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debt coverage ratio |
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debt coverage ratio (DCR) The ratio of net operating income compared to annual debt service, which includes principal and interest payments. The ratio is used by lenders to evaluate loans on income-producing property.A ratio of 1.2 or better will usually support the extension of credit. Example: Annual revenues $100,000 – Annual operating expenses 50,000 Net operating income 50,000 Annual debt service on proposed loan 11,000 $50,000 ÷ $11,000 = DCR of 4.54 How to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit webmaster's page for free fun content. |
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That's your Debt Coverage Ratio (DCR) Here's the basic formula: Debt Coverage Ratio = Net Operating Income / Annual Loan Payment Debt Coverage Ratio for most lenders needs to be 1. Accordingly, ABC's cash debt coverage ratio (cash provided by operating activities divided by average total liabilities) will be lower if ABC is required to capitalize the machine lease. 15x's debt coverage ratio may have attracted say 90-110 bps over the ten year Treasury Yield, equaling a 10-year fixed rate of 5. |
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