'DEBT-

SERVICE
COVERAGE
RATIO - DSCR'
DEBT SERVICE COVERAGE RATIO

The debt service coverage ratio

(DSCR) is a reliable tool for
determining whether income
from the property is sufficient
to service the loan. DSCR is net
operating income (NOI) divided
by total debt service.
Debt service coverage ratio
= NPBIT
Interest + Loan
repayment
This ratio indicates the
profits available to service
the debts. This ratio is very
important for lenders. Higher
the ratio higher is the ability
 DSCR
A Company generates a Net
Income ( offer Interest & Tax ) of Rs
1 Crore
Its payments due account for Rs
80 lakhs
DSCR = ( 100 / 80 ) = 1.25
In order to establish DSCR, lender

normally call for following details :

IT returns for preceding 3 years

Financial statements for 3 years

Year to year profit & loss

balance statements
 Projected cash flow estimate
for the coming year
Valuation & Appraisals for
Collateral used to secure loans
Written business plants
Personal finical statement of
owners
DEBT SERVICE COVERAGE RATIO
(DSCR)
Ratio of cash available for debt servicing
to interest, principal and lease payments.
A popular benchmark used in the
measurement of a persons ability to
produce enough cash to cover his debt
(including lease) payments.
The higher this ratio is, the easier it is to
obtain a loan.
also known as "debt coverage ratio,"
(DCR)
 DSCR =
(Annual Net Income +
Depreciation + Interest Expense +
other non-cash or discretionary
items)

(Principal Repayment + Interest
payments + Lease payments)
 DSCR what it means?
If Debt Service Coverage Ratio is

Equal to 1 it indicates that the net operating income of the

project covers 100% of annual debt payments (NEITHER LOOSE

NOR GAIN MONEY)

less than 1 it would mean negative cash flow i.e., a DSCR of say

0.95 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) YOU ARE ON A

SINKING BOAT

More than 1 indicates that the project is sound FINANCIALLY

 SIMPLE EXAMPLE
Lets say Mr. Arumugam is looking at an
investment property with a net operating
income of Rs. 3,60,000 and an annual debt
service of Rs. 3,00,000.
The debt coverage ratio for this property
would be 1.2
Mr. Arumugam would know the property
generates 20 percent more than is
required to pay the annual mortgage
payment.
 TEFR of a 6 MW Biomass PP
1st 2nd 3rd 4th 5th 6th 7th 8th
Particulars / Years year year year year year year year year 9th year

Coverage :
178.6 204.1 229.3 213. 197. 178.0 156.6
Profit after Tax 20.23 93.08 6 7 6 35 15 0 3
Depreciation & 198.8 199.5 200.3 201.6 202.4 203. 204. 206.2 207.8
Write offs 2 4 7 1 4 99 71 6 1
173.6 173.6 164.3 139.5 114.7 89.9 65.1
Term Loan Interest 0 0 0 0 0 0 0 40.30 15.50
392.6 466.2 543.3 545.2 546.5 507. 466. 424.5 379.9
Sub- Total 4 2 3 8 0 24 96 6 4

Service :
Repayment of Term 230.7 230.7 230.7 230. 230. 230.7 230.7
Loan 0.00 0.00 0 0 0 70 70 0 0
173.6 173.6 164.3 139.5 114.7 89.9 65.1
Term Loan Interest 0 0 0 0 0 0 0 40.30 15.50
173.6 173.6 395.0 370.2 345.4 320. 295. 271.0 246.2
Sub- Total 0 0 DSCR
0 0 0 60 80 0 0
DSCR 2.26 2.69 1.38 1.47 1.58 1.58 1.58 1.57 1.54

DSCR (MINIMUM) 1.38

DSCR (MAXIMUM) 2.69
DSCR (AVERAGE) 1.74