Definition
DSCR compares cash available to debt obligations (principal + interest). Lenders use it to assess repayment capacity.
Formula
DSCR = cash available for debt service / total debt service
How to use it
- DSCR is more cash-oriented than interest coverage because it includes principal.
- Run scenarios: DSCR can fall quickly when revenue drops or collections slow.
Measured as
DSCR = cash available for debt service / total debt service
Operator takeaway
- DSCR is more cash-oriented than interest coverage because it includes principal.
- Run scenarios: DSCR can fall quickly when revenue drops or collections slow.
- Tie DSCR (Debt Service Coverage Ratio) to the same balance-sheet date, scenario, and decision memo you are using elsewhere in the model.
- Document which claims, costs, or adjustments your team includes before comparing numbers across forecasts, covenants, or valuation work.
Next decision
- Read Loan amortization: how monthly payments and total interest work if the decision depends on interpretation, policy, or trade-offs beyond the raw formula.
- Decide whether DSCR (Debt Service Coverage Ratio) belongs in cash planning, valuation, or debt monitoring so the number is used in the right model.
Where to use this on MetricKit
Guides
- Loan amortization: how monthly payments and total interest work: A practical guide to loan amortization: monthly payment formula, why interest dominates early, and how term and rate affect total interest.
- Cash conversion cycle: turn working capital into runway: A practical guide to the cash conversion cycle (CCC): how AR/AP timing changes cash, how to reduce days outstanding, and why runway depends on working capital.