Debt service coverage ratio (DSCR)

Tax Glossary Definition

Debt service coverage ratio (DSCR)

Debt Service Coverage Ratio (DSCR) – The Debt Service Coverage Ratio evaluates an entity’s capacity to meet its debt obligations using its operating income. It is determined by dividing Net Operating Income (NOI) by the Total Debt Service, which includes both interest and principal repayments. A higher ratio reflects greater financial stability and a stronger ability to service debt.

Example: If a firm generates ₹10 lakh in operating income and its annual debt commitments total ₹8 lakh, its DSCR equals 1.25 — meaning it earns 1.25 times the amount required to cover its debt payments.

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