Which of the following is a key metric to evaluate debt sustainability?

The debt-service coverage ratio (DSCR) is a key metric used to evaluate debt sustainability because it measures an entity's ability to generate enough income to cover its debt obligations, particularly the interest and principal repayments. A higher DSCR indicates that the entity has sufficient income available to meet its debt service requirements, suggesting a lower risk of default. This ratio helps assess whether current income streams are adequate to support existing debt levels, which is critical for maintaining financial stability and managing long-term debt effectively.

In the context of municipal finance, understanding debt sustainability is essential for ensuring that municipalities can meet their financial obligations while still funding necessary public services and projects. Therefore, the DSCR serves as a fundamental indicator of financial health and operational capacity, guiding decision-makers when evaluating existing debt arrangements or considering new borrowing.