What financial indicator is used to compare a borrower’s income to their debt obligations?

The Debt Service Coverage Ratio (DSCR) is the correct financial indicator used to compare a borrower’s income to their debt obligations. DSCR is calculated by dividing an entity's net operating income by its total debt service obligations. It measures the ability of a borrower to cover their debt payments with their income, providing insight into the financial health and profitability of the borrower. A ratio greater than 1 indicates that the borrower generates enough income to cover their debts; conversely, a ratio less than 1 suggests that the borrower may struggle to meet their debt obligations.

Other options do not serve this specific purpose. The Net Equity Ratio assesses the proportion of equity financing to total assets, which is useful for understanding ownership structure but not for income versus debt comparison. The Income to Expense Ratio primarily focuses on evaluating whether income covers all expenses, not specifically debt. The Return on Investment Ratio measures the profitability of an investment relative to its cost but does not directly address the relationship of income to debt obligations. Thus, DSCR is the most relevant measure for assessing a borrower's ability to manage their debt.