Debt-service coverage ratio

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Debt-service coverage ratio

Earnings before interest and income taxes, divided by interest expense plus the quantity of principal repayments divided by one minus the tax rate.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
References in periodicals archive ?
Researchers at BIS said that Australia's debt-service ratio, household debt service ratio and cross-border claims, indicate that the nation's banking sector could come under stress in the near future.
President Moon pledged during his campaign to bring the debt down to below 150 percent of disposable income by expanding the credit evaluation metric system of debt-service ratio (DSR) and creating jobs.
According to the bank's complaint, the borrowers triggered a default by failing to maintain the debt-service ratio, failing to timely complete construction, ceasing construction and more.
The report finds that the debt-service ratio in the Canadian mortgage market - the cost of carrying a mortgage as a share of disposable income - at the aggregate level is 7.3%, a full %age point higher than the current 6.3% officially said by the Bank of Canada.
Two common indicators of mortgage repayment risk are the loan-to-value ratio (the size of the loan relative to the value of housing collateral) and the debt-service ratio (the size of mortgage repayments relative to household income).
In the United States, the United Kingdom, France and Italy, the debt-service ratio has recently started to rise slightly while in Spain, this ratio has been increasing continuously over the past decade.
However, the household debt-service ratio (the ratio of required payments on outstanding mortgage and consumer debt to disposable income) has moderated over the past couple of years but remains high compared to levels over the past 24 years.
But Thailand's debt-service ratio -- annual interest and principal payments as a percentage of export earnings -- rose to 19.60% from the year-earlier level of 13.71% due to a fall in earnings from trade.
To measure the debt burden, I use the ratio of household debt service to disposable personal income.(3) This ratio captures the demands on current income of paying interest and principal on household debt, and is likely to approximate better the economy-wide burden of household debt than other indicators such as delinquency rates, bankruptcy rates, or debt-to-income ratios.(4) As shown in Figure 1, consumer spending growth appears negatively correlated with the debt-service ratio, at least since the early 1970s.
Such indebtedness, combined with the decline in official export earnings, resulted in a debt-service ratio of almost 100% in 1992/93, which put a tremendous strain on the balance of payments.
debt-GNP and debt-service ratio, reflect the inter-play of several economic as well as non-economic factors.
"Among those with low-incomes, the number of multiple loan holders is rising and so is their debt-service ratio (DSR).