This is generally lower than most commercial mortgage lenders require.
