Which formula accurately describes the debt service coverage ratio (DSCR)?

The debt service coverage ratio (DSCR) is a financial metric used to assess an entity's ability to pay its debt obligations. It is calculated by measuring the cash flow available to pay current debt obligations, typically expressed as operating cash flow in relation to total debt service requirements.

The correct formula for DSCR, as identified, is represented by the calculation of EBITDA, adjusted for capital expenditures (Capex), divided by the sum of mandatory principal repayment and interest expense. This equation effectively captures the cash available for debt repayment after accounting for essential investments in the business, providing a clear picture of the entity's capacity to meet its debt obligations.

Using this formula allows one to understand the entity's operational profitability and how much of that is available after necessary expenditures to cover the costs of servicing debt, making it a vital measure for lenders and investors assessing financial health.

The other options do not accurately describe the DSCR, either by measuring unrelated financial metrics or not capturing the necessary components of cash flow versus debt obligations. Therefore, the choice provided clearly stands out as the most relevant and accurate formula for calculating DSCR.