Fundamental Glossary / Debt & Financial Stability
Debt Service Coverage Ratio (DSCR)
Cash available for debt service divided by the principal and interest due.
Formula
Cash flow available for debt service / (principal due + interest due). Project finance defines the cash flow in the loan agreement.
What it means
Interest cover ignores repayment of principal. DSCR does not. A business can pay the coupon and still fail to repay the instalment.
In project finance, a minimum DSCR is a covenant. New distributions to sponsors are often blocked when the ratio falls below the lock-up level.
How to read it
A DSCR comfortably above 1 leaves room for a down year. A DSCR of 1.05 means almost every rupee of the defined cash flow is already promised to lenders.
What to watch
The numerator is defined by contract. One version is EBITDA minus tax and maintenance capex. Another starts from operating cash flow. Do not compare two DSCRs that were built differently.
This note explains the term. It is not a research recommendation, a target price, or a comment on any security. Ratios and regulatory thresholds change; use the latest filing or circular for a live figure.