Finance Formulas / July 27, 2018 / Aniyah Booth
For example, suppose Net Operating Income (NOI) is $120,000 per year and total debt service is $100,000 per year. In this case the debt service coverage ratio (DSCR) would simply be $120,000 $100,000, which equals 1.20. It’s also common to see an "x" after the ratio. In this example it could be shown as "1.20x", which indicates that NOI covers debt service 1.2 times.
Accounting ratios, also known as financial ratios, are used to measure the efficiency and profitability of a company based on its financial reports. They provide a way of expressing the relationship between one accounting data point to another, and are the basis of ratio analysis.
When you calculate the price of a bond, you are determining the maximum price you would want to pay for the bond, based on how its coupon rate compares to the average rate most investors are currently receiving in the bond market. Due to default risk, investors may require a higher rate of return than the prevailing risk-free rate. In general, the greater the default risk on a given bond issue, the higher the required rate of return.
A debt ratio of .5 is often considered to be less risky. This means that the company has twice as many assets as liabilities. Or said a different way, this company’s liabilities are only 50 percent of its total assets. Essentially, only its creditors own half of the company’s assets and the shareholders own the remainder of the assets.
In Case You Missed It