1. What is a Serviceability Ratio Calculator?

Definition: This calculator determines the serviceability ratio (SR) which measures a company's ability to meet its debt obligations using its net operating income.

Purpose: It helps financial analysts, investors, and business owners assess debt repayment capacity and financial health.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• \( SR \) — Serviceability Ratio (dimensionless)
• \( NOI \) — Net Operating Income (currency, e.g., USD)
• \( DS \) — Debt Service (currency, e.g., USD)

Explanation: The ratio compares a company's operating income to its debt obligations, indicating how many times the income covers the debt payments.

3. Importance of Serviceability Ratio

Details: A higher ratio indicates better ability to service debt. Lenders typically look for ratios above 1.25-1.35 as it shows sufficient income to cover debt payments.

4. Using the Calculator

Tips: Enter the net operating income and total debt service amounts in the same currency. Both values must be > 0.

5. Frequently Asked Questions (FAQ)

Q1: What is considered a good serviceability ratio?
A: Generally, ratios above 1.25 are considered acceptable, with higher values indicating stronger financial position.

Q2: How is NOI different from net income?
A: NOI is operating income before financing costs and taxes, while net income includes all expenses and income.

Q3: What's included in debt service?
A: Debt service includes all principal and interest payments due during the period.

Q4: Can the ratio be less than 1?
A: Yes, but this indicates the income is insufficient to cover debt payments, signaling financial distress.

Q5: How often should this ratio be calculated?
A: It should be monitored regularly, typically quarterly or annually, depending on the business cycle.