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Glossary Term: ABILITY TO PAY

Definition(s) for ABILITY TO PAY:


1. ) Refers to the borrower's ability to make interest and principal payments on debts. This is measure of a firm's ability to meet its fixed-charge obligations: the ratio of (Earnings before interest, depreciation and amortization minus unfunded capital expenditures and distributions) divided by total debt service (annual principal and interest payments). With respect to municipal bonds, the terminilogy refers to the issuer's present and future ability to create sufficient tax revenue to fulfill its contractual obligations, accounting for municipal income and property values. In terms of taxation, it refers to the notion that tax rates should be determined according to income or wealth.



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