Reveals your overall net worth at the moment by illustrating the difference between what you owe and own.

“Method of calculating financial results to emphasize either current or projected figures”. Revenue projections, estimated expenses and positive cash flow within a business plan. Pro Forma’s are multi year cash flow estimates.

Calculate the projected revenue for the business. Make realistic assumptions. Speak to people you trust in the industry to determine actual costs and revenue. Estimate the liabilities and costs; repairs, interest, real estate taxes, insurance, utilities etc. Don’t overlook ANY projected expenses. Estimate the future cash flow or net income.

. Net Operating Income Income Gross Rents Possible10,200 ($850 x12) Other Income Potential Gross Income $10,200 Less Vacancy Amount$ 1,530 Effective Gross Income $8,670 Operating Expenses Hazard Insurance $850 Repairs & Maintenance $750 Management Fees Real Estate Taxes$1,000 Supplies $100 Less Operating Expenses$2,700 Net Operating Income $5,950

The debt service coverage ratio (DSCR) is the ratio of net operating income to debt payments on investment real estate. Debt Service Coverage = Net Operating Income (NOI) / Debt Service 5,950 / 5, = 1.10%

In commercial real estate finance, DSCR is the main measure to determine if a property will be able to sustain its debt based on cash flow. Most banks will lend to a 1.2 DSCR, but at times with more aggressive practices you begin to see this number decreasing. A DSCR below 1.0 on a property indicates that there is not enough cash flow to even cover the loan..

Typically, most commercial banks require the ratio of times (net operating income or NOI / annual debt service) to ensure cash flow sufficient to cover loan payments is available on an ongoing basis..