The Debt Coverage Ratio (DSCR) is a measure of the cash flow available to pay off current debt obligations.
DSCR is used to analyze firms, projects or individual borrowers.
The minimum DSCR required by the lender depends on macroeconomic conditions. If the economy is growing, lenders may be more lenient with lower ratios.
A DSCR reading above 1.0 indicates that operating income is barely enough to cover annual debt obligations, while a reading less than one indicates potential solvency problems.
While the interest coverage ratio calculates the ability to repay interest payments, DSCR includes principal liabilities.