Financial modelling terms explained

Debt Service Coverage Ratio

The debt service coverage ratio (DSCR) is a measure of a company's ability to meet its financial obligations. It is calculated by dividing a company's operating income by its total debt service

What Is the Debt Service Coverage Ratio?

The Debt Service Coverage Ratio, or DSCR, is a measure of a company's ability to repay its debt. The ratio is calculated by dividing a company's annual net operating income by its annual debt service payments. A higher DSCR indicates that a company has more available cash to make debt payments.

The DSCR is an important measure for lenders when assessing a company's credit risk. A high DSCR indicates that a company is able to service its debt and is less likely to default. Lenders will typically require a DSCR of 1.5 or higher from companies seeking to borrow money.

A company's DSCR can be affected by a variety of factors, including changes in sales, operating expenses, or debt payments. It is important to monitor a company's DSCR over time to ensure that it remains healthy and is able to meet its debt obligations.

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