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Formula – Debt Coverage Ratio
The debt coverage ratio is usually used by lenders and analysts to assess income producing property.
If operating income is $100,000 and debt service is $30,000, the DSR would be 3.33.
The higher the resulting number, the better shape the borrower will be deemed by the lender.
To calculate net operating income, operating expenses should be deducted from total revenue.
The debt service is usually the total amount of accumulated repayment over the period for the loan that a borrower is trying to obtain approval for.