Which statement about debt coverage ratio greater than 1 is true?

• A. NOI is greater than debt service.
• B. NOI equals debt service.
• C. Debt service exceeds NOI.
• D. Debt service is irrelevant to NOI.

Answer: (A)

Debt coverage ratio shows whether a property's income can cover its debt service. When that ratio is greater than 1, the net operating income exceeds the annual debt service, meaning there is a cushion and the debt can be paid from ongoing operations.

This works because the ratio is computed as NOI divided by debt service. If NOI is larger than the debt service, the division yields a number above 1, confirming the property can comfortably meet its debt obligations. NOI itself represents the income left after operating expenses but before debt service and taxes, so it reflects the cash available to service debt.

If debt service equaled NOI, the ratio would be exactly 1, not greater than 1. If debt service exceeded NOI, the ratio would be less than 1, indicating insufficient income to cover debt payments. Debt service is not irrelevant to NOI in this context, because the whole purpose of the ratio is to compare the income available to service debt with the actual debt obligations.

So, the statement that NOI is greater than debt service is the true reflection when the debt coverage ratio is greater than 1.