Debt Service Coverage Ration - Meaning, understanding the DSCR

Meaning of DSCR

1. Debt Service Coverage Ratio (DSCR)
•Ca Manmohan Jindal
•RV-SFA, Ex-Canara Bank -Mumbai
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2. DSCR
•TheDebtServiceCoverageRatio(DSCR)-
•Isafinancialmetric
•Itisusedtoassessanentity’sabilitytogenerateenoughcashtocover
itsdebtserviceobligations.
•Theseobligationsincludeinterest,principal,andleasepayments.
•Inotherwords,DSCRmeasuresacompany’savailablecashflow
relativetoitsdebtpayments.
•LendersandinvestorsuseDSCRtodeterminewhetherabusinesshas
sufficientnetoperatingincometorepayitsloans.

3. Formula
•TheformulaforcalculatingDSCR
involvesdividingnetoperating
incomebytotaldebtservice,
whichincludesbothprincipal
andinterestpayments

4. •Itmeasurestheratiooftheproperty’snetoperatingincome(NOI)to
itsdebtservice(i.e.,loanpayments).
•Mathematically,itcanbecalculatedas:
•ADSCRgreaterthan1signifiesfinancialhealth,asitindicatesthatthe
property’sincomeexceedsitsdebtobligations.
•ADSCRof1indicatesthattheIncomegeneratesisjustenough
incometocoveritsdebtpayments
•Forexample,aDSCRof1.25meansthattheproperty’scashflowis
1.25timestheamountneededtomeetitsdebtobligations

5. •Thanks
•Ca Manmohan Jindal
•[email protected]
•8850385224
•Adv. Abhay Jindal
•7021113005
•[email protected]