If you are a lender evaluating a loan application and you calculate the following ratio: (EBIT + Lease Payments)/[Interest + Lease Payments + (Sinking Fund/(1 − T))],then you are calculating a debt service ratio and it should be less than one in order to approve the loan.

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This ratio is a measure of a company's ability to cover its debt obligations, but there is no universal rule that it should be less than one to approve a loan. Generally, a higher ratio indicates better ability to service debt, and lenders may have different thresholds for what they consider acceptable.

If You Are a Lender Evaluating a Loan Application and You