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Debt Coverage Ratio:
What is Debt Coverage Ratio?
The Debt Coverage Ratio or Debt Service Coverage Ratio (DSCR) is a measure of the cash flow available to pay current debt obligations. It compares the subject net operating income to the proposed mortgage debt service (annual basis).
DSCR = Net operating income / Total debt service
A company shows its income statement with an operating income of $200,000. For the same period the debt payment is $35,000. According to the above formula, the company would show a debt coverage ratio of 5.71.