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 from its operating income.

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

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 the company's operating income to its debt obligations, showing 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 1.25-1.5 as it suggests sufficient income to cover debt payments.

4. Using the Calculator

Tips: Enter the Net Operating Income and Debt Service amounts in USD. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is considered a good serviceability ratio?
A: Generally, ratios above 1.5 are considered good, between 1.0-1.5 may be acceptable, and below 1.0 indicates potential difficulty in meeting debt obligations.

Q2: How is NOI different from net income?
A: NOI focuses on core operations before interest and taxes, while net income includes all expenses and income sources.

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

Q4: Can this ratio be used for personal finance?
A: Yes, the concept can be adapted by using personal income and loan payments instead of business figures.

Q5: How often should this ratio be calculated?
A: For businesses, it should be calculated quarterly or annually as part of financial health monitoring.