1. What is DSCR?

The Debt Service Coverage Ratio (DSCR) is a financial metric that measures a company's ability to cover its debt obligations with its operating income. It's commonly used by lenders to assess the creditworthiness of borrowers.

2. How Is DSCR Calculated?

The DSCR is calculated using the following formula:

Where:

• \( NOI \) — Net Operating Income (revenue minus operating expenses)
• \( Debt\ Service \) — Total debt payments (principal + interest) for the period

Explanation: A DSCR of 1 means the company's NOI exactly covers its debt payments. Higher values indicate better ability to service debt.

3. Importance of DSCR

Details: Lenders typically require a minimum DSCR (often 1.2-1.5) to approve loans. It's crucial for real estate investments, corporate finance, and project financing.

4. Using the Calculator

Tips: Enter your net operating income and total debt service in dollars. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good DSCR value?
A: Generally, 1.25 or higher is acceptable, with 1.5+ considered strong. Below 1 indicates insufficient cash flow to cover debt.

Q2: How often should DSCR be calculated?
A: Typically calculated annually, but lenders may require quarterly calculations for certain loans.

Q3: Does DSCR include taxes?
A: NOI is typically calculated before taxes, so DSCR doesn't directly account for tax obligations.

Q4: Can DSCR be too high?
A: Extremely high DSCR might indicate underutilized debt capacity, but this is rarely a concern for lenders.

Q5: How does DSCR differ from interest coverage ratio?
A: DSCR includes both principal and interest payments, while interest coverage ratio only considers interest payments.