What is the Full Form of DSR?

The full form of DSR is Debt Service Ratio. The Dept Service Ratio (DSR) is a method of determining a company’s ability to repay its debt. It contrasts income with debt commitments. This ratio is frequently calculated by bankers when deciding whether or not to approve a business loan.

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How DSR Works? 

The Debt Service Ratio compares an entity’s operating revenue to its debt liabilities (also known as the Debt Service Coverage Ratio). By expressing this relationship as a ratio, analysts may rapidly determine a company’s ability to repay its debts, which may include bonds, loans, or lines of credit. 

This is a critical factor for lenders, who may be evaluating whether or not to enable a corporation to incur further debt. The ratio gets its name from debt service, which is the amount of money necessary to repay loans over time. A year is a typical time range for debt service. 

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How to Calculate DSR?

Divide your company’s net operating income by its debt service to calculate the Debt Service Ratio. This is generally performed on an annual basis, comparing annual net operating income against annual debt service, although it can be performed for any time frame.

Have a look at the formula given below to better understand the calculation of DSR:

Dept Service Ratio = Net Operating Income / Dept Service

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Example

Consider the following scenario to better understand the Debt Service Ratio. A company has two short-term loans totaling $100,000 (principal and interest). The corporation also has a $8000 annual payment lease on a company automobile. As a result, this company’s annual debt service is $108,000.

The company earned $156,000 in net operating income last year. When you divide $156,000 by $108,000, you get a Debt Service Ratio of 1.44.

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