What is DSCR and it's calculation? Ideal Ratio and it's relevance.

Question

Accepted Answer

DSCR is Debt Service Coverage Ratio, a measure of a company's ability to repay its debt. It is calculated by dividing net operating income by total debt service.

DSCR is a financial ratio used by lenders to assess the creditworthiness of a borrower.
It measures the cash flow available to cover debt payments.
The formula for DSCR is: DSCR = Net Operating Income / Total Debt Service.
A higher DSCR indicates a better ability to repay debt.
An ideal DSCR ratio varies depending on the industry, but generally, a ratio above 1.25 is considered good.
For example, if a company has a net operating income of $500,000 and total debt service of $400,000, the DSCR would be 1.25.
A DSCR below 1 indicates that the company may have difficulty meeting its debt obligations.
Lenders often require a minimum DSCR as part of their lending criteria.
DSCR is relevant for credit managers as it helps them assess the risk associated with lending to a particular company.

Accepted Answer

Dscr determines the repayment capacity of term loans of the firm( machinery loan or commercial vehicle loan) ideal dscr is 2:1.

Dscr=pat+dep+int on tl+installment on tl/int on tl+installment on tl

What is DSCR and it's calculation? Ideal Ratio and it's relevance.

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