About Debt Service Coverage Ratio Calculator (Formula)
The Debt Service Coverage Ratio (DSCR) Calculator is a tool used to assess the ability of a borrower to cover their debt obligations using their operating income. The DSCR is a financial metric commonly used by lenders to evaluate the creditworthiness of a borrower before extending loans. The formula for calculating the Debt Service Coverage Ratio is as follows:
DSCR = Net Operating Income / Total Debt Service
Where:
- DSCR: The Debt Service Coverage Ratio, indicating the borrower’s ability to meet debt obligations.
- Net Operating Income: The income generated from the property or business after deducting operating expenses but before deducting debt service payments.
- Total Debt Service: The total amount of debt payments, including principal and interest, due within a specified period.
A DSCR value greater than 1 indicates that the borrower’s operating income is sufficient to cover their debt obligations. Lenders often require a certain minimum DSCR value as a criterion for loan approval.
The Debt Service Coverage Ratio Calculator is a valuable tool for lenders, real estate investors, and businesses evaluating their financial health. It assists in making informed lending decisions and assessing the financial feasibility of investments and projects.