Series 52: 5.2.4. Debt Service Coverage Ratio

Taken from our Series 52 Top Off Online Guide

5.2.4. Debt Service Coverage Ratio

One measure of the liquidity of the flow of funds is the debt service coverage ratio, a ratio that measures how well an issuer’s operating income is able to cover its outstanding debt payments. This ratio is one of the most important aspects of revenue bond analysis.

The net operating income of a project is its total revenue minus operating expenses (including cost of goods sold), but it does not subtract tax liability or interest paid on debt.

Current debt service refers to any bond payments that are due within one year.

A ratio of less than one indicates that cash flows are insufficient to pay for an issuer’s a

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