Debt Service Coverage Ratio

The Debt Service Coverage Ratio (DSCR) is a measure of a company's financial health, specifically its ability to cover its debt obligations with its net operating income. In this formula, net operating income is the income derived from normal business operations, excluding extraordinary items, and total debt service represents the total amount of interest and principal payments for the debt for a given period. A DSCR of greater than 1 indicates that the company has sufficient income to cover its debt obligations, which is a sign of financial stability. This ratio is particularly important for lenders and creditors as it helps assess the likelihood of default on borrowed funds. It's also used by investors and analysts to gauge a company's financial health and risk level.