Definition
Debt Service Coverage Ratio (DSCR)
The Debt Service Coverage Ratio measures a company's or project's cash available to service its total debt obligations, including both interest and principal repayment.
DSCR is cash flow available for debt service divided by total debt service (interest plus scheduled principal). Unlike the interest coverage ratio, it includes principal repayment, making it stricter and especially relevant for project and infrastructure finance.
A DSCR above one means the entity generates enough cash to meet its debt commitments; lenders typically require a minimum DSCR as a loan covenant. Falling DSCR signals tightening ability to repay, a key trigger for restructuring or default in project loans.
Related terms
- Debt-to-Equity RatioThe debt-to-equity ratio compares a company's total borrowings to its shareholders' equity, gauging how leveraged (and risky) its balance sheet is.
- Restructured AssetsRestructured assets are loans whose terms, such as tenure, interest rate or repayment schedule, have been modified because the borrower is in financial difficulty.
- Working Capital CycleThe working capital cycle is the time it takes a company to convert its investment in inventory and receivables back into cash, net of payables.
- Interest Coverage RatioThe interest coverage ratio measures how many times a company's operating profit covers its interest expense, indicating its ability to service debt.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.