Debt-Service Coverage Ratio - DSCR

AAA

DEFINITION of 'Debt-Service Coverage Ratio - DSCR'

In corporate finance, it is the amount of cash flow available to meet annual interest and principal payments on debt, including sinking fund payments.

In government finance, it is the amount of export earnings needed to meet annual interest and principal payments on a country's external debts.

In personal finance, it is a ratio used by bank loan officers in determining income property loans. This ratio should ideally be over 1. That would mean the property is generating enough income to pay its debt obligations.

In general, it is calculated by:
 


Debt-Service Coverage Ratio (DSCR)

INVESTOPEDIA EXPLAINS 'Debt-Service Coverage Ratio - DSCR'

A DSCR of less than 1 would mean a negative cash flow. A DSCR of less than 1, say .95, would mean that there is only enough net operating income to cover 95% of annual debt payments. For example, in the context of personal finance, this would mean that the borrower would have to delve into his or her personal funds every month to keep the project afloat. Generally, lenders frown on a negative cash flow, but some allow it if the borrower has strong outside income.

VIDEO

RELATED TERMS
  1. Net Operating Income - NOI

    A company's operating income after operating expenses are deducted, ...
  2. Solvency Ratio

    One of many ratios used to measure a company's ability to meet ...
  3. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  4. Liquidity Coverage Ratio - LCR

    Highly liquid assets held by financial institutions in order ...
  5. Income Property Mortgage

    A loan given to an investor to purchase a residential or commercial ...
  6. External Debt

    The portion of a country's debt that was borrowed from foreign ...
Related Articles
  1. The Income Property: Your Late-In-Life ...
    Home & Auto

    The Income Property: Your Late-In-Life ...

  2. Will Corporate Debt Drag Your Stock ...
    Investing Basics

    Will Corporate Debt Drag Your Stock ...

  3. Zooming In On Net Operating Income
    Investing

    Zooming In On Net Operating Income

  4. Analyze Investments Quickly With Ratios
    Investing Basics

    Analyze Investments Quickly With Ratios

Hot Definitions
  1. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  2. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  3. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  4. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  5. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  6. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
Trading Center