How do you compute the debt service coverage ratio (DSCR), and what does it measure?
- Operating income (or EBITDA) over total debt service (interest plus principal); above 1.0 means it is covered
- Net income divided by total debt outstanding; a ratio above 1.0 means earnings exceed the entire debt balance
- Total assets divided by total debt, measuring whether the asset base is large enough to back the borrowings
- Revenue divided by annual interest expense, showing how many times sales cover the cost of the debt
- Cash on hand divided by debt coming due, showing whether liquid funds alone can retire near-term obligations
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