DSCR Calculation

searcher profile

December 21, 2024

by a searcher from National Technical University of Athens in Greece

Hello.

I'm building a financial projection for serial acquisitions.
Wondering what is the proper formula for DSCR since there seems to be no formal one.
Generally speaking, when a lending institution asks for, let's say, 1,25x DSCR, what defitinion does it usually use?
I'm torn between using

EBITDA

or

EBITDA - Income Tax - CapEx

Anything else I should consider?

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commentor profile
Reply by a professional
from University of Southern California in North Palm Beach, FL, USA
Is anyone using the Debt Service Coverage Ratio (DSCR) to set the price? Instead of haggling over asking prices for SMBs, why shouldn't brokers, sellers, and buyers begin with a single question: What can the business truly afford to borrow? Any ideas on how to do it? Any experiences where brokers or sellers won't listen to the rationale? Pros? Cons?
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Reply by a searcher
from Bowling Green State University in Surrey, BC, Canada
it varies but the one I like best is:
EBITDA less cash taxes and unfunded capex / schedule principal & interest for the coming twelve months
So, actual (close enough) cash earning for the last twelve months over the required loan payments over the *next* twelve months.
Some lenders divide by the actual P&I payments for the last twelve months.
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