Debt service coverage ratio

Debt Service Coverage Ratio – Guide on How to Calculate DSCR

Debt service coverage ratio

The Debt Service Coverage Ratio (DSCR) measures the ability of a company to use its operating incomeOperating IncomeOperating Income, also referred to as operating profit or Earnings Before Interest & Taxes (EBIT), is the amount of revenue left after deducting operational direct and indirect costs.

Interest expense, interest income, and other non-operational revenue sources are not considered in computing operating income to repay all its debt obligations, including repayment of principal and interest on both short-term and long-term debtLong Term DebtLong Term Debt (LTD) is any amount of outstanding debt a company holds that has a maturity of 12 months or longer. It is classified as a non-current liability on the company’s balance sheet. The time to maturity for LTD can range anywhere from 12 months to 30+ years and the types of debt can include bonds, mortgages. This ratio is often used when a company has any borrowings on its balance sheetBalance SheetThe balance sheet is one of the three fundamental financial statements. These statements are key to both financial modeling and accounting. The balance sheet displays the company’s total assets, and how these assets are financed, through either debt or equity. Assets = Liabilities + Equity such as bondsBondsBonds are fixed-income securities that are issued by corporations and governments to raise capital. The bond issuer borrows capital from the bondholder and makes fixed payments to them at a fixed (or variable) interest rate for a specified period., loans, or lines of credit. It is also a commonly used ratio in a leveraged buyoutLeveraged Buyout (LBO)A leveraged buyout (LBO) is a transaction where a business is acquired using debt as the main source of consideration. An LBO transaction typically occur when a private equity (PE) firm borrows as much as they can from a variety of lenders (up to 70-80% of the purchase price) to achieve an internal rate return IRR >20% transaction, to evaluate the debt capacity of the target company, along with other credit metrics such as total debt/EBITDADebt/EBITDA RatioNet debt to earnings before interest, taxes, depreciation, and amortization (debt/EBITDA ratio) is a measure of financial leverage and a company’s ability to pay off its debt. Essentially, the net debt to EBITDA ratio gives an indication as to how long a company would need to operate at its current level to pay off multiple, net debt/EBITDA multiple, interest coverage ratioInterest Coverage RatioInterest Coverage Ratio (ICR) is a financial ratio that is used to determine the ability of a company to pay the interest on its outstanding debt. The ICR is commonly used by lenders, creditors, and investors to determine the riskiness of lending capital to a company. The interest coverage ratio is also called “times and fixed charge coverage ratioFixed-Charge Coverage Ratio (FCCR)The Fixed-Charge Coverage Ratio (FCCR) is a measure of a company’s ability to meet fixed-charge obligations such as interest and lease expenses. The FCCR is a broader measure of the times interest coverage ratio, as it also includes other fixed costs such as leases and insurance. A higher FCCR value is preferred..

Debt Service Coverage Ratio Formula

There are two ways to calculate this ratio:


  • EBITDAEBITDAEBITDA or Earnings Before Interest, Tax, Depreciation, Amortization is a company's profits before any of these net deductions are made. EBITDA focuses on the operating decisions of a business because it looks at the business’ profitability from core operations before the impact of capital structure. Formula, examples = Earnings Before Interest, Tax, Depreciation and Amortization
  • Principal = the total loan amount of short-term and long-term borrowings
  • Interest = the interest payable on any borrowings
  • CapexCapital ExpenditureA Capital Expenditure (Capex for short) is the payment with either cash or credit to purchase goods or services that are capitalized on the balance sheet. Put another way, it is an expenditure that is capitalized (i.e. not expensed directly on the income statement) and is considered an “investment”. Analysts view Capex = Capital Expenditure

Some companies might prefer to use the latter formula because capital expenditure is not expensed on the income statementIncome StatementThe Income Statement (or Statement of Profit and Loss) shows performance from operations of a business. The financial statement begins with revenues and but rather considered as an “investment”. Excluding capex from EBITDA will give the company the actual amount of operating income available for debt repayment.

Debt Service Coverage Ratio Example

Consider a company which has short-term debt of $5,000 and long-term debt of $12,000. The interest rate on the short-term debt is 3.5% and the interest rate on the long-term debt is 5.0%. Capital expenditure in 2018 is $4,900.

The company’s income statement is as follows:

Gross Margin50,870
Marketing and Promotion Expense14,800
General and Administrative Expense6,310

We can use the two formulas to calculate the ratio:

Debt service coverage ratio (including Capex) = 29,760 / (5,000 x (1 + 3.5%) + 12,000 x (1 + 5.0%)) = 1.7x

Debt service coverage ratio (excluding Capex) = (29,760 – 4,900) / (5,000 x (1 + 3.5%) + 12,000 x (1 + 5.0%)) = 1.4x

Thus, the ratio shows the company can repay its debt service 1.7 times with its operating income and 1.4 times with its operating income, less capex.

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Interpretation of the Debt Service Coverage Ratio

A debt service coverage ratio of 1 or above indicates that a company is generating sufficient operating income to cover its annual debt and interest payments. As a general rule of thumb, an ideal  ratio should be 2 or higher. A ratio that high suggests that the company is capable of taking on more debt.

A ratio of less than 1 is not optimal because it reflects the company’s inability to service its current debt obligations with operating income alone. For example, a DSCR of 0.8 indicates that there is only enough operating income to cover 80% of the company’s debt payments.

Rather than just looking at an isolated number, it is better to consider a company’s debt service coverage ratio relative to the ratio of other companies in the same sector.

If a company has a significantly higher DSCR than most of its competitors, that indicates superior debt management.

