What is the ratio of debt service coverage?
The ratio of the debt service coverage is the statistics of measurement of the company's ability to repay your debt. This ratio is calculated by taking over the amount of net income, which is obtained by the company in a certain period of time, and by dividing this total number of debt that the enterprise incurred in the same period. The calculation of the debt service cover or DSCR is one of the ways to find out whether the company can cover the amount of money it owes if all its creditors want to receive the payment immediately. DSCR less than one can mean financial problems for the company. Businesses borrow money to help with new initiatives, marketing campaigns or even everyday operations. Strong businesses usually earn enough money on the way to cover this debt and still remain in reserve. One way to measure this important relationship between income and debt is the debt of serpometer vice president.
As an example of imaginationA company that earned $ 500,000 in US dollars (USD) for some time. In the same period of time, the enterprise arose in terms of the principal owed by creditors, as well as interest payments on these same loans in the total amount of $ 400,000. To calculate the debt service coverage ratio, $ 500,000 is divided by $ 400,000 in the debt, which provides DSCR 1.2.
Generally speaking, the ratio of less than one may be problematic for the company, because it means that it does not have enough money to repay its current debt. It is also dangerous when the debt coverage ratio is still decreasing when it is studied for a period of time. This may be an indicator that the level of earnings decreases from the debt ratio or that the company borrows more money than it can repay.
The debt of the Ervica coverage lesser exceeding one allows the company a luxury that it is able to repay its debts and still have some money left. This special amount can be reinvested in a business or stored for emergencies. Is the sameBeing aware that the extremely high DSCR is not necessarily a positive feature for the company. If this happens, potential investors may assess that the company does not use its excessive income in full, which may eventually damage its growth.