Debt-Service Coverage Ratio

Definition: A benchmark used in the measurement of an entity’s ability to produce enough cash flow to cover its debt.

More info: The higher this ratio is, the easier it typically is to obtain a loan. The minimum ratio acceptable to lenders is 1.2 or greater.

The equation to determine Debt-Service Coverage Ratio is as follows:

Net Operating Income / Annual Debt = Debt-Service Coverage Ratio

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