A financial analyst may also want to look at a company’s ratio over time – to see whether it is trending upward (improving) or downward (getting worse).

Common Uses of the Debt Service Coverage Ratio

  • The debt service coverage ratio is a common benchmark to measure the ability of a company to pay its outstanding debt including principal; and interest expense.
  • DSCR is used by an acquiring company in a leveraged buyoutLeveraged Buyout (LBO)A leveraged buyout (LBO) is a transaction where a business is acquired using debt as the main source of consideration. An LBO transaction typically occur when a private equity (PE) firm borrows as much as they can from a variety of lenders (up to 70-80% of the purchase price) to achieve an internal rate return IRR >20% to assess the target company’s debt structure and ability to meet debt obligations.
  • DSCR is used by bank loan officers to determine the debt servicing ability of a company.

Additional Resources

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Debt Ratios (Коэффициенты задолженности)

Debt service coverage ratio

Существует группа показателей, которые показывают, какая частьприбыли или денежного потока поглощается процентными и (или) инымификсированными расходами (платежами). На основании этих коэффициентовтакже можно провести оценкукредитоспособности компании.

К коэффициентам, характеризующим долговую нагрузку на компанию относятся:

Debt Ratio (Коэффициент финансовой зависимости)

Debt-to-equity Ratio (Коэффициент финансового левериджа)

Capitalization Ratio (Коэффициент капитализации)

Interest Coverage Ratio, Times Interest Earned (Коэффициент покрытия процентов)

Debt Service Coverage Ratio (Коэффициент обслуживания (покрытия) долга)

Cash Flow to Debt Ratio (Отношение притока денежных средств к сумме обязательств)

Debt Ratio

Debt ratio (Коэффициент финансовой зависимости) –это коэффициент характеризующий отношение заемного капитала организациико всему капиталу (активам) компании.

Debt Ratio = Total Equity / Total Assets

Debt Ratio = Обязательства / Активы

Нормальным считается значение показателя не более 0,6-0,7.Оптимальным значением коэффициента финансовой зависимости считается 0,5(то есть равное соотношение собственного и заемного капитала).

Значениепоказателя ниже нормы говорит о слишком осторожном подходе компании кпривлечению заемного капитала и об упущенных возможностях повышениярентабельности собственного капитала за счет использования эффектафинансового рычага. В обратном случае, т.е.

при значении коэффициентафинансовой зависимости более 0,7 свидетельствует о сильной зависимостикомпании от привлеченных средств (кредитов).

Debt-to-equity Ratio

Debt-to-equity ratio (Коэффициент финансового левериджа)– это показатель соотношения заемного и собственного капиталакомпании.

Он принадлежит к группе основных показателей, характеризующихфинансовое положение компании и часто используют в более общем смысле,говоря о принципиальном подходе к финансированию бизнеса, когда спомощью заемных средств у предприятия формируется финансовыйрычаг для повышения отдачи от собственных средств, вложенныхв бизнес.

Debt to equity ratio = (Long-term debt – Value ofleases) / Average shareholders’ equity

Debt to equity ratio = Обязательства / Собственныйкапитал

Оптимальным считается соотношение обязательств и собственногокапитала (чистых активов) равное 1,0 (коэффициент финансового левериджаравен 1). Наиболее распространенным значением коэффициента в развитыхэкономиках является 1,5 (т.е. 60% заемного капитала и 40% собственного).

Как и другие коэффициенты, характеризующие структуру капитала(коэффициент автономии, коэффициент финансовой зависимости), нормальноезначение коэффициента финансового левериджа зависит от отрасли,масштабов предприятия и даже способа организации производства(фондоемкое или трудоемкое производство). Поэтому его следует оцениватьв динамике и сравнивать с показателем аналогичных предприятий.

Capitalization Ratio

Capitalization ratio (Коэффициент капитализации) –это показатель, сравнивающий размер долгосрочной кредиторскойзадолженности с совокупными источниками долгосрочного финансирования,включающими кроме долгосрочной кредиторской задолженности собственныйкапитал компании.

Capitalization ratio = Long-term debt / (Long-termdebt + shareholder’s equity)

Capitalization ratio = Долгосрочные обязательства /(Долгосрочные обязательства + Собственный капитал)

Коэффициент позволяет оценить достаточность у компанииисточников финансирования своей деятельности в форме собственногокапитала. Показатель не имеет устоявшегося нормативного значения,поскольку сильно зависит от отрасли или технологии используемой компанией.

Interest Coverage Ratio,Times Interest Earned Ratio (TIE)

Interest coverage ratio, Times interest earned (Коэффициентпокрытия процентов). Характеризует степень защищенности кредиторов отневыплаты процентов за предоставленный кредит и демонстрирует: сколькораз в течение отчетного периода компания заработала средства длявыплаты процентов по кредитам и займам.

Показатель TIE представляет собой соотношение прибыли доуплаты процентов и корпоративных налогов (EBIT)и величины расходов по выплате процентов (annual interest expense),рассчитывается по формуле:

Interest coverage ratio = EBIT / annual interest expense

TIE = EBIT / Проценты к уплате

Этот показатель также позволяет определить допустимый уровеньснижения прибыли, используемой для выплаты процентов.

Значение коэффициента ниже 1,5 ставит под вопрос возможность компанииобслуживать свою кредиторскую задолженность. Критическим считаетсязначение коэффициента менее 1,0 (сумма EBIT меньше суммы процентов куплате), которой означает, что приток денежных средств компаниинедостаточен для выплаты процентов по кредитам и займам.

