Debt Service Coverage Ratio (DSCR)

DSCR measures a company’s ability to service its debt using its operating income. It reflects how comfortably a business can meet its debt obligations.

Formula:

DSCR = Net Operating Income / Total Debt Service (principal + interest)

Interpretation:

• Above 1.0: Sufficient income to cover debt.

• Below 1.0: Insufficient income, potential default risk.

Importance:

• Critical for loan approvals.

• Monitored in debt covenant compliance.

• Reflects operational health.

Example:

A UAE logistics company generating AED 3M in annual operating income with AED 2.5M in annual debt service has a DSCR of 1.2, signaling adequate debt coverage.