Debt and cash Updated November 2026

DSCR

Debt service coverage ratio = cash flow available for debt service / total debt service (interest + scheduled principal) in the same period. A DSCR of 1.0x means cash exactly covers payments; lenders usually require 1.20x to 1.35x, and covenants are tested each period.

Syntax

DSCR = CFADS / (Interest + Principal repayments)

Part	What it is
`CFADS`	Cash flow available for debt service: EBITDA - cash taxes - capex - change in NWC (definitions vary by loan agreement)
`Debt service`	Interest paid plus mandatory principal in the period

Examples

CFADS 300, interest 50, principal 100
=300 / (50 + 100)

Result: 2.00x

EBITDA-based: EBITDA 180, debt service 150
=180 / 150

Result: 1.20x

Below a 1.25x covenant, so this period would be a breach.

Max debt service at a 1.30x target with CFADS 260
=260 / 1.3

Result: 200

Common mistakes

Using net income instead of cash flow: DSCR is a cash test, so start from EBITDA or CFADS, not profit after non-cash charges.
Leaving principal out of the denominator, which gives interest coverage, a different ratio.
Testing DSCR on the year a loan is drawn without annualizing partial-year debt service.

Practice DSCR

These drills check your answer on live data, free, no account needed.

Debt service coverage testLenders compare cash available for debt service with interest plus principal. Fill the coverage ratio (row 8) and a covenant test (row 9) that shows "Pass" when the ratio is at least the minimum in B2 and "Breach" otherwise.
Interest on the opening debt balanceA term loan is repaid in equal amounts. Fill the opening balance for later years (row 5), the closing balance (row 7) and interest expense (row 8), charging the rate in B2 on the opening balance of each year.

Questions

What is a good DSCR?

Above 1.25x is typical for corporate and real estate lending; project finance often requires 1.30x to 1.50x. Below 1.0x the borrower cannot pay from operating cash.

What is the difference between DSCR and interest coverage?

Interest coverage (EBIT / interest) ignores principal. DSCR includes scheduled principal, so it is the stricter and more relevant test for amortizing loans.

Debt scheduleA debt schedule rolls each loan forward: closing = opening + draws - repayments, with interest on the opening balance. Layout, example, amortization, sweeps.
Amortization tableA loan amortization table shows opening balance, payment, interest, principal and closing balance per period. How to build it with PMT, exact rows, mistakes.
Free cash flowFree cash flow is cash from operations minus capital expenditures. The simple formula, the free cash flow to equity version and examples with exact numbers.
EBITDAEBITDA = EBIT + depreciation and amortization, or net income + interest + taxes + D&A. Exact worked examples, what EBITDA leaves out and the usual mistakes.