Показатель представляет собой коэффициент, дающийпредставление, во сколько раз прибыль предприятия без учета начисленнойамортизации превышает процент, причитающийся к уплате. Этот коэффициенттакже не учитывает выплат основных сумм долга, связанных с погашениемзаймов, и которые будут намного больше, чем проценты.

Debt Service Coverage Ratio (DSCR)

Debt service coverage ratio (Коэффициент покрытияфиксированных платежей или коэффициент обслуживания(покрытия) долга) представляет собой отношение чистойоперационной прибыли (дохода) к суммарным выплатам по кредиту за период(основной долг + проценты). Данный показатель используется дляопределения способности компании генерировать свободный денежный поток,необходимый и достаточный для обслуживания имеющихся кредитов и займов.

Данный показатель, включающий все необходимые выплаты пообслуживанию долга, срок которыхнаступает в отчетном периоде, и рассчитывается по следующей формуле:

Debt service coverage ratio = Net operating income/ Total debt service


DSCR = Annual net operating income / (Principal repayment +interest payments + lease payments)

Debt service coverage ratio = EBIT / Суммарныевыплаты по кредитам за период (основной долг + проценты)

Cash Flow to Debt Ratio

Cash flow to debt ratio (Отношение притока денежных средств ксумме обязательств). Данный показатель используется при оценкекредитного положения компании.

Cash flow to debt ratio = Operating cash flow / Total debt

Cash flow to debt ratio = Операционный денежный поток / Совокупная задолженность

Коэффициент показывает запас времени, которое потребуется длявыплаты долга при условии, что на его погашение будет направлен весьоперационный денежный поток компании.

Чем выше соотношение, тем выше способность компанииобслуживать собственные долги.


Debt Service Coverage Ratio (DSCR)|

Debt service coverage ratio

Debt service coverage ratio (DSCR) essentially calculates the repayment capacity of a borrower. DSCR less than 1 suggests the inability of firm’s cash to serve its debts whereas a DSCR greater than 1 means not only serving the debt obligations.

Definition of DSCR

DSCR is a ratio of cash available to cash required for debt servicing. In other words, it is the ratio of the sufficiency of cash to repay the debt. We will understand the formula and its calculation below.


Debt Service Coverage Ratio (DSCR), one of the coverage ratios, calculated in order to know the cash profit availability to repay the principal and interest. Essentially, DSCR is calculated when a company/firm takes a loan from bank / financial institution / any other loan provider.

This ratio suggests the capability of cash profits to meet the repayment of the financial loan. DSCR is very important from the viewpoint of the financing authority as it indicates a repaying capability of the entity taking a loan. Just a year’s analysis of DSCR does not lead to any concrete conclusion about the debt servicing capability.

DSCR is relevant only when it is seen for the entire remaining period of a loan.

How to Calculate Debt Service Coverage Ratio?

Calculation of DSCR is very simple. To calculate this ratio, following items from the financial statement are required:

Profit after tax (PAT)

Noncash expenses (e.g. Depreciation, Miscellaneous expenses are written off etc.)

Interest for the current year

Installment for the current year

Lease Rental for the current year

Sometimes, these figures are readily available but at times, they are to be determined using the financial statements of the company/firm.

DSCR Formula

It is stated and explained below:

PAT + Interest + Lease rental + Non-cash expenses
Installment (Interest + Principal repayment due during the year) + Lease Rental

Profit after tax (PAT)

PAT is generally available readily on the face of the Profit and loss account. It is the balance of the profit and loss account which is transferred to the reserve and surplus fund of the business.

Sometimes, in an absence of the profit and loss statement, we can also find it on the balance sheet by subtracting the current year P/L account from the previous year’s balance, which is readily available under the head of reserve & surplus.


The amount which is payable for the financial year under concern on the loan is taken.

Noncash expenses

Noncash expenses are those expenses which are charged to the profit and loss account for which payment has already been done in the past years. Following are the noncash expenses:

  • Writing off of preliminary expenses, pre-operative expenses etc,
  • Depreciation on the fixed assets,
  • Amortization of the intangible assets goodwill, trademark, patent, copyright etc,
  • Provisions for doubtful debts,
  • Deferment of expenses an advertisement, promotion etc.

Principal amount

It is the amount payable on the loan for the financial year under review. It includes the payment towards principal for the financial year.

Lease Rental

The amount of lease rent paid or payable for the financial year.

Interpretation of Debt Service Coverage Ratio

Just calculating a ratio does not serve the purpose till DSCR is analyzed and interpreted properly. The result of a debt service coverage ratio is an absolute figure.

Higher this figure better is the debt serving capacity. It shows sound financial position of the company.

If the ratio is less than 1, it is considered bad because it simply indicates that the cash of the firm are not sufficient to service its debt obligations.

The acceptable industry norm for a debt service coverage ratio is between 1.5 to 2. The ratio is of utmost use to lenders of money such as banks, financial institutions etc. Objectives of any financial institution behind giving a loan to a business is earning interest and to make sure that principal amount remains secured.

Let’s take an example where the DSCR is coming to be less than 1, which directly indicate negative views about the repayment capacity of the firm. Does this mean that the bank should not extend loan? No, absolutely not.

It is because the bank will analyze the profit-generating capacity and business idea as a whole and if the business is strong in both of them; the DSCR can be improved by increasing the term of a loan. Increasing the term of the loan will reduce the denominator of the ratio and thereby enlarge the ratio to greater than 1.

Further, companies having higher DSCR can bargain for favorable terms for them, lower rate of interest, less protective covenants or security etc. Truly for any loan this ratio is must.

Last updated on : March 23rd, 2019


Значение показателя коэффициента покрытия долга (DSCR)

Debt service coverage ratio

Коэффициент покрытия долга DSCR (англ.

