Financial Ratio Calculator
DSCR Calculator
Calculate your debt service coverage ratio to understand whether operating income can comfortably service existing and proposed debt obligations.
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What is Debt Service Coverage Ratio?
The debt service coverage ratio (DSCR) measures whether a business generates enough operating income to cover its debt repayments. A DSCR above 1.0 means income exceeds obligations; most lenders require 1.25 or higher.
How is DSCR calculated?
The debt service coverage ratio divides a business's net operating income by its total annual debt service obligations. It tells lenders how many times over the business can cover its debt repayments.
DSCR = Net Operating Income - Total Annual Debt Service
For example, if a business earns £250,000 in annual operating income and has £180,000 in total annual debt repayments, the DSCR is 1.39x - meaning operating income covers debt 1.39 times.
A DSCR below 1.0x indicates the business does not earn enough from operations to meet its debt obligations, which represents a significant risk to lenders.
DSCR benchmarks lenders use
| DSCR Range | Interpretation |
|---|---|
| Below 1.0x | Business cannot cover debt from operating income. High risk of default. |
| 1.0x - 1.24x | Marginal coverage. Most lenders will require additional security or reject. |
| 1.25x - 1.49x | Acceptable for many lenders. Meets typical minimum thresholds. |
| 1.5x and above | Strong coverage. Comfortable buffer above debt obligations. |
Assumptions and caveats
- •Net operating income should be entered as EBITDA or an equivalent measure of operating profit before debt service.
- •Total debt service should include all principal and interest repayments, including existing and proposed facilities.
- •This is a point-in-time calculation. Lenders may also consider projected DSCR based on forecast income.
- •Different lenders apply different minimum DSCR thresholds depending on the sector and facility type.
Worked Example
Scenario
A logistics company has annual net operating income of GBP 285,000 and total annual debt service (principal and interest) of GBP 195,000.
Calculation
- DSCR = Net Operating Income / Total Debt Service
- DSCR = 285,000 / 195,000
- DSCR = 1.46x
What This Means
A DSCR of 1.46x means the business generates GBP 1.46 of operating income for every GBP 1.00 of debt repayment. Most UK lenders require a minimum DSCR of 1.20x to 1.35x for commercial lending. At 1.46x, this business has a comfortable margin of safety, generating 46% more income than needed to cover debt obligations.
Frequently asked questions
Most lenders require a DSCR of at least 1.25x, meaning net operating income is 125% of total debt service. A ratio above 1.5x is generally considered strong. Below 1.0x means the business cannot cover its debt obligations from operating income.
DSCR stands for Debt Service Coverage Ratio. It measures a business's ability to repay its debt obligations from its operating income, and is one of the most important metrics lenders assess when evaluating affordability.
Lenders use DSCR to assess whether a borrower generates enough income to comfortably service their debt. It is a key part of affordability assessments for business loans, asset finance, and commercial mortgages. A low DSCR may result in reduced borrowing capacity or loan rejection.
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