Summary
The Debt Service Coverage Ratio, or DSCR, measures a company’s ability to cover debt service payments using operating earnings or cash flow. Debt service usually includes interest and principal repayments.
This ratio is especially useful when assessing repayment capacity.
Why it matters
Debt service payments require cash. DSCR helps investors understand whether a company generates enough resources to meet its debt obligations.
A stronger DSCR may indicate lower credit risk, while a weaker DSCR may suggest pressure in meeting repayments.
How it is calculated
Debt Service Coverage Ratio = EBITDA ÷ Total Debt Service Payments
How to read it
A DSCR above 1 generally indicates that earnings are greater than debt service payments. A ratio below 1 may suggest that the company does not generate enough earnings to fully cover debt service.
Investors should review DSCR together with cash flow, debt maturity, interest coverage, and overall leverage.
When it may not be available
This ratio may not be shown for certain financial companies or where debt service payment data is not available.