Talk:Debt service coverage ratio
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Merge
editI've merged this page with the Debt coverage ratio page. Finnancier 12:11, 12 September 2007 (UTC)
Cleanup problems
editI've attached a cleanup tag - this article needs some major help. Among the issues:
- Unencyclopedic tone. It rambles and is often written in the second person.
- Use of examples sounds like tutorial rather than explanation. In general examples should be very limited here.
- Very US-centric, and does not explain its assumptions and methods
- Written before the 2008-2009 financial crisis, so many of the claims about uses and standards are obsolete, not just unreferenced
- Seems to be incorrect in a number of ways, confuses cash flow with income. Debt service coverage ratio is a measure by the bank of whether (by their standards - not by accounting or financial standards) the property will generate enough cash flow to pay the loan. Income considers things like depreciation, whereas the bank does not care about that. However, the bank adds various fudge factors such as maintenance and repair, vacancy factors, etc., that are standard numbers and usually not based on actual performance. A good article would explain the bank methodology here, and how it varies from market to market.
- Obviously, it needs sources.
Concept problem
editPlease, anyone, I'd like to discuss this before modifying the article:
DSCR = ( Net_income + [addback] Depreciation ) / Total_principal_payment
or
DSCR = (Net_Income + Depreciation/Amortization + Interest_Expense) / (Interest_Expense + Total_principal_payment) [1]
Right?
One cannot add Interest payments doubled (it's already accounted in NI).
Rjrneves (talk) 17:06, 13 November 2009 (UTC)
Wrong. Remember interest is NOT an operating expense and DSCR = Net OPERATING Income/Debt Service. Interest expense must be added back to net income because we are trying to determine the amount of income available for interest and principal. Why would you deduct interest from the amount of income supposedly available to pay that interest???? —Preceding unsigned comment added by 69.140.28.58 (talk) 03:43, 27 March 2011 (UTC)