Debt Service Coverage Ratio Research Articles

A Comprehensive Study of Techno Economic Viability (TEV) Report of Various Projects

This paper provides a comprehensive analysis of the TEV process, focusing on its application to both greenfield and brownfield projects across various sectors, including manufacturing, infrastructure, energy, and services. The study aims to guide decision-makers by bridging technical assessments with financial analysis to establish project profitability and sustainability. A Techno-Economic Viability (TEV) Study serves as a crucial tool in the decision- making process for both lenders and investors. It offers a detailed assessment of a project's technical feasibility, economic viability, and overall sustainability. It delves into the dual aspects of technical feasibility and economic viability, emphasizing their roles in influencing investment decisions across a wide spectrum of industries, including manufacturing, infrastructure, energy, and services. The findings from this research also illustrate real-world applications, highlighting two case studies with an emphasis on key financial indicators such as the Debt Service Coverage Ratio (DSCR) and Internal Rate of Return (IRR), which are used to measure a project’s ability to meet debt obligations and generate profits. Keywords: Techno Economic Study, Financial Viability, Technical Feasibility, Financial Modelling, Risk Analysis, Investment Decision

Analysis of Factors that Influence Financial Distress Conditions using the Debt Service Coverage Ratio Approach (Case Study of the Food and Beverage Industry Listed on the Indonesian Stock Exchange Before and During Covid-19)

Covid-19 condition is known to have had a major impact on the financial performance of issuers. The food and beverage industry is one of the mainstay manufacturing sectors in making a major contribution to national economic growth. The data used in this study was pre-covid data, year 2018 until 2021 during covid. The method used in this study is the Debt Service Coverage Ratio Pranowo et al. (2010). The analysis used in this research is descriptive analysis and panel data regression. The results of this research were that 26 company experienced a decrease in distress, 26 company experienced an company in Profitability, 26 company experienced an increase in Liquidity, 26 company experienced an increase in Efficiency, 26 company experienced a decrease in Leverage, 26 company experienced a decrease in Solvency. Factors that show a significant influence on financial distress in the period before Covid-19 are Efficiency, Liquidity. The factor of increasing efficiency also influences the reduction in the occurrence of financial distress. The factor of increasing liabilities also influences the increase in the occurrence of financial distress. Factors that show a significant influence on financial distress during Covid-19 are Solvability and Efficiency. This shows that during Covid-19, the increase in the value of debt will influence the tendency to increase the occurrence of financial distress. The decline in the value of income during Covid-19 also influenced the increase in financial distress. Advice to investors to be more selective in choosing food and beverage issuers as a place to invest during Covid-19. One important consideration is that investors focus more on factors that have a significant influence on Liquidity, Efficiency, Solvency.

Determinants of Financial Efficiency and Performance in Big-Cap Chain Hotels

Chain hotels with $1 billion in market capitalization not only contribute to employment creation and indirectly become a driving force in the regeneration of local economies but also play an essential role in recovering local economies with their high revenue per available room (RevPAR) values. Besides, the financial stability of these hotel chains directly influences the popularity of destinations, resulting in an influx of tourists to nearby regions, which in turn generates an economic contribution to the overall development of the tourism industry. Therefore, the aim of this paper is to determine the financial factors that are affecting the RevPAR (RPR), their role in the industry, and the validity of the agency cost theory of nine chain hotels that have at least $1 billion in market capital listed in U.S. stock markets over the period 2013–2022. The results show that, in contrast to the debt service coverage ratio, receivables turnover ratio, and book value per share variables, the day sales outstanding ratio and current ratio have a negative impact on chain hotels' RevPAR.

