What financial metric reflects the ratio of debt to income in commercial properties?

The debt service coverage ratio (DSCR) is a critical financial metric used in the analysis of commercial properties, as it measures the ability of a property to generate enough income to cover its debt obligations. Specifically, DSCR is calculated by dividing a property's net operating income (NOI) by its total debt service (the total cash required to cover principal and interest payments on the property's debt). A DSCR greater than 1 indicates that the property generates more income than what is needed to pay off its debt, which is a positive sign for lenders and investors, as it suggests a lower risk of default.

In contrast, the other metrics presented do not directly measure the relationship between debt and income in the same way. The debt ratio evaluates all liabilities relative to total assets, which provides a broader view of overall leverage but does not focus specifically on income generation. The investment yield typically relates to the return on investment relative to the purchase price or market value, not debt management. The equity return ratio examines the return on equity invested in a property, which also does not reflect the property's income relative to its debt obligations.

Thus, the debt service coverage ratio is the most relevant metric for understanding how effectively a commercial property can meet its debt obligations based on its income