What is the relationship between DSCR and NOI?

• A. DSCR = NOI divided by debt service; a measure of ability to cover debt payments.
• B. DSCR = debt service divided by NOI.
• C. DSCR is independent of NOI.
• D. DSCR only applies to equity, not debt.

Answer: (A)

DSCR measures whether a property's income can cover its debt payments. Net operating income represents the property's income after operating expenses, before financing costs. The DSCR formula puts NOI on top and debt service on the bottom, so DSCR = NOI / debt service. This shows how many times the annual debt payments can be met from the property's income. If DSCR is above 1, there’s a cushion to cover debt service; if it’s below 1, debt service exceeds the available income. This is why the best choice states DSCR as NOI divided by debt service and describes it as a measure of ability to cover debt payments. The other statements misstate the relationship: reversing the ratio is incorrect, DSCR depends on NOI, and DSCR is a debt-focused metric, not limited to equity.