What does DSCR measure?

What does DSCR measure?

• A. DSCR is the ratio of cash available for debt service to scheduled debt service payments.
• B. DSCR is the ratio of gross revenue to operating expenses.
• C. DSCR is the equity to debt ratio.
• D. DSCR measures asset turnover.

Answer: (A)

Debt Service Coverage Ratio measures whether the cash flow available to a project or business is enough to cover its debt payments. It is calculated as cash available for debt service divided by the scheduled debt service payments. This ratio shows the cushion or risk: a value above 1 means there’s enough cash to meet debt obligations; below 1 indicates a shortfall. It’s a cash-flow-based measure focused on debt obligations, not on profitability or asset use. The other concepts described by the other options don’t fit DSCR: the ratio of gross revenue to operating expenses is a profitability-style metric, equity to debt ratio looks at leverage, and asset turnover assesses how efficiently assets generate sales.

Debt Service Coverage Ratio measures whether the cash flow available to a project or business is enough to cover its debt payments. It is calculated as cash available for debt service divided by the scheduled debt service payments. This ratio shows the cushion or risk: a value above 1 means there’s enough cash to meet debt obligations; below 1 indicates a shortfall. It’s a cash-flow-based measure focused on debt obligations, not on profitability or asset use.

The other concepts described by the other options don’t fit DSCR: the ratio of gross revenue to operating expenses is a profitability-style metric, equity to debt ratio looks at leverage, and asset turnover assesses how efficiently assets generate sales.