What is Debt Service Coverage Ratio?
Debt service coverage ratio (DSCR) is a financial ratio that measures a company's ability to generate sufficient income to pay its debt obligations. It is calculated by dividing the company's net operating income (NOI) by its total debt service (TDS), which includes the principal and interest payments on its outstanding debts.
A DSCR of 1.0 or higher indicates that a company is generating enough income to meet its debt obligations, while a DSCR below 1.0 suggests that the company is not generating sufficient income to cover its debts. A low DSCR may indicate that a company is at risk of defaulting on its debts and may have difficulty obtaining additional financing.
DSCR is a commonly used financial ratio in the real estate industry, as it is a key indicator of a property's financial performance and its ability to generate sufficient income to meet its debt obligations. It is also used by lenders to evaluate the creditworthiness of a borrower and to determine the risk of lending to a particular borrower.
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