Q. The cash required during a specific period to meet interest expenses and principal payments is referred to as the :

A
Debt capacity
B
Debt-Service burden
C
Fixed charge burden
D
Adequacy capacity
Solution:

Debt service is the cash that is required to cover the repayment of interest and principal on a debt for a particular period.

This ratio helps to determine the borrower’s ability to make debt service payments because it compares the company’s net income to the amount of principal and interest the firm must pay.

Entri PDF Icon

Get Question Bank

Strengthen Your Practice with our comprehensive question bank.

Entri Contact Image

Get Expert Advice for Free: Register for Your Free Consultation Now!