Debt Service Coverage Ratio) – это финансовый показатель, принадлежащий группе Debt Ratios (коэффициенты задолженности), характеризующий способность организации производить выплаты по взятым долговым обязательствам. Представляет собой соотношение чистого операционного дохода (выручки, обеспеченной деятельностью организации, скорректированной на значение операционных расходов) и суммы кредитных выплат (основной долг, дополненный процентами) рассматриваемого периода. Коэффициент покрытия долга показывает способность фирмы удовлетворить требования кредиторов/инвесторов использованием средств сформированного денежного потока при одномоментном запросе долговых выплат всеми кредиторами.


Реалии современного рынка предполагают обязательное привлечение фирмами заемных средств, позволяющих ускорить свое расширение, но прежде чем брать долг, необходимо рассчитать коэффициент покрытия долга. Варианты использования займов включают:

  • покупку нового оборудования;
  • расширение ассортимента продукции;
  • маркетинговые операции;
  • выход на новый рынок.

Развитие предполагает увеличение доли организации на рынке, происходящее за счет уменьшения долей конкурентов. Уменьшение доли предполагает уменьшение коэффициента будущей выручки, ограничение возможностей предприятия.

Пессимистичный сценарий развития событий допускает резкое ограничение деятельности/закрытие организации.

Рыночная среда, отличающаяся высокой конкуренцией, делает привлечение кредитных средств и инвестиций вопросом выживания, следовательно от расчета коэффициента покрытия долга зависит дальнейшая судьба компании.

Все мероприятия, дающие возможность увеличить операционную прибыль, дорогостоящие. Их реализация и дальнейшее покрытие долга собственными финансовыми ресурсами трудновыполнима, в случае молодых организации – зачастую невозможна. Денежное вливание путем выдачи займа кредитной организацией/привлечения инвесторов выгодно всем участникам процесса:

  • инвестор ожидает выплат дивидендов;
  • кредитная организация получает процентные выплаты;
  • прибыль фирмы, даже учитывая возникшие долговые обязательства, увеличивается больше, чем при использовании лишь собственных средств.

Однако привлечение заемных средств требует от предприятия определенной финансовой устойчивости, служащей кредитору гарантом сохранности предоставленных финансовых ресурсов. Коэффициент покрытия долга – один из таких гарантов.

Значение коэффициента покрытия займа, уступающее 1 (единице), демонстрирует неспособность заемщика погасить свои обязательства путем использования полученной прибыли. Подобная финансовая проблема служит кредитору весомым аргументом в пользу отказа от сотрудничества с данным юридическим лицом. Шансы заключения сделки прямо пропорциональны коэффициенту покрытия долга.

Значение, превышающее 1, означает наличие свободных денежных средств, которые могут пойти на реализацию мероприятий, сулящих дальнейшее увеличение капитализации фирмы.

Другое их применение – формирование «подушки безопасности» на случай возникновения форс-мажорных обстоятельств. Такая организация сможет получить банковский заем и покрыть его.

Заинтересовать инвесторов финансово устойчивой фирме также намного легче.

Показатель интересен не только инвесторам/банкам. Сопоставление значения коэффициента задолженности за несколько периодов предоставляет высшему руководству важную информацию, характеризующую деловую стратегию компании. Продолжительная тенденция его уменьшения является тревожным фактором, вызванным:

  • потерей прибыли ввиду определенных причин (действий конкурентов, собственных просчетов, изменением макроэкономических индикаторов региона, которому принадлежит целевой рынок);
  • увеличением прямых и операционных расходов, отягощенных отсутствием возможности повышения цены конечной продукции;
  • привлечением новых заемных средств.

Такая ситуация требует пересмотра/корректировки действующей стратегии, пока размер проблемы не достиг критической массы, исключающей безболезненное решение. Исключением является случай, когда падение коэффициента, вызванное получением новых займов, носит плановый, а не вынужденный характер.

Продолжительное увеличение коэффициента покрытия долга также является нежелательным. Данная тенденция обусловлена недостаточным количеством привлеченных средств в финансовой структуре организации, что подразумевает упущенную прибыль, вызванную неиспользованием эффекта финансового рычага.

Обычные экономические условия предполагают, что покрытие привлеченных заемных средств меньше прибыли, полученной благодаря их использованию.

Игнорирование данного механизма руководством фирмы потенциальный инвестор может счесть за проявление непрофессионализма.

Высокий коэффициент долга может быть оправдан наличием обстоятельств, не позволяющих получить путем займа дополнительную выгоду (например, высокой кредитной ставкой).

Расчет коэффициента покрытия долга

Расчет показателя DSCR происходит по следующей формуле:

DSCR = Net Operating Income / Total debt service,

где DSCR – коэффициент покрытия долга;

Net Operating Income (NOI) – чистый операционный доход организации за рассматриваемый период;

Total debt service – ее суммарные долговые обязательства за рассматриваемый период.

Показатель NOI, в свою очередь, находится путем вычета из валовой прибыли всех затрат, необходимых для нормального функционирования предприятия. Эта статья расходов включает:

  • аренду помещений;
  • плату за электроэнергию;
  • зарплаты персонала;
  • расходы на НИОКР
  • прочие повседневные расходы компании, исключая прямые затраты.

Если основная деятельность – единственный источник доходов, NOI становится синонимом EBIT (англ. Earnings Before Interest and Taxes) – прибыли до уплаты налогов и процентов.

