Finance Formulas / July 18, 2018 / Cecelia Weiss
This ratio measures the financial leverage of a company. Companies with higher levels of liabilities compared with assets are considered highly leveraged and more risky for lenders.
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.
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