Debt Service Coverage Ratio

DSCR is stricter than interest coverage because it includes principal repayment, which interest coverage ignores entirely — a company can cover interest four times over and still be unable to repay the instalment that falls due. Lenders and project finance appraisals use it as the primary covenant, typically requiring at least 1.2 to 1.5. It is the measure that exposes refinancing risk, since a large bullet repayment produces a DSCR far below one in a single year even for a healthy business. Definitions of the numerator vary, so check whether it is EBITDA, cash profit, or something narrower before comparing.