Debt Service Coverage Calculator Formula
Understand the math behind the debt service coverage calculator. Each variable explained with a worked example.
Formulas Used
Debt Service Coverage Ratio
dscr = annual_debt_service > 0 ? net_operating_income / annual_debt_service : 0Annual Surplus After Debt Service
surplus = net_operating_income - annual_debt_serviceVariables
| Variable | Description | Default |
|---|---|---|
net_operating_income | Net Operating Income(USD) | 300000 |
annual_debt_service | Annual Debt Service (Principal + Interest)(USD) | 200000 |
How It Works
How to Calculate Debt Service Coverage Ratio
Formula
DSCR = Net Operating Income / Annual Debt Service
DSCR measures whether a business earns enough operating income to comfortably cover its debt obligations (both principal and interest). A DSCR of 1.0 means income exactly equals debt payments -- no margin for error. Lenders typically require a minimum of 1.25 to provide a safety cushion for unexpected revenue dips.
Worked Example
A company has $300,000 in net operating income and $200,000 in annual debt payments.
net_operating_income = 300000annual_debt_service = 200000
- 01DSCR = $300,000 / $200,000 = 1.50
- 02Surplus = $300,000 - $200,000 = $100,000
- 03The business earns $1.50 for every $1 of debt it must pay.
Ready to run the numbers?
Open Debt Service Coverage Calculator