Corporate Finance
Debt Capacity
Debt capacity is the amount of debt a company can service across several scenarios without compromising operations, liquidity or necessary investment.
Course purpose
The decision examined
Debt is repaid with cash available at the scheduled date, after taxes, maintenance investment and working capital. Maturity, covenants, currency and refinancing access can make a structure fragile before accounting insolvency appears.
Objectives
Learning outcomes
- Construct cash available for debt service.
- Interpret leverage, interest coverage and DSCR together.
- Stress maturities, covenants and currency exposure.
Concepts
Key concepts
- Debt service
- DSCR
- Interest coverage
- Covenant
- Maturity
- Refinancing
Syllabus
Course structure
- Debt-service resource
- Coverage ratios
- Maturity profile
- Covenants
- Currency
- Stress case
Extract
Analytical framework
Measure debt-service coverage
DSCR compares cash available for debt service with interest and principal due over the same period:
Debt-service coverage ratio
The numerator must deduct indispensable operating needs. A ratio measured before maintenance capital expenditure or working-capital investment can materially overstate capacity.
Full course
Continue the course
Sign in or create a free RicherFin account to access the complete course, its derivations, formulas and detailed curriculum.