1. What is Debt Service Coverage Ratio?

The Debt Service Coverage Ratio (DSCR) measures a company's ability to service its debt with its current income. It compares a company's operating income to its total debt service obligations, including both interest and principal payments.

2. How Does the Calculator Work?

The calculator uses the DSCR formula:

Where:

• \( EBITDA \) — Earnings Before Interest, Taxes, Depreciation, and Amortization (USD)
• \( Interest \) — Annual interest payments (USD)
• \( Principal \) — Annual principal repayments (USD)

Explanation: A DSCR of 1.0 means the company's EBITDA exactly covers its debt service. Higher values indicate better coverage.

3. Importance of DSCR Calculation

Details: Lenders typically require a minimum DSCR (often 1.2-1.5) to approve loans. It's crucial for assessing a company's financial health and creditworthiness.

4. Using the Calculator

Tips: Enter EBITDA, interest, and principal amounts in USD. All values must be non-negative, and the sum of interest and principal must be greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is a good DSCR value?
A: Generally, lenders prefer DSCR ≥ 1.2. A ratio below 1 indicates insufficient cash flow to cover debt obligations.

Q2: How is DSCR different from interest coverage ratio?
A: DSCR includes both interest and principal payments, while interest coverage ratio only considers interest expenses.

Q3: Can DSCR be used for personal finance?
A: While primarily for businesses, individuals can use a similar concept to assess personal debt coverage capacity.

Q4: What if my DSCR is too low?
A: Consider increasing income, reducing expenses, restructuring debt, or seeking equity financing instead.

Q5: How often should DSCR be calculated?
A: For ongoing monitoring, calculate quarterly. For loan applications, use most recent annual figures.