DSCR (Debt Service Coverage Ratio) - Meaning, Formula, Calculation & Interpretations

In this tutorial, you will learn how to examine an organization's Debt Service Coverage Ratio by understanding its meaning, formula, calculations, and interpretation. Additionally, you will also understand how to compute Colgate- Palmolive’s Debt Service Coverage Ratio in Excel.

You can download the Colgate Debt Service Coverage Ratio template from this link - https://tinyurl.com/colgate-template

What is Debt Service Coverage Ratio?
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The Debt Service Coverage Ratio determines if a company's operating income is sufficient to cover all of its debt-related obligations in a given year. Debt servicing includes not only interest but also a percentage of the principal to be repaid each year. It also includes previously agreed-upon lease payments.

Formula
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DSCR Formula = Net Operating Income/Total Debt Service

Interpretation
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If the DSCR is less than 1.0, it indicates that the company’s operating cash flows are insufficient for Debt Servicing, signifying negative cash flows.
From a bank's perspective, the DSCR is a beneficial matrix, especially when giving loans against property.

For more details, you can refer to our article – https://www.wallstreetmojo.com/dscr-r...
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