How do I calculate the debt service coverage ratio?
A company's Debt Service Coverage Ratio (DSCR) is an important metric to calculate in order to gauge its ability to meet its current debt obligations. DSCR is calculated by dividing a company's Net Operating Income (NOI) by its Total Debt Service (TDS).
Debt Service Coverage Ratio (DSCR) = Net Operating Income (NOI) / Total Debt Service (TDS)
In order to calculate DSCR, companies should first calculate their NOI by subtracting operating expenses from revenue. They should then calculate their TDS by summing up the annual principal and interest payments on all debt.
By calculating their DSCR, companies can have a better understanding of their financial health and stability. Companies should use applications such as Sourcetable to calculate their DSCR.