The capital debt repayment capacity margin is computed by subtracting interest expense on term debt, principal on term debt and capital leases, and unpaid operating debt from prior periods from capital debt repayment capacity.

Repayment capacity measures provide insight into your ability to generate enough funds to make debt payments on intermediate and long-term loans (loans longer than one year) and to replace capital assets. If used alone, these measures only provide a snapshot of the business’s ability to perform.

Debt Capacity Formula Current ratio: The current ratio, which is the current assets divided by the current liabilities, lets a company know how well current bills are paid. Also called the “working capital” ratio, it shows a company’s ability to pay short-term debts. A higher ratio indicates better repayment ability.

Debt capacity refers to the capacity of a company to take on debt or the total amount of debt it can incur to finance purchase of assets, invest in business operations, increase return on investment, boost production etc. and repay lenders (according to terms of the debt agreement).

The Capital Debt Repayment Margin simply measures the dollars that remain after all of the operating expenses, taxes, family living costs, and debt payments have been paid. This is the true cash amount that is left after paying all of the bills that a business/farm and the owner has.

The two financial measures relevant to repayment capacity are term debt and lease coverage ratio and capital replacement and term debt repayment margin.

Repayment Capacity: Repayment capacity is nothing but the ability of the farmer to. repay the loan obtained for the productive purpose with in a stipulated time period as fixed by the lending agency.

To calculate your debt-to-income ratio:

1. Add up your monthly bills which may include: Monthly rent or house payment.
2. Divide the total by your gross monthly income, which is your income before taxes.
3. The result is your DTI, which will be in the form of a percentage. The lower the DTI; the less risky you are to lenders.

Character, Capital and Capacity
The factors that determine your credit score are called The Three C’s of Credit – Character, Capital and Capacity. These are areas a creditor looks at prior to making a decision about whether to take you on as a borrower.

The capital debt repayment margin is computed by subtracting interest expense on term debt, principal on term debt and capital leases, and unpaid operating debt from prior periods from capital debt repayment capacity (accrual net farm income, off-farm income, interest expense on term debt, and depreciation minus family …

Debt Ratio is a financial ratio that indicates the percentage of a company’s assets that are provided via debt. It is the ratio of total debt (long-term liabilities) and total assets (the sum of current assets, fixed assets, and other assets such as ‘goodwill’).