Debt service coverage ratio

The debt service coverage ratio (DSCR), also known as "debt coverage ratio" (DCR), is a financial metric used to assess an entity's ability to generate enough cash to cover its debt service obligations. These obligations include interest, principal, and lease payments. The DSCR is calculated by dividing the operating income available for debt service by the total amount of debt service due.

A higher DSCR indicates that an entity has a greater ability to service its debts, making it easier for it to obtain loans. Banks and lenders often use a minimum DSCR ratio as a condition in the covenant, and a breach can sometimes be considered an act of default.