Debt Service Coverage Ratio

Definition: A ratio that bank loan officers often consider when deciding whether to issue a loan.

Debt principal repayment ratio = annual after-tax profit ÷ (debt principal ÷ debt life)

This indicator must be greater than 1. The higher it is, the stronger the company's debt repayment ability. Looking at the debt principal repayment ratio of a company in a certain period, it is difficult to explain the quality of the company's debt repayment ability. For an enterprise, it is often necessary to calculate the debt principal repayment ratio for five consecutive fiscal years to determine the stability of its debt repayment ability. When estimating the long-term solvency status of an enterprise from a prudent perspective, the year with the lowest indicator is usually selected.