Debt-Service Coverage Ratio (DSCR)

The debt-service coverage ratio (DSCR) is a financial ratio that measures a company's ability to repay its debt. It is calculated by dividing a company's earnings before interest, taxes, depreciation, and amortization (EBITDA) by its total debt service.

The DSCR is a useful tool for investors and lenders to assess a company's financial health. A high DSCR indicates that a company is generating enough cash flow to cover its debt payments. This makes it less likely that the company will default on its debt. A low DSCR, on the other hand, indicates that a company is struggling to generate enough cash flow to cover its debt payments. This makes it more likely that the company will default on its debt.

The DSCR is also used by companies to set their target debt levels. A company with a high DSCR may be able to afford to take on more debt, while a company with a low DSCR may need to reduce its debt levels.

The DSCR is a valuable tool for assessing a company's financial health, but it is important to note that it is not without its limitations. For example, the DSCR does not take into account a company's working capital requirements or its ability to generate cash flow from operations. As a result, the DSCR should be used in conjunction with other financial ratios to get a more complete picture of a company's financial health.

Here are some additional points to keep in mind when using the DSCR:

* The DSCR is a static measure of a company's financial health. It does not take into account changes in a company's financial condition over time.
* The DSCR is a backward-looking measure. It measures a company's ability to repay its debt based on its historical financial performance.
* The DSCR is a company-specific measure. The level of DSCR that is considered acceptable will vary from company to company.

Overall, the DSCR is a useful tool for assessing a company's ability to repay its debt. However, it is important to use the DSCR in conjunction with other financial ratios to get a more complete picture of a company's financial health.