Debt-Service Coverage Ratio

What Is the Debt-Service Coverage Ratio (DSCR)?

The debt-service coverage ratio applies to corporate, government, and personal investment. In the context of corporate finance, the debt-service coverage ratio (DSCR) is a measurement of a firm’s available cash flow to pay present debt obligations. The DSCR shows investors whether a company has sufficient income to pay its debts. In the context of government finance, the DSCR is the amount of export incomes needed by a country to meet yearly interest and principal payments on its exterior debt. In the context of individual finance, it is a ratio used by bank loan officers to regulate revenue property loans.

KEY TAKEAWAYS

  • DSCR is a measure of the cash flow available to pay current debt responsibilities.
  • DSCR is used to analyse companies, schemes, or separate borrowers.
  • The smallest DSCR a lender demands depends on macroeconomic circumstances. If the economy is rising, lenders may be more forgiving of lesser ratios.

 

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