Which metric measures an asset's cash flow relative to the total loan amount?

Which metric measures an asset's cash flow relative to the total loan amount?

• A. Debt Yield
• B. Cash-on-Cash Return
• C. Cap Rate
• D. Debt Service Coverage Ratio

Answer: (A)

Debt yield focuses on how much annual cash flow the property generates relative to the size of the loan secured by the property. It is calculated as NOI divided by the total loan amount, giving a measure of cash flow coverage of the loan that is independent of financing terms like interest rate or amortization. This is distinct from other metrics: cap rate compares NOI to asset value, not loan amount; debt service coverage ratio compares NOI to annual debt service (the loan payments), not the loan itself; and cash-on-cash return looks at cash flow relative to equity invested. So the described metric—the asset’s cash flow relative to the total loan amount—is debt yield.

Debt yield focuses on how much annual cash flow the property generates relative to the size of the loan secured by the property. It is calculated as NOI divided by the total loan amount, giving a measure of cash flow coverage of the loan that is independent of financing terms like interest rate or amortization. This is distinct from other metrics: cap rate compares NOI to asset value, not loan amount; debt service coverage ratio compares NOI to annual debt service (the loan payments), not the loan itself; and cash-on-cash return looks at cash flow relative to equity invested. So the described metric—the asset’s cash flow relative to the total loan amount—is debt yield.