Analisis Laporan dan Kinerja Keuangan Pemerintah Daerah Kabupaten Sambas

This research aims to analyze the financial performance of the Sambas Regency Regional Government for 5 years from 2017 to 2021 and test whether there are differences in the performance of the degree of decentralization, performance of regional financial independence, performance of operating expenditures, and performance of capital expenditures. The analytical tools used are financial ratios, namely liquidity ratios, leverage ratios, debt ratios, productivity ratios and operating ratios. The research uses quantitative descriptive data analysis methods. The research results show that the liquidity ratio which consists of the average current ratio is 0.82, meaning that every Rp. 1,- of current debt is guaranteed by Rp. 0.82,- of current assets; The average cash ratio is 0.35, meaning that for every Rp. 1,- of current assets, Rp. 0.35 is cash and cash equivalents; the average cash to current liabilities is 0.29, meaning the regional government's ability to immediately pay every Rp. 1.- of current debt using cash and cash equivalents is Rp. 0.29,-; The average Quick Ratio is 0.60, meaning that the local government's ability to fulfill its short-term obligations for every Rp. 1,- using cash, cash equivalents and receivables is Rp. 0.60,-; The average cash flow ratio is 2.31, meaning the ability of a Regional Government's operating cash flow to pay for every Rp. 1,- of current debt owned using operating cash of Rp. 2.31,-. The leverage ratio measured is the Short Term Debt to Long Term Debt Ratio of 1.00. The debt ratio measured is the Total Liabilities to Current Assets Ratio. The average is 1.24 and the average Current Liabilities to Total Asset Ratio is 0.05, meaning that for every R.1,- debt is guaranteed by total assets of Rp.0.05,- The productivity ratio measured is Current Assets to Total Assets Ratio . The average is 0.04, meaning that for every Rp. 1,- current assets used for operational activities is Rp. 0.04,- Quick Asset to Inventory Ratio, the average is 2.67. The operating ratios measured include the average Earning Power of Total Investment of 0.10. The average financial independence ratio is 0.11 or 11%. From the aspect of relationship patterns and level of capability, the region is in the very low category with an instructive relationship pattern. The Public Participation Level Ratio is 0.07. This ratio shows the level of public participation in paying taxes, in this case all regional tax revenues, tax revenue sharing, both central and provincial. The higher the ratio value of the level of public participation of a Regional Government, the better it will be. From the calculation results it can be seen that for every Rp. 1,- Revenue, which comes from taxes is Rp. 0.07,- Debt Service Coverage Ratio (DSCR) for the Regional Government of Sambas Regency, the average for 2017-2021 is 2.79 or still above the minimum requirement of 2.5 as regulated in PP No. 107 of 2000 concerning Regional Loans article 6 letter b. However, in 2020 the DSCR was 2.35 and in 2021 it was 1.79, which is below the minimum requirements as regulated in PP 107/2000. This condition is caused by the relatively increasing number of regional loans from year to year. So the regional government for the coming year must ensure that the DSCR is still at the minimum limit outlined by the central government because if loans continue to increase there will be concerns that the Sambas Regency Regional Government will not be able to meet mandatory spending as regulated by PP 30/2011 concerning regional loans explanation of article 15 paragraph (1) letter b.

Fundamental analysis of the firm on stock returns in the uncertainty caused by the COVID-19 pandemic: The case of emerging economy

This paper refers to a previous study of Barua (2020), which shows the impact of the pandemic on aggregate demand and supply. The novelty and the purpose of this study is to examine the fundamental impact arising from the uncertainties created by the COVID-19 pandemic caused by the Indonesian government restrictions policy (spectrum) on stock returns of the sample companies listed on the Indonesia Stock Exchange (IDX) with a minimum of 200 trading days in 2020 from 2016 to 2020. This study used multiple regression analysis and cross-sectional for the cumulative abnormal return (CAR). The result shows that the fundamentals tested had no significant effect on cumulative abnormal returns. On the other hand, only the current ratio showed a significant effect on Spectrum 1 and 4; Spectrum 1 had a positive effect while Spectrum 4 had a negative effect, and the debt service coverage ratio (DSCR) had a slightly significant effect on Spectrum 1. The study results indicate that each spectrum had different levels of uncertainty, which gave rise to different perspectives for each investor. This study provides a perspective for investors to see different levels of uncertainty on the current ratio (CR) and DSCR as determinants of fundamentals for investment consideration.

A Required Debt Service Coverage Ratio Related to the Economic Value of the Asset Involved

A Required Debt Service Coverage Ratio Related to the Economic Value of the Asset Involved

Analysis of Financial Ratios of Thai National Football Shirt Production Companies

The purpose of this study was to analyze the financial status of the performance sports clothing industry. The sample group used a specific random method for the company that produces Thai national football team shirts. The tools used in the study were an analysis of financial ratios using secondary data from the annual financial statements of Thai national football shirt manufacturing companies from 2021 to 2022. The study found that the overall performance of the company was satisfactory, with the proportion of non-current assets significantly decreasing, equity increasing to a level that exceeds liabilities, and the ability to control selling and administrative expenses improving by leaps and bounds. The company's net profit has increased, the liquidity ratio has increased, the efficiency ratio for accounts receivable has decreased, the efficiency of inventory has improved, total assets and fixed assets have improved, and the debt service coverage ratio has also improved.

