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Anirudh Gupta
CA Aspirant|Content ... • 20d
Daily dose of financial ratios by Anirudh Gupta Debt service coverage ratio: =Earnings available for debt services/(Interest+Installments) Where earnings available for debt services are EBITDA or EBIT based on the case. Purpose: -Yesterday,we discussed about debt equity ratio which explains the capital structure of a company and, how it helps creditors in assessing the firm’s ability to settle its liabilities. -However,the debt-equity ratio overlooks cash flow, making it unclear whether a company can truly meet its debt obligations. Hence this ratio comes into the picture. Purpose: -Helps understand its creditors and investors about the company’s “cash flow” ability to repay its debt obligations thus increasing confidence. Ideal ratio: DSCR > 1, -Safe😌 -The company earns enough to cover its debt repayments satisfying the creditors. DSCR < 1, -Risky😰 -income is not enough to meet debt obligations On a final note, "Why do you need astrology,when you can learn finance-o-logy" Follow for more.
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