# debt coverage ratio

Also found in: Acronyms.

## Debt-Service Coverage Ratio

1. In investment real estate, the ratio of annual net operating income on a piece of investment property to its annual debt service. Banks use the DSCR to help determine whether to make or refinance loans for investment property. A DSCR equal to or greater than 1 indicates that the debtor is able to service the debt on the income from the investment property. In personal finance, banks usually require a DSCR of at least 1 to make such a loan, while they generally expect a ratio of 1.2 for commercial projects.

2. In government finance, the ratio of annual export earnings to its annual debt service on external debt.

## 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

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References in periodicals archive ?
Current cash debt coverage ratio (2001) / net cash provided by operating activities--average current liabilities = 58,210 / (514,227+380,986) = 0.065
Except for 2006 when the cash debt coverage ratio was at 12.9% due to the high cash generated from operating activities, all other years the ratios were only at 3%.
* The median debt coverage ratio for LIHTC properties has been between 1.13 and 1.15 for several years.
Testing the capitalization rate by considering such items as the implied debt coverage ratio, equity dividend rate, and equity yield rate should be part of the direct capitalization analysis.
The debt coverage ratio can be viewed as a payback period; that is, it estimates how many years, at the current level of cash from operations, it will take to retire all debt.
An improvement in the operating balance towards 10% of operating revenue, coupled with a debt coverage ratio (direct risk-to-current balance) at around 10 years (2017: 180 years) for a sustained period, could lead to an upgrade.
As a result of this, we foresee Samalaju incurring further debt (in absence of shareholder support), with the projected gearing ratio to peak at a high 2.95 times over the next 5 years and its funds from operations debt coverage ratio averaging at a weak 0.06 times, as compared to the Company's projection of 1.30 times and 0.17 times, respectively.
In early 2007, CMBS spreads for a standard 80% LTV with a 1.15x's debt coverage ratio may have attracted say 90-110 bps over the ten year Treasury Yield, equaling a 10-year fixed rate of 5.5% (as of 2/07).
Commonly referred to as the "underwriter's method" of developing an overall rate and used by lenders with their own requirements for debt coverage ratio (DCR), mortgage or loan-to-value ratio (M), and mortgage constant ([R.sub.M]), it is a good tool when it is market derived.
Its operating cashflow debt coverage ratio is expected to hover around 0.06 times upon commencement of the lease and throughout the tenure of the IMTN.
Let's start with DCR, the Debt Coverage Ratio. This applies to the property under consideration.
One of those ratios, the debt coverage ratio (total annual debt service/cash from operations) speaks directly to the risk associated with the financial risk of that project.

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