Simulasi Pinjaman Daerah sebagai alternatif pilihan Pembiayaan Pembangunan Infrastruktur di Kabupaten Batang Hari

Regional Loans are one of the alternative sources of financing in the Regional Revenue and Expenditure Budget to fund activities that are initiatives of the Regional Government in the framework of Local Government affairs based on the provisions of laws and regulations. Regional loans can be used to finance infrastructure and/or investment in regional infrastructure and facilities in the framework of public services. In addition, Regional Loans can also be used to cover regional cash flow. This study aims to determine the financial capability of the Batang Hari Regency Government and determine the number of feasible loans if the Batang Hari Regency Government makes regional loans as an alternative to financing infrastructure development. The data used in this study is secondary time series data derived from the Batang Hari Regency Government Budget Realization Report for the 2017-2021 period. The analysis tools used are the ratio of regional financial ability to repay loans with the Debt Service Coverage Ratio (DSCR), the Maximum Loan Limit (BMP) and to determine the amount of loans that can be made by regions in 2017-2021 by calculating regional revenue plans and regional spending plans, which are carried out using the Trend analysis method. Based on the simulation result conducted, the Batang Hari Regency Government has a Debt Service Coverage Ratio (DSCR) value of 4.81 which exceeds the minimum standard set at 2.5. The results of the analysis also show a Maximum Loan Limit of Rp. 740,070,216,978. Based on data obtained in fiscal year 2021. When viewed from the projection results, the loan that can be obtained by the Regional Government of Batang Hari Regency according to the analysis of the BMP Maximum Loan Limit in 2022 is IDR 706,263,200,215. Net funds are obtained from the projected results for 2022 of Rp. 503,718,603,808 and the maximum installments that can be prepared are Rp. 201,487,441,523.

Enhancing the feasibility of airport PPP projects with hybrid funding

In transport infrastructure concessions, the sources of revenue to the private partner (or concessionaire) may include (i) the infrastructure users (e.g., landing fees, in the case of airports), (ii) the government (e.g. through availability payments), and (iii) both users and government, which might be called a hybrid concession. An example of the latter is a highway concession where the concessionaire charges tolls to the road users but, because of relatively low revenues, the government agency complements the toll revenue with availability payments.Focusing on airports, this paper summarizes the cases where it may be justified for the government to complement users’ revenues and describes a model developed for the financial assessment of airport concessions involving payments by both the government and airport users, through the collection of several charges. The methodology described in the paper is also used to review the flexibility in new or ongoing airport concessions to mitigate traffic risks, which have been aggravated by the COVID-19 pandemic. The methodology can also be applied to other forms of transport infrastructure.A practical application of the model is demonstrated in the paper, using publicly available information, as well as basic assumptions, to build case studies for the Larnaca and Paphos airports in Cyprus. The model can also be used to carry out sensitivity analyses of the impact of key input parameters on outputs such as the investor's return on equity and annual debt service cover ratio.

FINANCIAL PERFORMANCE ANALYSIS OF CONSTRUCTION STATE-OWNED ENTERPRISES LISTED IN INDONESIA STOCK EXCHANGE DURING COVID-19

Construction State-Owned Enterprises (SOEs) have a very critical role in achieving the Government’s goal in infrastructure development, in order to increase the efficiency of production line, transportation and support economic growth and equitable development in Indonesia. The priority of development has driven around 3,26 times in total asset growth of four construction SOEs listed in Indonesia Stock Exchange (IDX), from IDR 85,88 trillion (2015) to IDR 280,38 trillion (2019), but facing challenges since pandemic Covid-19 in 2020. This study aims to analyze the financial performance of these construction SOEs during Covid-19. The descriptive analysis of financial performances of construction SOEs for year 2016 to 2021, pre and during pandemic Covid-19 was used in this study with three approaches: Ministerial Decree of SOEs No. KEP-100/MBU/2002 about financial soundness assessment of SOEs, Altman Z-Score (1968 and 2006 model) and Debt Service Cover Ratio (DSCR). The managerial implication of this study is to predict the financial resilience of these construction SOEs in facing challenges in upcoming years.

