debt service coverage ratio

The debt service coverage ratio (DSCR) measures a company's ability to pay its debt obligations with its available income. It is calculated by dividing the net operating income (income after operating expenses) by the total debt payments due in a specific period. A DSCR of 1 or higher indicates the company generates enough income to cover its debt payments, while a ratio below 1 suggests it may struggle to meet its obligations. Investors and lenders use DSCR to assess financial stability and risk, ensuring the company has sufficient cash flow to service its debts reliably.