Financial Terms / debt service coverage ratio

# Debt Service Coverage Ratio Explained

The debt-service coverage ratio is a vital measure in government finance, as lenders demand a certain minimum DSCR depending on the current economic climate.

## Formula

``Debt Service Coverage Ratio (DSCR) = Net Operating Income (NOI) / Total Debt Service (TDS)``

## How do I calculate the debt service coverage ratio?

```A company's Debt Service Coverage Ratio (DSCR) is an important metric to calculate in order to gauge its ability to meet its current debt obligations. DSCR is calculated by dividing a company's Net Operating Income (NOI) by its Total Debt Service (TDS).

Formula: `Debt Service Coverage Ratio (DSCR) = Net Operating Income (NOI) / Total Debt Service (TDS)`

In order to calculate DSCR, companies should first calculate their NOI by subtracting operating expenses from revenue. They should then calculate their TDS by summing up the annual principal and interest payments on all debt.

By calculating their DSCR, companies can have a better understanding of their financial health and stability. Companies should use applications such as  Sourcetable to calculate their DSCR.```

## What is the Debt Service Coverage Ratio?

`The Debt Service Coverage Ratio (DSC) is a credit measure used to analyze a borrowerâ€™s ability to repay their debt obligations. It is calculated by dividing a borrowerâ€™s net operating income by their total debt service (principal and interest payments).`

## What is included in the denominator of the DSC?

`The denominator of the DSC includes the borrower's total debt service, which includes both principal and interest payments.`

## How often is the DSC calculated?

`The DSC is calculated on an annual basis.`

## What is the formula for calculating the DSC?

`The formula for calculating the DSC is `Net Operating Income / Total Debt Service`.`

## Key Points

How do I calculate debt service coverage ratio?
`Debt Service Coverage Ratio (DSCR) = Net Operating Income (NOI) / Total Debt Service (TDS)`
Debt Service Coverage Ratio
The debt service coverage ratio is a key measure of a company's financial health. It reveals a company's creditworthiness and financial prospects by measuring its ability to cover its debt obligations with available income.
Measuring Capacity to Finance Growth
The debt service coverage ratio is used to evaluate a company's capacity to finance future growth. Higher ratios indicate that a company has more available income to pay off its debts, while lower ratios indicate that a company may need to restructure its finances or seek additional financing.