Debt service
Debt service are all spending a borrower who made his recorded liabilities arising, in particular interest and repayment .
General
Debt servicing initially leads to expenses and therefore burdens liquidity . The interest payment as part of the debt service is also a cost factor ( interest expense ) that leads to a decrease in profit or an increase in loss. These similarities apply to all types of debtors who must service debt. This includes companies , the state and its local authorities and natural persons .
detection
Debt servicing includes all interest expenses and ancillary interest costs in connection with the borrowing, in particular fees for loan brokerage , discounts , bank fees associated with borrowing , issuing costs for bonds issued or leasing fees . This does not include the interest on pension provisions . All repayments of loans such as annuities , installment repayments or repayments in one sum on the due date (in the case of so-called "bullet loans") are included in the repayments. Repayment surrogates for private individuals, such as the savings payments from endowment insurance , annuity insurance or building society contracts, are also part of the debt service.
Key figures
The debt service as such is no economic indicator in the strict sense, but it is only in conjunction with other data to a school thought number as the interest burden ratio , the interest coverage ratio , the debt service coverage ratio , the debt service limit or debt servicing capacity . The debt service shows how much income a (fully or partially) debt- financed investment must generate at least on average per period in order to be able to cover the expenses for the debt service . In the case of business calculations and investment calculations , the depreciation triggered by the financed investment must also be added to the debt service because it must also be earned.
The debt service (in the form of the interest expense) is analytically a part of the EBT (result of ordinary business activity), to which the interest expense is added again (and the interest income is deducted) in order to determine the EBIT .
consequences
In companies with a high share of equity , the debt service is relatively low and has little impact on costs or liquidity and vice versa. The higher the level of indebtedness , the greater the risk of being able to service the debt in the event of structural or economic declines in sales. When it comes to investment decisions, it has been empirically proven that companies with a high interest burden ratio also have lower investment ratios because debt servicing has a strong influence on investment activity. The debt service coverage is from banks to consider in advance of the credit. It is an essential criterion when rating a debtor.
The debt service must not exceed the debt service limit, since otherwise interest and repayment payments can only be made by reducing the assets or through additional equity or debt . If this is not possible, there is a debt crisis and the threat of insolvency ( bankruptcy ).
Individual evidence
- ↑ Gebhard Zimmermann, investment calculation , 2003, p. 185
- ^ Karl-Werner Schulte, Profitability Calculation , 1986, p. 79
- ↑ Relationship between investment activity and the financial situation of companies in the euro area , monthly report of the ECB from April 2008, p. 74 ( Memento of the original dated January 30, 2012 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice.
- ↑ BTO 1.2.1 No. 1 of the minimum requirements for risk management in accordance with circular 15/2009 of the Federal Financial Supervisory Authority (BaFin) of December 14, 2012, reference number: BA 54-FR 2210-2008 / 0001 ( Memento of the original of September 15 2013 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice.