Пример расчета коэффициента

Валовая прибыль фирмы за год составила 250 000 000 р., операционные расходы – 68 000 000 р., а суммарные долговые обязательства – 175 000 000 р. Расчет искомого коэффициента покрытия долга будет иметь следующий вид:

DSCR = (250000000 – 68000000) / 175000000 = 1,04.

В данном примере показатель DSCR не пересекает границу опасных значений, однако находится в непосредственной близости к ней.

Имея сумму долговых обязательств, практически равняющуюся операционной прибыли, привлечение нового заемного капитала будет опасным шагом. Организации следует взвесить все возможные риски перед принятием такого решения.

Неблагоприятное развитие событий может лишить ее платежеспособности и привести к банкротству.


Debt Service Coverage Ratio: What Is DSCR and How Do You Improve It?

Debt service coverage ratio

When you apply for business loans, lenders use a variety of quantitative and qualitative metrics to assess your eligibility. Among these metrics, DSCR is one of the most important because it goes to the heart of the question that every lender tries to answer: Can you pay back this loan on time and in full?

Your business’s DSCR helps the lender determine whether or not your business can take on the small business loan, how large a loan to approve, and what terms you’ll get on the financing.

Debt service coverage ratio isn’t as simple as plugging some numbers into a formula. You need to understand how to interpret your result, what goes into the calculation, and which lenders check DSCR. Learn about all of this, plus how to improve your DSCR if your ratio isn’t high enough to qualify for the best financing.

Why Debt Service Coverage Ratio (DSCR) Is Important

Debt service coverage ratio (DSCR) is one of many financial ratios that lenders assess when considering a loan application. This ratio is especially important because the result gives some indication to the lender of whether you’ll be able to pay back the loan with interest. A ratio over 1 is good, and the higher the better.

Lenders don’t want to lose their investments or take the trouble of chasing down a borrower who defaults. So, they look for reassurance that your business has generated—and will continue to generate—enough income to pay back the loan with interest.

Having just enough cash to cover your loan payments generally isn’t enough. Lenders don’t want to see you just scraping by. They want to see that you have a sufficient cash “cushion”—cash flow above and beyond the minimum—to pay off the loan. If you have barely enough cash coming in to cover your debt payments, your business is probably not doing well enough to warrant a loan.

Without a strong cash cushion, your business is vulnerable. For example, if sales slow down or a big client parts ways with your company, then you might fall behind on loan payments. The DSCR gives lenders a look into your company’s cash flow and how much extra cash you have on hand to cover your loan payments and run your business comfortably, too.

Debt Coverage Service Ratio Formula and Example

Lenders can have slightly different ways of calculating DSCR. Early on in your loan application process, ask your lender whether they check DSCR and how they calculate this ratio. That said, if you want to calculate this number for yourself, this is the most common formula for calculating debt service coverage ratio (DSCR):

Debt Service Coverage Ratio (DSCR) = Business’s Annual Net Operating Income / Business’s Annual Debt Payments

Let’s break down the formula with an example.

DSCR Formula Example

The first step in calculating debt service coverage ratio is to figure out your annual net operating income. Most lenders use EBITDA (earnings before interest, taxes, depreciation, and amortization) as the equivalent of net operating income in the DSCR formula.

To get EBITDA, take with your business’s net income (revenues minus all expenses) and add back in taxes, interest, depreciation, and amortization. Adding these expenses back into your earnings standardizes DSCR across different types of businesses and industries.

Step 1: Calculate Annual Net Operating Income/EBITDA

Annual Revenues: $500,000

  • Rent: $60,000
  • Payroll: $100,000
  • Marketing: $30,000
  • Inventory: $30,000
  • Taxes: $120,000
  • Interest Payments: $40,000
  • Depreciation: $20,000
  • Amortization: $10,000

= Annual Net Income = $30,000

  • Taxes: $120,000
  • Interest Payments: $40,000
  • Depreciation: $20,000
  • Amortization: $10,000

= Annual Net Operating Income/EBITDA = $220,000

Step 2: Calculate Annual Debt Payments (include existing loans and loans you’re applying for)

Business Loan Amount: $200,000
Annual Interest Rate: 20%
Term: 2 years

= Annual Debt Payment (including interest): $122,148

Step 3: Divide Annual Net Operating Income by Annual Debt Payments to Get DSCR

DSCR = 220,000 122,148 = 1.80

In this example, the business has a DSCR of 1.80, which is excellent. This means the business has 80% more incoming cash flow than needed to cover debt payments each year.

Note that it’s possible to calculate DSCR on a monthly basis instead of an annual basis. If your business is less than one year old, or if you’re applying for a short-term loan, calculate DSCR on a monthly basis for a more accurate result. In this case, the instructions are the same, but you would simply divide the monthly EBITDA by the monthly debt payments.

Some Lenders Use a Global DSCR

As you might have already learned in your business loan search, personal finances can have a big impact on your approval for a small business loan. Some lenders use a global debt service coverage ratio (DSCR), which accounts for personal sources of income and personal debt in addition to business income and debt.

Global DSCR has a larger scope than the standard DSCR formula. For example, if you have personal investment income or a day job, the lender will consider those income streams when calculating net income.

wise, they’ll consider home loans, car loans, student loans, and other personal loans as part of your total debt service.

For global DSCR, the lender might even consider income and debt from your business partners and loan guarantors.

If you’ve managed your personal finances very well, then accounting for personal income streams might boost your DSCR and help you qualify for the loan. But, if you have a lot of personal debt, then global DSCR might hurt your chances of qualifying for the loan.

All in, though, the standard formula for DSCR is the business’s annual net operating income (EBITDA) divided by the business’s annual debt payments.

