A firm has operating income of $120 and debt service of $100. What is the debt service coverage ratio (DSCR)?

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Multiple Choice

A firm has operating income of $120 and debt service of $100. What is the debt service coverage ratio (DSCR)?

Explanation:
Debt service coverage ratio shows how many times a firm’s operating income can cover its debt payments. It’s calculated by dividing operating income by debt service. Here, 120 divided by 100 equals 1.2, meaning the firm has a 20% cushion above what’s needed to service the debt. A DSCR of 1.0 would mean no margin, 2.0 would require 200 of operating income to cover 100 of debt service, and 1.5 would require 150. So the result is 1.2.

Debt service coverage ratio shows how many times a firm’s operating income can cover its debt payments. It’s calculated by dividing operating income by debt service. Here, 120 divided by 100 equals 1.2, meaning the firm has a 20% cushion above what’s needed to service the debt. A DSCR of 1.0 would mean no margin, 2.0 would require 200 of operating income to cover 100 of debt service, and 1.5 would require 150. So the result is 1.2.

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