Debt service coverage ratio Calculator

Debt Service Coverage Ratio (DSCR) Calculator

Calculate your ability to cover debt obligations with your operating income

Financial Information

Annual Net Operating Income ($)

Interest Expense ($)

Amortization & Depreciation ($)

Other Non-Cash Items ($)

Principal Repayment ($)

Interest Payments ($)

Lease Payments ($)

DSCR Results

EBITDA

-

$

Earnings Before Interest, Taxes, Depreciation & Amortization

Total Debt Service

-

$

Principal + Interest + Lease Payments

Debt Service Coverage Ratio

-

ratio

EBITDA ÷ Total Debt Service

DSCR Risk Assessment

High Risk (<1.0)

Moderate (1.0-1.25)

Low Risk (>1.25)

Calculation Breakdown

Component	Calculation	Amount

About DSCR

The Debt Service Coverage Ratio (DSCR) measures a company's ability to cover its debt obligations with its operating income.

Formula: DSCR = EBITDA ÷ (Principal + Interest + Lease Payments)

EBITDA: Net Income + Interest + Taxes + Depreciation + Amortization

DSCR Guidelines

Commercial Loans: Typically require DSCR ≥ 1.20

Real Estate: Often requires DSCR ≥ 1.25

Risk Threshold: DSCR < 1.0 indicates cash flow problems

Strong Position: DSCR > 1.5 is considered healthy

DSCR Interpretation

DSCR > 1.0: The company generates sufficient income to cover its debt obligations.

DSCR < 1.0: The company does not generate enough income to cover its debt payments.

DSCR = 1.0: The company's income exactly covers its debt payments with no margin.

Lenders typically look for a DSCR of at least 1.2-1.4 to ensure a buffer for unexpected expenses or revenue fluctuations.

This calculator helps analyze your debt service coverage. Print Results

1. What is the Debt Service Coverage Ratio (DSCR)?

The Debt Service Coverage Ratio (DSCR) is a financial metric used to assess a company's or individual's ability to repay their debt obligations. It compares the Net Operating Income (NOI) to the total debt service (principal + interest payments) due within a given period.

Formula:

$$\text{DSCR}=\frac{\text{Net Operating Income (NOI)}}{\text{Total Debt Service}}$$

• DSCR > 1.0: Indicates sufficient income to cover debt payments.

• DSCR = 1.0: Income exactly covers debt obligations (break-even).

• DSCR < 1.0: Indicates insufficient income to cover debt (financial risk).

---

2. Components of a DSCR Calculator

A DSCR Calculator automates the computation of this ratio by requiring key financial inputs:

Inputs Needed:

1. Net Operating Income (NOI)

   • Total revenue minus operating expenses (excluding taxes and interest).

   • Formula:

     $$\text{NOI}=\text{Gross Income}-\text{Operating Expenses}$$

2. Total Debt Service

   • Sum of all principal + interest payments due in a period.

   • Includes:

     • Loan repayments

     • Lease payments

     • Other debt obligations

---

3. How to Use a DSCR Calculator

Step-by-Step Calculation Example:

Parameter	Amount ($)
Gross Annual Income	$500,000
Operating Expenses	$200,000
Annual Debt Payments	$180,000

1. Calculate NOI:

   $$\text{NOI}=\mathrm{\$}500,000-\mathrm{\$}200,000=\mathrm{\$}300,000$$

2. Compute DSCR:

   $$\text{DSCR}=\frac{\mathrm{\$}300,000}{\mathrm{\$}180,000}=1.67$$

Interpretation:
A DSCR of 1.67 means the business generates 1.67 times the income needed to cover its debt, indicating strong financial health.

---

4. Importance of DSCR

• Lenders & Investors use DSCR to evaluate loan eligibility.

• Business Owners assess their ability to take on additional debt.

• Real Estate Investors analyze property cash flow sustainability.

Industry Standards:

• Commercial Loans: Typically require DSCR ≥ 1.25.

• Real Estate: Lenders prefer DSCR ≥ 1.2–1.4.

• Riskier Loans: May demand DSCR ≥ 1.5 or higher.

---

5. Limitations of DSCR

• Does Not Account for Variable Income (seasonal businesses).

• Excludes Non-Operating Income (e.g., one-time gains).

• Sensitive to Accounting Methods (NOI calculation variations).

---

6. Automated DSCR Calculators

Many online tools and Excel templates simplify DSCR calculations. Features include:

• Customizable inputs (monthly/quarterly/annual).

• Graphical representations of debt coverage.

• Scenario analysis (impact of income changes on DSCR).