Common Mistakes When Calculating DSCR

The formula for DSCR is simple enough, but as you can see from the example above, the calculations are pretty detailed. There’s room for error, so regularly talk with the lender during the underwriting process, and provide all financial statements that the lender asks for.

When trying to figure out your own DSCR, there are a couple common mistakes that can trip you up.

DSCR Mistake #1: Not Accounting for Existing Business Debt

The DSCR formula must include existing debt as well as the loan you’re applying for.

A common mistake that business owners make when calculating their debt service coverage ratio is only accounting for the loan that they’re applying for.

Lenders need to see how all your business debt, including any business debt that you already have, will affect your ability to pay back the loan.

In the example above, if the business owner already had a business loan with annual payments of $20,000, we would need to add that into the calculation. In that case, the annual debt payments would increase to $142,148, and the DSCR would decrease to 1.55.

DSCR Mistake #1: Not Accounting for All Types of Business Debt

Another common mistake is forgetting to include all types of business debt when calculating your total debt service.  

All of the following are types of debt that you should include in your DSCR formula:

All types of debt can cut into your cash flow and impact your ability to pay back a loan, so be prepared to include all debt in your DSCR calculation. Lenders want a full picture of your debt service, so you’ll also need to notify them of credit cards, leases, lines of credit, and other types of debt you already have.

What Debt Service Coverage Ratio Do You Need to Qualify for Financing?

While every lender is different, most that assess DSCR look for a ratio of 1.15 or more. In some cases—when the economy is doing great—they might accept a ratio as low as 1.10, but in others—when the economy is tight—they may require a ratio of 1.35 or even 1.5.

Here’s how to interpret your DSCR:

  • DSCR < 1: You have negative cash flow. You don’t have enough income to service all of your debt.
  • DSCR = 1: You have exactly enough cash coming in to service your debt, but you don’t have an additional cash cushion.
  • DSCR > 1: You have positive cash flow. The higher your DSCR, the more income you have to pay off your debt.

The exact DSCR a lender will look for depends on their business loan requirements. Sometimes, you can compensate for a lower DSCR if other aspects of your loan application are strong.

For example, having lots of collateral or a high credit score might make up for a low DSCR.

But, the higher your ratio, the better your chances of getting a business loan in any economy and with any lender.

As part of your business loan application, you’ll have to submit financial statements and possibly a business plan. The financial projections in the business plan should include the debt service coverage ratio for the next three years.

In addition, if you have a growing business or are seeking a loan to buy an existing business, the lender will want to see debt service coverage ratios for the past three years.

That way, they’re not just relying on predictions, but can see evidence that your business was thriving and will be in the future.

Do All Lenders Check DSCR?

Debt service coverage ratio isn’t part of every lender’s underwriting process, but is pretty common:

  • The SBA requires borrowers to have a DSCR over 1.15 for SBA 7(a) loans over $350,000.
  • Banks usually check DSCR for traditional (non-SBA) loans.
  • Online medium-term lenders typically check DSCR

Brian Cairns, CEO of ProStrategix Consulting, says, “We’ve seen DSCR used most often for larger loans, over $100K or more. For smaller loans, we’ve seen greater reliance on personal credit ratings, credit utilization, and collateral.  The banks may use it in both cases, but it is less explicit at the lower end of business loans.”

The larger the loan you’re applying for, and the longer the term, the more emphasis lenders will put on DSCR. Short-term lenders get their money back more quickly, so they tend to rely more on credit history and monthly revenues than on DSCR.

How to Improve Your Debt Service Coverage Ratio

If your debt service coverage ratio is keeping you from qualifying for a business loan, don’t worry. There are a couple steps you can take to improve your DSCR.

One way is to increase your business’s revenues. Can you negotiate higher pay on a contract? Can you increase the price of your product or service? The other way to improve DSCR is to lower your business’s operating expenses.

Take a look through your latest profit and loss statement or speak with your accountant about cost cutting measures.

Can you negotiate a lower rent on office space with your landlord? Can you cut back on some staffing? Can you tighten your marketing budget?

Even if your DSCR is low at the moment, you might be able to convince the lender that you’re going to improve your DSCR in the future by cutting back on expenses or increasing revenues. This helped Nick Haschka, owner of office plant service business The Wright Gardner, qualify for a business loan.

“In a business with stable gross margins ours,” says Hacshka, “You can really improve the DSCR by looking … for cost saving opportunities.

In our case, we made a few small staffing adjustments in the go-forward operating plan that we submitted to the lender to account for changes that had just happened, but were not reflected in the historical financials.

If you come and say, ‘I can operate this business will two fewer people in a smaller facility at a lower rent price, or I’m going to save 10% on my purchases by renegotiating these contracts,’ etc., the lender may give you financial credit for those changes by adjusting the net income for the new plan.”

Taking some time to improve your DSCR is worth it because this ratio will go beyond your initial business loan application. Depending on your loan agreement, you’ll have to maintain an adequate debt service coverage ratio while you’re in the process of paying off a loan.

Lenders might periodically measure your debt service coverage ratio. To ensure your debt service coverage ratio doesn’t decline, causing you to violate your loan agreement, you should monitor your business’s finances on a monthly or quarterly basis.

Improving your DSCR is as simple as lowering your business’s operating expenses or increasing your revenues. Take a look at your financial statements or talk to your accountant for help.

Debt Service Coverage Ratio: An Important Number On Your Business Loan Application

Debt service coverage ratio (DSCR) is an important metric lenders use to determine your business’s ability to pay back a loan.

