What is DSCR and how do you calculate it?

Question

Accepted Answer

DSCR stands for Debt Service Coverage Ratio. It is a financial metric used to assess a borrower's ability to repay debt.

DSCR is calculated by dividing the borrower's net operating income by their total debt service.
A DSCR of 1 or higher indicates that the borrower has enough income to cover their debt obligations.
A DSCR below 1 suggests that the borrower may struggle to meet their debt payments.
Lenders typically prefer a higher DSCR as it indicates lower risk.
For example, if a borrower has a net operating income of $100,000 and total debt service of $80,000, the DSCR would be 1.25.

Accepted Answer

The debt service coverage ratio (DSCR) is a key measure of a company's ability to repay its loans, take on new financing and make dividend payments. It is one of three metrics used to measure debt capacity, along with the debt-to-equity ratio and the debt-to-total assets ratio.

What is DSCR and how do you calculate it?

AU Small Finance Bank Assistant Credit Manager interview questions & answers

Popular interview questions of Assistant Credit Manager