Business Debt Service Coverage Ratio Calculator for Metairie, LA Firms and Restaurants

LA firms can apply this formula to their annual figures. Debt service coverage ratio = net operating income for a year / total loan payments for that year. A ratio above 1 means the business earns more than its debt payments; partners that use the ratio often look for a cushion above 1, and each sets its own level.

Illustration only, invented figures: a firm with $68,000 of yearly net operating income asks about $250,000 at an annual rate of 9.5% over 84 months. The calculator gives $4,086.00 a month, so annual debt service is $49,032. The ratio is $68,000 / $49,032 = 1.39. Existing loan payments belong in the denominator too, which lowers the ratio.

Three levers move the ratio. A longer term lowers each payment and raises the ratio, at the price of more total interest. A smaller amount does the same. Higher net operating income, from sales growth or lower costs, raises the top of the fraction. For a sit-down restaurant, net operating income should come from the tax return or a profit and loss statement the partner can check against bank deposits, not from a projection alone, and owner pay above a normal salary is often added back before the division.

The cash ratio = cash and equivalents / current liabilities. It asks whether a quick-service restaurant could pay its short-term bills from cash alone. Illustration only, invented figures: $42,000 of cash against $61,000 of current liabilities gives a cash ratio of 0.69.

Restaurants turn stock into cash within days, so a low cash ratio is less alarming for them than for a firm with slow receivables; a partner reads it beside the bank statements.

The plainest ratio to work by hand is the current ratio: current assets / current liabilities. For a clothing boutique, current assets are cash, receivables and stock. Illustration only, invented figures: $118,000 of current assets against $61,000 of current liabilities gives 1.93, meaning the shop holds about $1.93 of short-term assets for every dollar of short-term debt.

No calculator is needed; two numbers from the balance sheet and one division do it.

For a merchant cash advance, the factor is a ratio too: the total to be collected / the amount advanced. That particular ratio is outside this calculator's output. Illustration only, invented figures: a quick-service restaurant receives $25,000 and agrees to $33,500 collected, a factor of 1.34, so the cost is $8,500, or 34.0% of the advance, however long collection takes.

An advance is not a loan; the merchant cash advance page sets that cost against a line of credit.

The acid-test ratio = (current assets - inventory) / current liabilities. It strips stock out, because stock may not sell soon enough to pay a bill. Illustration only, invented figures: an accounting firm, which holds little stock, starts from the same $118,000 of current assets, of which $47,000 is unbilled work in progress, treated here like inventory; leaving that out gives ($118,000 - $47,000) / $61,000 = 1.16.

Put the ratio beside the coverage ratio above: a firm can have a healthy coverage ratio and still be thin on short-term cash. The term loan page covers what a partner weighs on a larger loan.