Debt service coverage ratio: Difference between revisions

Revision as of 11:42, 12 October 2016

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==Calculation==

In general, it is calculated by:

:<math> \text{DSCR} = \text{Net Operating Income} / \text{Debt ServicesService} </math>

where:

:<math>\text{Net Operating Income} = \text{Net Income} + \text{Amortization and Depreciation} + \text{Interest Expense} + \text{Other Non-cash Items} </math>

:<math>\text{Debt ServicesService} = \text{Principal Repayment} + \text{Interest Payments} + \text{Lease Payments} </math> <ref name="freedictionary" />

To calculate an entity’s debt coverage ratio, you first need to determine the entity’s [[net operating income]]. To do this you must take the entity’s total income and deduct any vacancy amounts and all operating expenses. Then take the net operating income and divide it by the property’s annual debt service, which is the total amount of all interest and principal paid on all of the property’s loans throughout the year.