Follow these tips to calculate and improve your DSCR:

  • DSCR is the business’s annual net operating income divided by the business’s annual debt payments. In most cases, lenders use EBITDA as net operating income.
  • Most lenders expect a DSCR of 1.15 or higher, but requirements vary among lenders.
  • Check with your lender on how they calculate DSCR. Some lenders use global DSCR and take into account personal income and debt.
  • Make sure you include all types of debt and existing debt when calculating your DSCR.
  • If your DSCR is too low, think about cost-cutting and profit-boosting measures

By improving your DSCR, not only will you increase your chances of qualifying for a loan, but you will also better the health of your business’s overall finances. And that’s always a good thing!

Editorial Note: Fundera exists to help you make better business decisions.That’s why we make sure our editorial integrity isn’t influenced by our own business.The opinions, analyses, reviews, or recommendations in this article are those of our editorial team alone.They haven’t been reviewed, approved, or otherwise endorsed by any of the companies mentioned above.Learn more about our editorial process and how we make money here.


DSCR Formula (Excel Examples) | Calculate Debt Service Coverage Ratio

Debt service coverage ratio

Table of Contents

  • What is a DSCR Formula?
  • Examples of DSCR Formula
  • DSCR Calculator

What is DSCR Formula (Debt service coverage ratio)?

Debt service coverage ratio (DSCR) formula provides an intuitive understanding of the debt repayment capacity of the company and is calculated as the ratio of Net Operating Income to Total Debt Service.

Debt Service Coverage Ratio Formula = Net Operating Income / Total Debt service

Net operating income is calculated as a company’s revenue minus its operating expenses. In most cases, lenders use net operating profit which is the same as the net operating income. Total debt service is the current debt obligations loans, sinking funds that need to be paid in the coming year.

Explanation of DSCR Formula

Debt service coverage ratio formula simply takes in net operating income and divides it by the debt service (Interests, sinking funds, tax expense).

The Debt service coverage ratio formula must include all the debt obligation in hand the following:

  • Bank loan
  • Short term loans
  • Leases
  • Monthly payments for debt service

Most lenders use operating income which is equivalent to EBIT. But some also use EBITDA to calculate the ratio.

Examples of  DSCR Formula (with Excel Template)

Let’s see some simple to advanced examples of debt service coverage ratio formula to understand it better.

DSCR Formula – Example #1

Let’s suppose a real estate developer wants to take a loan from a local bank. Then the lender will first want to do the calculation of the DSCR to determine the ability of the borrower to repay its loan.

The real estate developer discloses that it has an operating income of $200,000 per year and has to pay yearly interest of $70,000 on his loan that he had taken.

Therefore the lender will do the calculation of DSCR to determine whether to grant a loan to the real estate developer.

  • DSCR Formula = 200,000 / 70,000
  • DSCR = 2.857

A DSCR of 2.857 is a good DSCR for granting of a loan to the real estate developer.

Now if the developer has also lease payments to pay then of $5000 then the debt service will increase to $75000.The new DSCR will be as follows:-

  • DSCR= 200,000 / 75,000
  • DSCR = 2.66

Therefore the DSCR decreased with an increase in debt service payments.

DSCR Formula – Example #2

Calculate the DSCR for company X who has the following Income Statement.

The operating income is calculated by subtracting the expenses from the gross profit.

The debt services will account the interest expenses and income tax expenses.

Therefore, Operating Income = $13000

Debt Service = $5000

So, the calculation of DSCR will be as follows –

  • DSCR Formula =   13000 / 5000

DSCR will be –

A DSCR of 2.6 indicates that the company has enough cash to cover its debt obligations.

DSCR Formula – Example #3

We will calculate the debt service coverage ratio of ILandFS Engineering and Construction Company. We can get the data of operating profit which is equivalent to operating income and debt service from profit & loss statement which is available in money control.


The net operating profit is ₹160.92 in the year 2018.

As for the debt service, we can see that it needs to pay interests that is 396.03.

Therefore calculation of DSCR formula will be as follows –

  • DSCR Formula = 160.92 / 396.03

DSCR will be

A DSCR of 0.406 indicates that the company doesn’t have enough cash to cover its debt obligations.

DSCR Formula – Example #4

We will calculate the debt service coverage ratio of MEP Infrastructure Developers. We can get the data of operating profit and debt service from profit & loss statement which is available in money control.


The net operating profit is ₹218.26 in the year 2018.

As for the debt service, we can see that it needs to pay interests and taxes which is ₹50.04.

Calculation of DSCR formula will be as follows –

  • DSCR Formula = 218.26 / 50.04

DSCR will be

A DSCR of 4.361 indicates that the company has enough cash to cover its debt obligations.

DSCR Calculator

You can use the following DSCR calculator.

DSCR Formula =
Net Operating Income
Total Debt Service

Importance of DSCR Formula

DSCR is both important to creditors and investors but creditors analyze it more as it determines the ability of the lender to repay the current debt.

The DSCR ratio will determine whether the borrower will get his loan approved and the terms and conditions of the loan.

How to Interpret DSCR?

A DSCR ratio of 1 and above is a good ratio. The higher the better.

  • A ratio higher than 1 indicates that it is generating sufficient cash flow to cover its debt service.
  • A ratio less than 1 indicates that there is not enough cash to cover the debt obligations.

A DSCR of 0.85 indicates that there is only enough operating income to cover 85% of the debt payments.

Mostly lender look for a DSCR ratio of 1.15 or more depending on the economic conditions of the company.

A lender will never want to make a loss by giving a loan to a borrower who may never able to repay. The DSCR ratio gives an insight into the company’s cash flow and how much cash does the company has to repay its loan.

