Economics · Financial Ratio Analysis
From a lender's perspective in project finance, the Debt Service Coverage Ratio (DSCR) is a primary indicator of credit risk. A DSCR value of 1.25 typically signifies that:
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The equity investors will receive 1.25 times their initial investment.
- 2The project's internal rate of return is 25% higher than the interest rate.
- 3The project has a 25% cushion of operating cash flow over the amount required to pay its debt.✓
- 4The project's operating cash flow is exactly equal to its debt service obligations.
Correct answer
The project has a 25% cushion of operating cash flow over the amount required to pay its debt.
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