Debt Service Coverage Ratio

The Debt Service Coverage Ratio (DSCR) measures a company's ability to service its total debt obligations — both principal repayment and interest payments — from its operating cash flows. It is calculated as: DSCR = Net Operating Income ÷ Total Debt Service. A DSCR above 1 indicates that the company generates sufficient operating income to cover its debt obligations, while a ratio below 1 signals that it cannot — and may need to draw on reserves or raise additional capital. Lenders and credit analysts use DSCR as a primary metric when assessing the creditworthiness of borrowers. For equity investors in India, a rising DSCR reflects improving debt-servicing capacity, while a declining ratio — especially below 1.2x — warrants closer scrutiny of the balance sheet and refinancing risk.