Financing conditions of renewable energy projects - results from an EU wide survey.

This data note aims to present a dataset with values for financing conditions for renewable energy projects in Europe. This includes weighted average cost of capital, cost of debt, cost of equity, debt share, debt service coverage ratio and loan tenors. The dataset was elaborated in the framework of the "Auctions for Renewable Energy Support II" project (AURES II). The main goal of the AURES II project is to provide policy support to the Member States of the European Union in order to improve the effectiveness and cost-efficiency of auctions for renewable energy support. As part of the AURES II project, an extensive survey (structured interviews) was conducted between September 2019 and April 2020 with different stakeholders involved in the renewable energy industry, such as banks, project developing companies, and investment funds, among others. The technologies covered were solar photovoltaics (PV), wind onshore, and wind offshore. Interviewees were asked to provide values for financing conditions for specific projects (for certain cases, country estimates or ranges of values were provided). Spain, Portugal, Greece, Germany, and Denmark were selected as focus countries, for which the interviews also included qualitative questions to discuss the observed quantitative data in these countries. The presented data has been used as the main input to elaborate an AURES II report on renewable energy financing conditions in Europe.

Advancing energy efficiency through green bond policy: Multifamily green mortgage backed securities issuance

Diffusion of new technology, such as green bond policies, is impacted by inefficiencies and frictions as the market navigates adoption. Using data from Fannie Mae multifamily green mortgage backed security issuances, we identify possible disconnects between pricing and benefits, as well as adoption trends. Evidence indicates that loans on properties backed by green bonds that incentivize energy efficiency in multifamily buildings receive lower interest rates, lower debt service coverage ratios, and higher leverage ratios than their “brown” counterparts. Some of these findings represent stated program benefits, yet others do not. Additionally, some benefits are observed accruing to properties which are not participating in a green MBS program, despite already qualifying for participation. Supporting evidence points to drivers of adoption and program refinements which could aid in policy maximization. Our results carry implications for both existing green bond programs as well as the diffusion of green bond policy into the broader capital markets.

Risk transfer in project finance loans for toll road using credit default swaps

PurposeThe purpose of this paper is to demonstrate the applicability of the Credit Default Swaps (CDS), as a financial instrument, for transferring of risk in project finance loans. Also, an equation has been derived for pricing of CDS spreads.Design/methodology/approachThe debt service cover ratio (DSCR) is modeled as a Brownian Motion (BM) with a power-law model fitted to the mean and half-variance of the existing data set of DSCRs. The survival probability of DSCR is calculated during the operational phase of the project finance deal, using a closed-form analytical method, and the results are verified by Monte Carlo simulation (MCS).FindingsIt is found that using the power-law model yields higher CDS premiums. This in turn confirms the necessity of conducting rigorous statistical analysis in fitting the best performing model as uninformed reliance on constant time-invariant drift and diffusion model can erroneously result in smaller CDS spreads. A sensitivity analysis also shows that the results are very sensitive to the recovery rate and cost of debt values.Originality/valueInsufficiency of free cash flow is a major risk in the toll road project finance and hence there is a need to develop innovative financial instruments for risk management. In this paper, a novel valuation method of CDS is proposed assuming that DSCR follows the BM stochastic process.

Financial Distress Analysis of The Sminfra18 Index Share Return on Indonesia Stock Exchange

The construction sector in Indonesia has a strategic contribution to the national economy. This can be seen clearly by the increasing development of office buildings, hotels, apartments and malls as well as road construction projects, toll roads, flyovers, and so on, this will have an impact on improving Indonesia's infrastructure. Along with the increase in market capitalization on the SMinfra18 Index, it becomes ironic when it is not accompanied by the performance, volume and value of the SMinfra18 Index which is still volatile. It is feared that this will lead to financial distress as a result of the Global Financial Crisis, so that many companies cannot fulfill their obligations to banks. Basically, financial distress becomes an interesting thing that business stakeholders need to know, especially management and investors. For management to be able to manage and maintain business performance, while for investors as an indicator of investment activities. The purpose of the study is related to 1) The condition of the financial performance of companies listed in SMInfra18. 2) Factors that affect SMInfra18 financial distress and 3) The relationship between financial distress and stock returns in SMInfra18. The analysis method used is panel data regression using Debt Service Coverage Ratio, Profitability Ratio (ROE), Liquidity Ratio (WC / TA), Activity Ratio (TATO), Efficiency Ratio (EBITDA / TA) and Leverage Ratio (DAR). The results provide an illustration that there are differences and financial distress conditions in each company and the grouping and conditions of financial distress and stock returns have not been able to have a unidirectional relationship from time to time.

