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The debt service coverage ratio (DSCR), also known as "debt coverage ratio" (DCR), is a financial metric used to assess an entity's ability to generate enough cash to cover its debt service obligations, such as interest, principal, and lease payments. The DSCR is calculated by dividing the operating income by the total amount of debt service due.
Debt-service coverage ratio (DSCR) looks at a company's cash flow versus its debts. The ratio is used when gauging a business's ability to pay off current loans and take on future financing.
The Loan life cover ratio (LLCR), similarly is the ratio of the net present value of the cash flow over the scheduled life of the loan to the outstanding debt balance in the period. Other ratios of this sort include: Cash flow available for debt service [clarification needed] Drawdown cover ratio; Historic debt service cover ratio
Commercial bankers prefer a DSCR of at least 120 percent. In other words, the debt service coverage ratio should be 1.2 or higher to show that an extra cushion exists and that the business can afford its debt requirements.
For example, the debt-to-equity ratio and interest coverage ratios are supplemental ways to see how leveraged a company is. Remember that a high debt-to-assets ratio isn’t necessarily a bad thing.
An annualized mortgage constant can be found by multiplying the monthly constant by 12 or by dividing the annual debt service by the mortgage principal. [1] A mortgage constant is a rate that appraisers determine for use in the band of investment approach. It is also used in conjunction with the debt-coverage ratio that many commercial bankers use.
For this example, divide your monthly debt payments ($2,400) by your total monthly gross income ($6,000). In this case, your total DTI would be 0.40, or 40 percent. To confirm your number, use a ...
Times interest earned (TIE) or interest coverage ratio is a measure of a company's ability to honor its debt payments. It may be calculated as either EBIT or EBITDA divided by the total interest expense .