Debt Service Coverage Ratio Calculator & Formula

Debt Service Coverage Ratio Calculator

DSCR: Not Calculated Yet

The Debt Service Coverage Ratio (DSCR) Calculator helps you determine whether your business or property generates enough income to cover its debt obligations. It is a critical metric used by lenders, investors, and businesses to evaluate financial health and lending risks.

Debt Service Coverage Ratio Formula

The DSCR is calculated as follows:

$DSCR = \frac{Net Operating Income (NOI)}{Total Debt Service}$

A DSCR greater than 1.0 indicates sufficient income to cover debt payments, while a DSCR below 1.0 suggests insufficient income.

Why Use This Calculator?

This calculator is ideal for:

Loan Qualification: Understand if your DSCR meets the lender’s requirements for securing a loan.
Risk Assessment: Evaluate the financial health of your business or property.
Performance Monitoring: Regularly track how effectively income is being utilized to cover debt.

Real-Life Example

Let’s consider the following scenario:

Net Operating Income (NOI): $120,000
Total Debt Service: $100,000

Step 1: Apply the formula:
$DSCR = \frac{120,000}{100,000} = 1.2$

Result: A DSCR of 1.2 indicates that the income is 20% higher than the debt obligations, making it a favorable financial situation.

Benchmark Indicators

Here are typical benchmarks for DSCR:

Healthy DSCR: 1.25 or higher. Indicates excellent income coverage for debt payments.

Moderate DSCR: 1.0 to 1.24. Indicates adequate coverage but with limited financial cushion.

Low DSCR: Below 1.0. Indicates insufficient income to cover debt obligations.

Frequently Asked Questions

What is a good DSCR value?

A DSCR of 1.25 or higher is considered good, as it indicates sufficient income to cover debt payments with a financial cushion.

What happens if my DSCR is below 1.0?

A DSCR below 1.0 means your income is insufficient to cover debt obligations. This may lead to loan rejection or financial stress.

Can DSCR vary by industry?

Yes, DSCR benchmarks differ by industry. For example, real estate lenders often require a DSCR of 1.2 or higher, while other industries may accept lower values.

How can I improve my DSCR?

You can improve your DSCR by increasing income, reducing debt obligations, or refinancing to lower interest rates.

Debt Service Coverage Ratio Calculator & Formula