Commercial real estate finance and the lending cap rate

PurposeThe aim of this study is to report on a simple derivation that results in what the authors refer to as the lending cap rate. The lending cap rate is a unique cap rate resulting in a property valuation that perfectly aligns the maximum loan amount for the financing of commercial real estate.Design/methodology/approachThe derivation is the result of simple algebra relating the two most common underwriting ratios: debt service coverage and loan-to-value with the formula for the present value of an annuity. Numerical examples are presented to demonstrate the calculation of the lending cap rate, property valuation and maximum loan amount. The authors also present comparative statics results.FindingsThe main finding of this research is that once a lender knows the debt service coverage ratio, loan-to-value ratio and lending terms for a specific property financing request, a simple calculation reveals the lending cap rate and the property valuation that aligns the maximum loan amount implied by the two underwriting ratios.Practical implicationsOne practical implication of the research is that a simple calculation reveals the lending cap rate which facilitates timely property evaluations for lending purposes. The methods demonstrated also offer real estate finance educators a practical means of connecting the loan underwriting process with property appraisal thereby facilitating conceptual understanding.Originality/valueThe key finding is original, and the importance of the finding is that the determination of the lending cap rate is simple and has the ability to make commercial real estate lending faster and cheaper, especially in lending situations where an evaluation rather than an appraisal is appropriate.

Financing conditions of renewable energy projects – results from an EU wide survey

This data note aims to present a dataset with values for financing conditions for renewable energy projects in Europe. This includes weighted average cost of capital, cost of debt, cost of equity, debt share, debt service coverage ratio and loan tenors. The dataset was elaborated in the framework of the "Auctions for Renewable Energy Support II" project (AURES II). The main goal of the AURES II project is to provide policy support to the Member States of the European Union in order to improve the effectiveness and cost-efficiency of auctions for renewable energy support. As part of the AURES II project, an extensive survey (structured interviews) was conducted between September 2019 and April 2020 with different stakeholders involved in the renewable energy industry, such as banks, project developing companies, and investment funds, among others. The technologies covered were solar photovoltaics (PV), wind onshore, and wind offshore. Interviewees were asked to provide values for financing conditions for specific projects (for certain cases, country estimates or ranges of values were provided). Spain, Portugal, Greece, Germany, and Denmark were selected as focus countries, for which the interviews also included qualitative questions to discuss the observed quantitative data in these countries. The presented data has been used as the main input to elaborate an AURES II report on renewable energy financing conditions in Europe.

Menakar Kelayakan Pinjaman Pemulihan Ekonomi Nasional (PEN) Daerah pada Kabupaten Bone Bolango

This study aims to assess the feasibility of regional national economic recovery loans (PEN) in Bone Bolango Regency, by analyzing 4 (four) indicators of eligibility requirements for granting Regional PEN Loans, namely (1) the area is affected by Covid 19; (2) have a Regional Economic Recovery program or activity that supports the National Economic Recovery program; (3) The remaining amount of the loan plus the amount of the loan to be withdrawn does not exceed 75 percent of the general revenue of the previous year's Regional Government Budget; (4) meet the ratio of regional financial capacity to repay regional loans of at least 2.5 percent.The first and second indicators were tested using desk study analysis. then the third and fourth indicators are tested by analyzing the financial statements of the Bone Bolango Regency in 2020 and calculating the Debt Service Coverage Ratio (DSCR) to assess the ability of the region to repay loans. The results showed that Bone Bolango Regency deserved a regional loan from the Central Government. This is because Bone Bolango fulfills 4 (four) loan requirements for the national economic recovery area.

