Debt Service Coverage Ratio

Plain Language

DSCR answers the question: does this business earn enough to pay its debts? A ratio of 1.5 means the business earns ₹1.50 for every ₹1.00 of debt payment required.

Literal Meaning

DSCR divides the net operating income available to service debt by the total of all principal and interest payments due in a period. A ratio above 1.0 means the business generates enough to cover its obligations; below 1.0 means it does not.

Ground Reality

Lenders typically require minimum DSCR levels of 1.2 to 1.25 for new loans. Lower ratios suggest stress; ratios consistently below 1.0 indicate the business cannot service its debt from operations.

Decision View

Before taking on debt, a business should model DSCR across different scenarios including downside cases. Understanding the minimum DSCR a business can tolerate and what events might cause it to fall below that level is critical to responsible borrowing.

What It Is Not

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Practical Leadership Questions

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