Debt Service Coverage Ration - Meaning, understanding the DSCR
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The Debt Service Coverage Ratio (DSCR) is a financial metric that evaluates an entity's ability to generate enough cash to meet its debt obligations, including interest and principal payments. It is calculated by dividing net operating income by total debt service, with a DSCR greater than 1 indicating financial health. A DSCR of 1 signifies that income just covers debt payments, while a DSCR of 1.25 indicates income is 1.25 times more than the required debt obligations.
Debt Service Coverage Ration - Meaning, understanding the DSCR
- 1. Debt Service Coverage Ratio (DSCR) • Ca Manmohan Jindal • RV-SFA, Ex-Canara Bank - Mumbai • manmohanjindal21@gmail.com • 8850385224 • https://taxguru.in/author/manmohanjindal21_5224/ • https://www.linkedin.com/in/manmohanjindal/ • https://twitter.com/MANMOHANJINDAL2 • https://www.youtube.com/@camanmohanjindal
- 2. DSCR • The Debt Service Coverage Ratio (DSCR)- • Is a financial metric • It is used to assess an entity’s ability to generate enough cash to cover its debt service obligations. • These obligations include interest, principal, and lease payments. • In other words, DSCR measures a company’s available cash flow relative to its debt payments. • Lenders and investors use DSCR to determine whether a business has sufficient net operating income to repay its loans.
- 3. Formula • The formula for calculating DSCR involves dividing net operating income by total debt service, which includes both principal and interest payments
- 4. • It measures the ratio of the property’s net operating income (NOI) to its debt service (i.e., loan payments). • Mathematically, it can be calculated as: • A DSCR greater than 1 signifies financial health, as it indicates that the property’s income exceeds its debt obligations. • A DSCR of 1 indicates that the Income generates is just enough income to cover its debt payments • For example, a DSCR of 1.25 means that the property’s cash flow is 1.25 times the amount needed to meet its debt obligations
- 5. • Thanks • Ca Manmohan Jindal • manmohanjindal21@gmail.com • 8850385224 • Adv. Abhay Jindal • 7021113005 • abhayjindal12@gmail.com