Debt service coverage ratio: Difference between revisions

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{{Short description|Financial metric}}

{{tone|date=July 2022}}

The '''debt service coverage ratio''' ('''DSCR'''), known as "debt coverage ratio" (DCR), is a financial metric used to assess an entity's ability to generate enough cash to cover its [[Debt servicing|debt service]] obligations. These obligations include interest, principal, and lease payments. The DSCR is calculated by dividing the operating income available for debt service by the total amount of debt service due.

A higher DSCR indicates that an entity has a greater ability to service its debts, making it easier for it to obtain loans. Banks and lenders often use a minimum DSCR ratio as a condition in the covenant, and a breach can sometimes be considered an act of [[Default (finance)|default]].