Premise
The aim of the calculation of the DSCR extension is to obtain a synthetic indication of the company's ability to meet its financial commitments ("debt service") through the operating cash generation. In short, it aims to evaluate the company's ability to generate (and not own) adequate financial resources.
Le calculation mode adopted by professionals and by the banking system are so different from each other that, for the same company, the value of the DSCR can be very different.
Leanus processes the DSCR in different ways and not just for i Trend o on provisional data (quarterly, half-yearly, etc.) but also on the forecast data of the Business Plan; it also allows you to compare the DSCR between different companies (Benchmark).
Le different calculation methods They are all available in the menu /../Balance Sheet Ratios/DSCR and Bankability Ratios
The DSCR calculation includes:
- al Numerator the Cash Flow generated in the period or a proxy thereof (Example EBITDA)
- al Denominator commitments to the financial system (capital quota + interest + other similar components)
The DSCR can assume values greater than, equal to or less than, one:
- Higher than unity (DSCR>1), in the event that the operating cash flow generated exceeds the financial commitments to service the debt;
- Equal to unity (DSCR =1), the operating cash flow generated is totally absorbed by financial commitments to service the debt;
- Less than unity (DSCR<1), in the event that the operating cash flow generated is lower than the financial commitments to service the debt in the period considered, highlighting situations of financial tension with possible difficulties in repaying the debt.
Therefore a ratio greater than “1” would indicate the ability of the company to meet its obligations thanks to the ability to generate cash from its core business.
Operational issues
To calculate the DSCR correctly it is therefore necessary:
- for the Numerator: process the Operating Cash Flow or a proxy (e.g. EBITDA)
- for the Denominator: determine the amount of commitments to the financial system.
Per determine the amount of commitments to the financial system precisely, it is necessary to have the specific information that characterizes the individual operations underlying the financial commitments (mortgage repayment plan, financial charges, etc.). This information is often known only to the company and is sometimes complex to retrieve.
The Leanus solution
Leanus allows you to:
- calculate an approximation of the DSCR even in the absence of detailed information
- calculate DSCR accurately using detailed information through different algorithms
In fact, by “flagging the checkbox and reading the instructions” Leanus allows the insertion of detailed information which is automatically inserted in the denominator.
An example of DSCR calculation
In the example shown in the image for the year 2022 the checkbox is not flagged because the details are not known. In this case debt service that is, the denominator of the DSCR will be calculated by approximation according to the following algorithm:
- Financial Debts at MLT year 2021 (0) / amortization periods (3) + Financial Debts at BT year 2021 (9.206.730) * Repayment % BT (20%) + Financial Charges year 2022 (1.499.401) or: 3.340.747 = DSCR Denominator (with Financial Debts)
For the year 2023 instead, it is assumed that the details needed for the specific calculation are known. Given the numbers reported in the example, the calculation of the denominator will be equal only to the Reimbursement interest rate Outstanding Financial Debts (1.892.904) + Repayment capital share Outstanding MLT Financial Debts (1.000.000); both are values entered by the user
The choice of the calculation methodology to adopt therefore depends on the information available and the algorithm that you want to use. It must also be taken into account that in the absence of analytical information some official balance sheets allow only approximations of the indicator to be obtained. For example, for abbreviated balance sheets, it is not possible to determine the Cash Flow and therefore the value of the Numerator can only be approximated through an EBITDA calculation
Leanus allows you to manage all the different exceptions, allowing the user to complete the template in case of missing information
After determining the Denominator, it is possible to view the DSCR calculation processed according to all the main methods.
The different methods of DSCR Calculation
Leanus calculates DSCR in different ways
- DSCR on CFCCO (Cash Flow Operating Working Capital)
- DSCR on CFO (Operating Cash Flow)
- DSCR on CFO net of tax cash flow
- DSCR on EBITDA
- DSCR on EBITDA Custom
- Leanus DSCR
Al Numerator of the DSCR you can choose:
- Cash Flow Operating Working Capital
- Operating Cash Flow
- Operational Cash Flow adjusted for Fiscal Cash Flow
- Proxy EBITDA
- EBITDA Custom
Leanus also calculates the DSCR according to a proprietary algorithm that takes into account other potential financial resources
The Menu dedicated to the calculation of the DSCR in Leanus (Reserved Area if applicable)
The DSCR calculation is available in the following menus:
- Balance Sheet Analysis (for DSCR analysis on historical data)
- Benchmark (for comparing the DSCR of two or more competitors)
- Business Plan (for DSCR analysis on prospective data)
If provided for by your configuration, the DSCR calculation can be performed in the* Reserved Area*
After entering the hypotheses it is necessary to click on the button Update to record the values.
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