1. What is Debt Coverage Ratio?

The Debt Coverage Ratio (DCR) is a financial metric that measures a company's ability to pay its debt obligations with its operating income. It compares the income available for debt servicing to the required debt payments.

2. How Does the Calculator Work?

The calculator uses the DCR formula:

Where:

• \( Income \) — Net operating income (USD)
• \( Debt\ Payments \) — Total debt service payments (USD)

Explanation: A DCR of 1 means income exactly covers debt payments. Higher than 1 indicates more income than needed for debt payments, while below 1 indicates insufficient income.

3. Importance of DCR Calculation

Details: Lenders use DCR to assess a borrower's ability to repay loans. It's crucial for loan approvals, determining loan terms, and financial health assessment.

4. Using the Calculator

Tips: Enter income and debt payments in USD. Both values must be positive numbers for accurate calculation.

5. Frequently Asked Questions (FAQ)

Q1: What is a good DCR value?
A: Typically, lenders prefer DCR ≥ 1.25. A ratio of 1 means break-even, while below 1 indicates potential repayment difficulties.

Q2: How is DCR different from debt-to-income ratio?
A: DCR focuses on business income versus debt payments, while debt-to-income compares personal income to all debt obligations.

Q3: What income should be used for DCR calculation?
A: Use net operating income (NOI) - the income after operating expenses but before taxes and financing costs.

Q4: Does DCR include all debts?
A: It should include all required debt service payments (principal + interest) for the period being analyzed.

Q5: How often should DCR be calculated?
A: Regularly, especially when seeking new financing or when business conditions change significantly.