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Consider the following statements with reference to ‘Debt service coverage ratio’:
It is a measure of the cash flow available to pay current debt obligations.
  • It includes interest expenses and other obligations like pension and sinking fund obligation of a firm.
  • It is used by the banks to know the cash position and cash flow of a company.
    Which of the above statements is/are correct?
    • a)
      1 only
    • b)
      1 and 2 only
    • c)
      2 and 3 only
    • d)
      1, 2 and 3
    Correct answer is option 'D'. Can you explain this answer?
    Most Upvoted Answer
    Consider the following statements with reference to ‘Debt service cov...
    Option d is the correct answer.
    • The debt-service coverage ratio (DSCR) shows investors whether a company has enough income to pay its debts.
    • Statement 1 is correct: The debt-service coverage ratio (DSCR) is a measure of the cash flow available to pay current debt obligations. DSCR is used to analyse firms, projects, or individual borrowers. The minimum DSCR that a lender demands depends on macroeconomic conditions. If the economy is growing, lenders may lend even in case the ratio is low of a firm.
    • Statement 2 is correct: Debt service coverage ratio takes into consideration all expenses related to debt, including interest expense and other obligations like pension and sinking fund obligation (a sinking fund is made up of sums of money set aside at intervals, usually invested at interest, to meet a certain future obligation.) In this way, the DSCR is more indicative of a company's ability to pay its debt than just the debt ratio.
    • Statement 3 is correct: Debt service coverage ratio is used by the banks as a benchmark to measure the cash-producing ability of a business entity to cover its debt payments. Lenders not only wish to know the cash position and cash flow of a company but also how much debt it currently has and its available cash to pay the current and future debt.
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    Consider the following statements with reference to ‘Debt service coverage ratio’: It is a measure of the cash flow available to pay current debt obligations. It includes interest expenses and other obligations like pension and sinking fund obligation of a firm. It is used by the banks to know the cash position and cash flow of a company. Which of the above statements is/are correct?a)1 onlyb)1 and 2 onlyc)2 and 3 onlyd)1, 2 and 3Correct answer is option 'D'. Can you explain this answer?
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    Consider the following statements with reference to ‘Debt service coverage ratio’: It is a measure of the cash flow available to pay current debt obligations. It includes interest expenses and other obligations like pension and sinking fund obligation of a firm. It is used by the banks to know the cash position and cash flow of a company. Which of the above statements is/are correct?a)1 onlyb)1 and 2 onlyc)2 and 3 onlyd)1, 2 and 3Correct answer is option 'D'. Can you explain this answer? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Consider the following statements with reference to ‘Debt service coverage ratio’: It is a measure of the cash flow available to pay current debt obligations. It includes interest expenses and other obligations like pension and sinking fund obligation of a firm. It is used by the banks to know the cash position and cash flow of a company. Which of the above statements is/are correct?a)1 onlyb)1 and 2 onlyc)2 and 3 onlyd)1, 2 and 3Correct answer is option 'D'. Can you explain this answer? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Consider the following statements with reference to ‘Debt service coverage ratio’: It is a measure of the cash flow available to pay current debt obligations. It includes interest expenses and other obligations like pension and sinking fund obligation of a firm. It is used by the banks to know the cash position and cash flow of a company. Which of the above statements is/are correct?a)1 onlyb)1 and 2 onlyc)2 and 3 onlyd)1, 2 and 3Correct answer is option 'D'. Can you explain this answer?.
    Solutions for Consider the following statements with reference to ‘Debt service coverage ratio’: It is a measure of the cash flow available to pay current debt obligations. It includes interest expenses and other obligations like pension and sinking fund obligation of a firm. It is used by the banks to know the cash position and cash flow of a company. Which of the above statements is/are correct?a)1 onlyb)1 and 2 onlyc)2 and 3 onlyd)1, 2 and 3Correct answer is option 'D'. Can you explain this answer? in English & in Hindi are available as part of our courses for UPSC. Download more important topics, notes, lectures and mock test series for UPSC Exam by signing up for free.
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