A Solar Photovoltaic Performance and Financial Modeling Solution for Grid-Connected Homes in Zambia

Zambia is today 90% hydropower dependent, but this may change because Zambia and the World at large are today facing a changing climate that affects the ecosystem, rain patterns, and spurs drought which reduces the production of hydropower. The current power deficit experienced in Zambia points to a need to deploy a renewable energy generation-mix strategy. This study conducts a solar photovoltaic performance and financial analysis for grid-connected homes in Zambia to investigate the role of solar energy as an enabler for energy security in Zambia using the National Renewable Energy Laboratory (NREL) System Advisor Model (SAM) simulation method. It further reviews the available solar irradiance, modeling a detailed grid-connected photovoltaic system using locally available products for a single owner in a power purchase agreement (PPA) with the Zambia Electricity Company Limited (ZESCO). This model would alleviate the current power load shedding experienced by the residential sector, of up to 22 hours of no electricity out of 24 hours in a day. Alongside the technical performance model and an unfavorable business climate in Zambia, a financial model is also developed to help assess project feasibility and financial viability. A 1 kW solar PV system was modeled at an installation cost of US$1.27 per watt on a short-term basis of 5 years and found that the project is feasible with a 28.52% IRR achieved in 3 years and a 69% performance ratio and a debt service coverage ratio (DSCR) of 5.12 by the end of the project life, thereby indicating capability to turn around Zambia’s energy poverty to meet the UN SDG 7.

Penetration of farm mechanization services through FPOs: rural dynamics-based business modelling

Farm mechanisation although one among the essential input to raise the agriculture productivity, but individual owning of agricultural machinery by resource constrained small and marginal farmers who constitute around 85% of operated land holdings in India is uneconomical. Hence, innovative arrangements such as custom hiring centres’ (CHCs) are being encouraged through farm aggregation models like cooperative farming, Joint Liability Groups (JLG), Farmer Producer Organizations (FPOs) to get access to farm machinery services at affordable prices and promote mechanization of operations on small farms. With this background, the present study is taken upto assess the feasibility for the establishment of FPO owned and operated model custom hiring centre (CHC) in Nimmanapalle mandal of chittoor district of Andhra Pradesh state and formulate suitable business strategies for ensuring viability of the unit. The sample size of the study was 120 farmers. The major crops grown in the study area are tomato, paddy and groundnut and the market potential for farm machinery is estimated at Rs. 269.73 lakhs. The SWOT analysis conducted indicated the opportunity for establishment of CHC due to inadequate farm machinery services, labour shortages and farmers habituated to hiring services. The financial assessment for the proposed unit over a five year period showed that the unit is worth investing as reflected by positive NPV of 6.56 lakhs at 12% discount rate, BCR of 1.05 and IRR of 17.27%. The debt service coverage ratios of greater than two from second year onwards and annual increase of positive cash accruals signifies the unit strength in meeting the debt obligations. The unit if established shall have long term social benefits that includes increase in input use efficiency of farm resources due to timeliness of operations, productivity, yields, income levels in addition to creation of employment in non-farm sector.

Economic investigation of repowering of the existing wind farms with hybrid wind and solar power plants: a case study

In Tamil Nadu, India, the old wind turbines installed in 1988 have to be repowered and replaced by modern/advanced technological wind turbines. A solar power plant can be set up using the vast area between the wind turbines on the farm. The economic evaluation must be carried out to determine whether this hybrid project is economically beneficial. This article aims to examine the financial viability of repowering old wind turbines with solar power plants’ inclusion. According to the initial investment costs specified within fixed areas and the distance between turbines, the issue is articulated as optimizing the net present value (NPV) of the project. In this study, the economic investigation on the wind farm located in Kayathar was explored by replacing 30 numbers of 200 kW old wind turbines with modern wind turbines of 2000–3000 kW and installing the solar power plant between wind turbines, excluding the shadow region of wind turbines. The HOMER Pro software and Excel spreadsheet were used to analyze the optimal allocation, economic, electricity production, and sensitivity analyses of the effective hybrid systems. The value of electricity prices was measured using the levelized cost of energy and NPV methods. Additionally, a sensitivity analysis of the chosen parameters for the internal rate of return and debt service coverage ratio was estimated for wind and solar hybridization. The economic analysis suggests satisfactory profitability for the project, even without depending on subsidies. Furthermore, sensitivity analysis helps one see the consequences of the risk on the life of the wind farm and its impact on the project’s productivity and performance.