Debt service refers the principal and interest portion of all long-term liabilities combined. Debt service value is customarily expressed as the amount due in one accounting period, amounts due over several accounting periods and those amounts due well in the future.
Small business books and manuals explain the formula used to determine whether additional debt increases the return for investors commonly known as return on investment (ROI). I find this laughable in our modern economic times given the low cost of financing.
There is one unique financial characteristic that is synonymous with the hospitality industry; that is high fixed costs. Or another way of stating the same financial attribute is to simply state that the hospitality industry has low variable costs.
In the arsenal of capitalizing a business operation, long term debt serves as one of the primary sources of capital. If you are an owner of a small business, you need to understand the relationship this source has to the overall financial status of the company. Too much debt and the owner is burden by the cash outlays to service.
