What financial metric is typically analyzed when evaluating a revenue bond issue?

The debt service coverage ratio is a critical financial metric analyzed when evaluating a revenue bond issue because it measures a bond issuer's ability to meet its debt obligations from revenue generated by the project or facility financed by the bond. Specifically, this ratio compares the net revenue available for debt service (usually after operating expenses have been paid) to the total debt service required for the bonds in a given period.

A strong debt service coverage ratio indicates that the issuer generates sufficient revenue to comfortably pay its debt interest and principal repayments, providing assurance to investors about the reliability of their investment. A ratio below 1.0 suggests that the issuer does not have enough revenue to cover its debt obligations, posing a higher risk for investors.

In contrast, while return on investment, net present value, and current ratio are important financial metrics in their own contexts—return on investment assesses profitability, net present value measures the value of an investment in present terms, and current ratio evaluates short-term liquidity—they are not specifically tailored to assessing a revenue bond's viability and the issuer's ability to cover its debt service payments.