Question

What is the difference between a debt/income ratio and a debt serving ratio? What impact on both measures did the monetary policy from the late 1990s to 2004 have?

Answer 1

• Debt/Income Ratio

• ​​​​​Debt ratiois a financial ratio that indicates the percentage of a company's assets that are provided via debt. It is the ratio of total debt (long-term liabilities) and total assets (the sum of current assets, fixed assets, and other assets such as goodill).

• We can calculate by these formula's, Debt ratio = Total debts / Total assests

• The debt to asset ratio is very important in determining the financial risk of a company. A ratio greater than 1 indicates that a significant portion of assets is funded with ratio and that the company has a higher default risk.

• Debt serving Ratio

• The Debt serving ratio ( DSR) , also known as "debt coverage ratio" (DCR), is the ratio of operating income available to debt servicing for interest, principal and lease payments. It is a popular benchmark used in the measurement of an entity's (person or corporation) ability to produce enough cash to cover its debt (including lease) payments.
• We can calculate by these formula's, DCR = Net opreating income / Debt Service
• Debt serving ratio (DSR) is one of many financial ratios that lenders assess when considering a loan application. This ratio is especially important because the result gives some indication to the lender of whether you'll be able to pay back the loan with interest.