Debt service coverage ratio: Difference between revisions

Revision as of 20:39, 31 January 2023

Revision as of 05:51, 22 February 2023

Line 1:

{{inappropriate tone|date=July 2022}}

The '''debt service coverage ratio''' ('''DSCR'''), known as "debt coverage ratio" (DCR), is the ratio of operating income available to [[Debt#Income metrics|debt servicing]] for interest, principal and lease payments. It is a popularfinancial [[Benchmarking|benchmark]]metric used into the measurement ofassess an entity's (person or [[corporation]]) ability to producegenerate enough cash to cover its [[Debt servicing|debt (includingservice]] lease) paymentsobligations. TheThese higherobligations thisinclude ratiointerest, isprincipal, theand easierlease it is to obtain a loanpayments. The phraseDSCR is alsocalculated usedby individing [[Commercialthe Banking|commercialoperating banking]]income andavailable mayfor bedebt expressedservice asby athe minimumtotal ratioamount thatof isdebt acceptableservice to a lender; it may be a loan condition. Breaching a DSCR covenant can, in some circumstances, be an act of [[Default (finance)|default]]due.

The DSCR is widely used as a [[Benchmarking|benchmark]] to measure the ability of an individual or corporation to meet their debt obligations. A higher DSCR indicates that an entity has a greater ability to service their debts, making it easier for them to obtain loans. Banks and lenders often use a minimum DSCR ratio as a loan condition, and breaching this covenant can sometimes be considered an act of [[Default (finance)|default]]. It's an important metric for measuring an entity's financial health and its ability to meet its debt obligations.

==Uses==