Debt Service Coverage Ratio Template

What is Debt Service Coverage Ratio

The Debt Service Coverage Ratio (DSCR) is a financial metric used to assess a company’s ability to meet its debt obligations using its operating income. Lenders and analysts use DSCR to determine whether a company generates enough income to cover both interest and principal payments on its debt. A higher DSCR indicates a greater ability to service debt, while a DSCR below 1 suggests the company may not generate enough income to meet its debt obligations, increasing the risk of default or bankruptcy. It’s important to compare DSCR values within the same industry, as capital structure and debt usage can vary widely across sectors.

Debt Service Coverage Ratio Formula

A company’s DSCR can be computed by either of these two formulas:

DSCR = EBITDA/ Interest Expense + Principal (i.e. Total Debt Service)

Or

DSCR = EBITDA – Capex/ Interest Expense + Principal (i.e. Total Debt Service)

Where:

• EBITDA is earnings before interest, tax, depreciation and amortization
• Principal is total of short and long-term debt repayments
• Interest Expense is interest payable on all debt
• Capex is capital expenditure

When Capex is excluded from EBITDA, it may provide a more accurate picture or actual amount of operating income that is available to a company for meeting its debt repayment obligations as Capex is not expensed to the income account.

Download the Free Debt Service Coverage Ratio Template

Download the free Debt Service Coverage Ratio template to calculate the DCSR (including Capex) and DCSR (minus Capex) of a company.

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