It is of great importance in real estate or commercial lending as this ratio gives us an idea about the maximum loan amount a lender will be able to get.

Benefits of a High DSCR

  • Higher chances of qualifying for a loan
  • Better chances to get a lower interest rate.
  • Business can manage the debt obligations in a better way.

Therefore higher the ratio, better it is.

Recommended Articles

This has been a guide to DSCR Formula. Here we discuss formula to calculate Debt service coverage ratio using practical examples along with downloadable excel templates. You may learn more about Financial Analysis from the following articles –


Как вычислять и интерпретировать коэффициент покрытия долга (DSCR)?

Debt service coverage ratio

Коэффициент покрытия долга (DSCR) позволяет определить общую способность заемщика к погашению долга. Рассмотрим формулу и расчет этого показателя, а также интерпретацию значения коэффициента.

Коэффициент покрытия долга или коэффициент обслуживания долга (DSCR, от англ. 'debt service coverage ratio') позволяет определить общую способность заемщика к погашению долга.

DSCR менее 1 указывает на то, что прибыли компании недостаточно для обслуживания долгов.

DSCR больше 1 означает, что компания способна не только обслуживать долговые обязательства, но и выплачивать дивиденды.

Определение показателя DSCR

DSCR – это отношение доступных денежных средств к денежным средствам, необходимым для обслуживания долга. Другими словами, это коэффициент достаточности денежных средств для погашения долга. Ниже мы рассмотрим формулу и расчет показателя.

Почему используют DSCR?

Коэффициент покрытия долга (DSCR) относится к показателям плеча/покрытия и оценки платежеспособности. Он рассчитывается для того, чтобы узнать о наличии денежной прибыли (т.е. денежного потока в составе прибыли), достаточной для погашения долга, включая проценты.

По сути, DSCR рассчитывается, когда компания берёт кредит у банка, финансового учреждения или любого другого поставщика долговых инструментов. Этот коэффициент предполагает наличие денежных потоков в составе прибыли, которые обеспечат погашение кредита.

Коэффициент покрытия долга очень важен с точки зрения кредитора, поскольку он указывает на кредитное качество заемщика. Только один год анализа DSCR не позволяет сделать какой-либо определенный вывод о возможности обслуживания долга. DSCR имеет значение только тогда, когда он рассчитывается на весь оставшийся срок погашения кредита.

Как рассчитать коэффициент покрытия долга?

Расчет DSCR очень прост. Чтобы рассчитать этот коэффициент, необходимы следующие статьи из финансовой отчетности:

  • Чистая прибыль (т.е. прибыль после уплаты налогов – 'net profit' или PAT, 'profit after tax').
  • Неденежные расходы (т.е. расходы по начислениям, например, амортизация, списание временных разниц и т. д.)
  • Проценты по долгу за текущий год.
  • Погашение основной суммы долга на текущий год.
  • Погашение арендных обязательств за текущий год.

Иногда эти цифры легко доступны, но иногда их приходится определять использованием финансовой отчетности компании и примечаний к ней.

Формула коэффициента покрытия долга


DSCR = (Чистая прибыль + Проценты + Аренда + Неденежные расходы) /
(Обслуживание долга [проценты + погашение основного долга] + Аренда).

Чистая прибыль после уплаты налогов

Показатель чистой прибыли, как правило, можно увидеть лицевой стороне отчета прибылях и убытках. Это баланс счета прибылей и убытков.

Иногда, при отсутствии отчета о прибылях и убытках, мы также можем определить чистую прибыль из баланса (отчета о финансовом положении), вычитая текущий остаток счета прибылей и убытков из остатка за предыдущий год.


Это сумма процентов по рассматриваемому кредиту, которая выплачивается за текущий финансовый год.

Неденежные расходы

Неденежные расходы – это те расходы, которые начисляются на счет прибылей и убытков, в счет платежей, который фактически были /будут выполнены в другие годы (т.е., временные разницы). Ниже перечислены типичные неденежные расходы:

Погашение основного долга

Это сумма обязательств по основному долгу, уплаченная или подлежащая оплате за рассматриваемый финансовый год.


Размер арендной платы, уплаченной или подлежащей оплате за финансовый год.

Интерпретация и анализ коэффициента покрытия долга

Коэффициент DSCR требует правильного анализа и интерпретации. Результатом расчета коэффициента покрытия долга является абсолютное значение. Чем выше эта цифра, тем у компании больше возможностей по обслуживанию долга (кредитная емкость компании).

Если коэффициент меньше 1, это плохо, поскольку это указывает на то, что прибыли недостаточно для обслуживания долговых обязательств.

Допустимая отраслевая норма для коэффициента покрытия долга составляет от 1,5 до 2. Этот диапазон значений наиболее приемлем для таких кредиторов, как банки, финансовые учреждения и т.д.

У любого финансового учреждения, занимающегося кредитованием бизнеса, есть 2 основные цели: зарабатывать проценты и следить за тем, чтобы финансовое положение должника не снижалось ниже определенного уровня.

Рассмотрим для примера ситуацию, когда DSCR меньше 1, что прямо указывает на плохое кредитное качество компании.

Означает ли это, что банк не должен предоставлять кредит? Нет, абсолютно нет.

Это связано с тем, что банк анализирует производственные мощности и бизнес-идею компании в целом, и пытается оценить, насколько сильным будет этот бизнес в перспективе.

Показатель DSCR можно улучшить, увеличив срок кредита. Увеличение срока кредита уменьшит знаменатель формулы и, таким образом, может увеличить коэффициент до значения, превышающего 1.

Более подробно о методах расчета и анализе DSCR смотрите здесь.


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