DSCR calculator

What DSCR tells a lender

The debt service coverage ratio compares the cash a business generates in a year with the loan repayments it has to make in that year. A DSCR of 1.50 means the business earns ₹1.50 of cash for every ₹1 of interest and principal due. Below 1.00, this year's cash is not enough to pay this year's instalments, and the gap has to come from somewhere else.

How to use this calculator

1. Take net profit after tax (PAT) from the profit and loss statement for the year you are testing.
2. Add depreciation for the same year. It is a non-cash expense, so it is added back.
3. Enter the interest on the term loan for that year.
4. Enter the principal repayment due in that year, as per the repayment schedule.

The ratio updates as you type.

The formula

DSCR = (PAT + Depreciation + Interest on term loan) ÷ (Interest on term loan + Principal repayment)

Interest is added back on top because it was deducted to arrive at PAT, yet it is paid out of the same cash. It then appears again below the line as part of the debt service.

Worked example

A business reports PAT of ₹18 lakh, depreciation of ₹6 lakh and term loan interest of ₹4.5 lakh, with ₹12 lakh of principal due this year.

• Cash available for debt service: 18 + 6 + 4.5 = ₹28.5 lakh
• Debt service due: 4.5 + 12 = ₹16.5 lakh
• DSCR: 28.5 ÷ 16.5 = 1.73

That is comfortable cover. These are the example figures already loaded above.

What DSCR do banks look for?

There is no single number that applies to every bank and every loan. In practice, many lenders want an average DSCR of about 1.25 to 1.50 or more over the loan tenure, and they also check that no single year falls too low. Banks work out DSCR year by year from the projections, so a strong average can still hide one weak year in the middle of the repayment period.

Common mistakes

• Testing only one year. A term loan runs for several years. Work out DSCR for every year of the repayment schedule.
• Ignoring other loans. If the business already has term loans, their instalments are part of the debt service too.
• Trusting projections blindly. Check the projected sales and margins against past performance before relying on the ratio.

Frequently asked questions

Is a DSCR below 1 always rejected? Not always, but it needs a clear explanation, such as a moratorium period, a temporary dip, or funds the promoters will bring in. Without that, it is a serious concern.

What is the difference between average and minimum DSCR? The average is taken across all years of the loan. The minimum is the weakest single year. Lenders look at both.

Does DSCR apply to working capital loans? DSCR is mainly used for term loans. Working capital limits are usually assessed with other methods, such as the MPBF calculator or the turnover method, and monitored through drawing power.