Definition
DSCR measures ability to cover all debt obligations including principal repayment, not just interest. It's stricter than interest coverage. Lenders typically require DSCR above 1.2-1.5x for loans. Below 1.0x indicates inability to service debt from operations.
Formula
DSCR = Operating Income / (Interest + Principal Payments)
Example
With $50M operating income, $10M interest, and $15M principal due, DSCR is 2.0x. The company generates twice its total debt service requirement.
FAQ
What is Debt Service Coverage Ratio (DSCR)?
Operating income divided by total debt payments.
How do you calculate Debt Service Coverage Ratio (DSCR)?
A common formula for Debt Service Coverage Ratio (DSCR) is: DSCR = Operating Income / (Interest + Principal Payments)
Why is Debt Service Coverage Ratio (DSCR) important?
Debt Service Coverage Ratio (DSCR) helps investors evaluate leverage and make more informed decisions.