Debt Service Coverage Ratio

A printable cheatsheet with calculations
and notes

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Debt Service Coverage Ratio

Debt Service Coverage Ratio =

Net Operating Income

Debt Service

AKA: Debt Coverage Ratio:

INTERPRETATION

The debt service coverage ratio is the operating income available to debt servicing for interest, principal, and lease payments.

Business owners, managers, and other interested parties use it to measure a company’s ability to repay its loans, take on new financing and make dividend payments.

Note: expanded calculation

Divide net operating income by debt service, including principal and interest.

= EBIT / (interest payments + principle payments + other obligations)

EXAMPLE

M&M calculated its debt-service coverage ratio to equal 1.25, which means the business can cover its debt 1.25 times over its current operating level. A 100% repayment.

BENCHMARK: HA, PG, EB, ROT

A company’s DSCR depends on its industry, competitors, and growth stage.

Generally, a DSCR above 1.25 is a sign of financial strength. In contrast, ratios below 1.00 could indicate that a company may be in trouble and have difficulty producing enough cash to cover its debt payments.

Debt Service Coverage Ratio:

ABBREVIATION KEY:

ROT: Rule of thumb
HA: Historical Average (organization’s historical average)
PG: Peer Group average
EB: Economic Benchmark

DISCLAIMER: The interactive calculators on this site are self-help tools intended to help you visualize and explore your financial information. They are not intended to replace the advice of a qualified professional. Because each business is different, we can not guarantee accuracy.