Debt Service Coverage

Business, Legal & Accounting Glossary

Definition: Debt Service Coverage



Full Definition of Debt Service Coverage


The debt service coverage ratio calculates the amount of cash available to meet debt obligations. The debt service coverage ratio is used in both corporate and real estate finance. Excluding tax considerations, in corporate finance,
Debt service coverage ratio = [Net Income + Depreciation/Amortization + Interest Expense]/[Interest Expense + Principal Payments].
For real estate loans,
Debt service coverage ratio = Projected Net Operating Income (ie, rents less operating expenses)/Debt Service (principal plus interest).
When making income property loans, a debt service coverage ratio of 1 is the minimum required to ensure the property generates sufficient income to cover the debt. Indeed, most lenders will require some cushion and demand a debt service coverage ratio of 1.25 or better.


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Definition Sources


Definitions for Debt Service Coverage are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 7th February, 2020 | 0 Views.