Manag., July-2018 – Q87
0. Debt Service Coverage Ratio indicates which one of the following?
- Option : D
- Explanation : Debt Service Coverage Ratio (DSCR) Debt Service Coverage Ratio (DSCR) ratio is the key indicator to the lender to assess the extent of the ability of the borrower to service the loan in regard to the timely payment of interest and repayment of loan installment. The ratio is calculated as follows:
The greater debt service coverage ratio indicates the better debt servicing capacity of the organization. A ratio of 2 is considered satisfactory by the financial institutions. By means of cash flow projection, the borrower should work DSCR for the entire duration of the loan. This will be useful to the lender to take correct view of the borrower’s repayment capacity. This ratio indicates whether the business is earning sufficient profits to pay not only the interest charges but also the installments due to the principal amount.
