Types of loans and coverage ratios relevant
Normally person take 2 types of loan
1.OD/CC (overdraft/cash credit)
2.TL (Term Loan)
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OD/CC |
Term Loan |
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They are taken to meet working capital requirement of business i.e. to meet day to day expenses of business |
They are normally taken for purchasing fixed assets of business |
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There is no repayment of OD/CC. Only interest amount is to be paid, not the principal
They are like negative balance in bank account. Interest is charged only on amount withdrawn
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There is proper repayment of both principal an interest amount. It is normally done in equal quarterly or monthly instalments (EMI) |
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Interest Coverage Ratio(ICR) is used to measure repayment
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Debt Service Coverage Ratio (DSCR) is used to measure repayment |
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Formula for Interest Coverage Ratio(ICR)
(PAT+Interest Exp +Depreciation)/ Interest Repaid
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Formula for Interest Coverage Ratio(ICR)
(PAT+Interest Exp +Depreciation) / Interest and Principal Repaid |
