The formula to calculate the Debt Coverage Ratio (DSCR) is:
\[ DSCR = \frac{NOI}{DS} \]
Where:
Debt Coverage Ratio is a measure of the cash flow available to pay current debt obligations.
Net Operating Income is a calculation used to analyze real estate investments that generate income. It equals all revenue from the property minus all reasonably necessary operating expenses.
Debt Service is the cash that is required to cover the repayment of interest and principal on a debt for a particular time period.
Let's assume the following values:
Using the formula:
\[ DSCR = \frac{NOI}{DS} \]
Evaluating:
\[ DSCR = \frac{40000}{14000} \]
The Debt Coverage Ratio is 2.85714285714286.
| Net Operating Income | Debt Service | Debt Coverage Ratio |
|---|---|---|
| 30000 | 14000 | 2.14285714285714 |
| 35000 | 14000 | 2.50000000000000 |
| 40000 | 14000 | 2.85714285714286 |
| 45000 | 14000 | 3.21428571428571 |
| 50000 | 14000 | 3.57142857142857 |