What is DSCR ?
Debt-Service Coverage Ratio – DSCR
DSCR debt represents the amount of money that is available to meet its debt obligations, including principal payments, annual interest and sinking fund payments. This definition is for corporate finance.
On the other hand, for government finance, DSCR is the amount of earnings from export that are needed to meet principal payments and annual interest on country’s external depts. If the ratio is bigger than 1 it means that the company has enough amount of cash to meet its debt obligations.
When it comes to personal finance, loan officers are using this information to determine income property loans. If the ratio is lower than 1, it means that the potential borrower will not be able to meet its debt.
DSCR formula – DSCR calculation :
DSCR ratio = Net operating income/ total Debt Service
In literature this ratio is called very often debt service ratio, dscr loan etc.