Ratio Analysis

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CA Vaibhav Jain (Querist)

19 November 2009 Hi guys

Pls give me formula 4 debt service coverage ratio & interest coverage ratio in detail.
reply as soon as early.(its urgent)

Thanks in Advance

Vaibhav Jain
CA Finalist
jain_vaibhav007@yahoo.com

CS Vandana Kacholia

CS Vandana Kacholia (Expert)

19 November 2009 Interest Coverage Ratio:EBIT
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interest expenses

A ratio used to determine how easily a company can pay interest on outstanding debt. The interest coverage ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) of one period by the company's interest expenses of the same period.

DEBT SERVICE COVERAGE RATIO : This ratio is one of the most important one which indicates the ability of an enterprise to meet its liabilities by way of payment of installments of Term Loans and Interest thereon from out of the cash accruals and forms the basis for fixation of the repayment schedule in respect of the Term Loans raised for a project. (The Ideal DSCR Ratio is considered to be 2 )

PAT + Depr. + Annual Interest on Long Term Loans & Liabilities
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Annual interest on Long Term Loans & Liabilities + Annual Installments payable on Long Term Loans & Liabilities

( Where PAT is Profit after Tax and Depr. is Depreciation)

Regards

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