What is the DSCR formula for a loan secured by business cash flows?

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Multiple Choice

What is the DSCR formula for a loan secured by business cash flows?

Explanation:
DSCR measures whether the cash flow a business actually has available can cover its debt payments. The numerator should be cash flow available to service debt (CFADS), which represents the cash the business can put toward debt after accounting for operating needs and other cash outlays. The denominator is the total debt service due in the period, including both interest and principal payments. So the ratio is CFADS divided by total debt service. This captures the true ability to service debt from cash flow, not from accounting profits or from revenues alone. Using net income or NOI would overstate or misstate cash availability, and using only interest neglects principal payments, both of which distort the true capacity to meet debt obligations.

DSCR measures whether the cash flow a business actually has available can cover its debt payments. The numerator should be cash flow available to service debt (CFADS), which represents the cash the business can put toward debt after accounting for operating needs and other cash outlays. The denominator is the total debt service due in the period, including both interest and principal payments. So the ratio is CFADS divided by total debt service. This captures the true ability to service debt from cash flow, not from accounting profits or from revenues alone. Using net income or NOI would overstate or misstate cash availability, and using only interest neglects principal payments, both of which distort the true capacity to meet debt obligations.

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