DSCR (Debt Service Coverage Ratio)
Corporate Credit Analysis glossary · Credit Metrics & Debt Schedule Modeling
Definition
Cash Available for Debt Service (CFADS) divided by total debt service (interest + scheduled principal); used in project finance and asset-backed credit analysis with typical covenant thresholds at 1.20x-1.50x.
DSCR (Debt Service Coverage Ratio) in plain English
DSCR asks one blunt question: does this business or project make enough cash to pay what it owes the bank this year? You take the cash actually available to pay lenders (CFADS) and divide it by the loan payments due (interest plus the chunk of principal scheduled). A DSCR of 1.20 means you generate $1.20 of cash for every $1.00 you must pay — a 20% cushion if things go slightly wrong. Lenders often demand you stay above a set line like 1.20 to 1.50; dip below it and you've broken a promise (a covenant), which can trigger penalties. Think of it as your paycheck divided by your rent: below 1.0 and you literally can't cover it.
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