Corporate FinanceFinancial Glossary
Debt Service Coverage Ratio (DSCR)
Definition
A financial ratio that measures a company's ability to service its debt obligations, calculated as Net Operating Income divided by Total Debt Service (principal + interest payments). A DSCR of 1.5 means the company generates 1.5 times more cash than needed to cover its debt payments.
Why It Matters
Lenders use DSCR as a key criterion for approving business loans and project finance. A DSCR below 1.0 means the company cannot cover its debt payments from operations — a clear red flag. For project finance in India, banks typically require a minimum DSCR of 1.25-1.5. Investors should watch for declining DSCR as an early warning of debt stress.