DSCR Formula and Calculator
Apply the DSCR formula to your own numbers: year-wise DSCR, average DSCR and the lowest year, with a bank-style verdict.
| Amounts in ₹ | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| Net profit after tax | |||||
| Depreciation | |||||
| Interest on term loan | |||||
| Principal repaid | |||||
| Cash available (profit + depreciation + interest) | |||||
| DSCR |
The DSCR formula is: DSCR = (Net profit after tax + Depreciation + Interest on term loan) ÷ (Interest on term loan + Principal repayment). A DSCR above 1 means the business earns enough cash to repay its loan. Many banks look for an average DSCR of about 1.5.
This DSCR calculator applies the DSCR formula year by year for up to five years. Enter your projected profit, depreciation, interest and principal above. It shows each year’s DSCR, the average and the lowest year, with a bank-style verdict.
Key takeaways
- DSCR stands for Debt Service Coverage Ratio.
- Banks use it to judge whether you can repay a term loan.
- An average DSCR of about 1.5 or more is comfortable for most banks.
- A DSCR below 1 in any year is a red flag.
How to Use the DSCR Calculator
- Enter net profitAdd projected net profit after tax for each year.
- Add depreciationDepreciation is a non-cash cost, so it is added back.
- Enter interest and principalUse your loan repayment schedule for each year.
- Read the DSCRSee year-wise DSCR, the average and the lowest year.
DSCR Formula Explained
Average DSCR = Total cash available over the loan period ÷ Total interest and principal due
| Part of the formula | What it means |
|---|---|
| Net profit after tax | Profit left after all costs and tax |
| Depreciation | A non-cash cost added back to profit |
| Interest on term loan | Added back, because it is paid out of this cash |
| Principal repayment | The loan instalments due in the year |
DSCR calculation example
In Year 1, a unit earns a net profit of ₹2,40,000, charges ₹1,20,000 of depreciation and pays ₹1,00,000 of interest. Therefore, cash available is ₹4,60,000. It also repays ₹1,60,000 of principal, so debt service is ₹2,60,000. As a result, the Year 1 DSCR is 4,60,000 ÷ 2,60,000 = 1.77. Over five years, the sample figures above give an average DSCR of 1.91.
What Is a Good DSCR?
| DSCR | How banks usually view it |
|---|---|
| Below 1.0 | Cash flow does not cover repayment |
| 1.0 to 1.25 | Weak; the loan may be reduced or need more security |
| 1.25 to 1.5 | Acceptable for many banks |
| 1.5 and above | Comfortable for most banks |
However, each bank sets its own norms. Some also look at the lowest yearly DSCR, not just the average, so check both.
How to Improve Your DSCR
- Choose a longer repayment period to lower yearly principal.
- Add a moratorium so repayment starts after the unit earns.
- Reduce the loan by bringing in more own contribution.
- Use realistic but complete revenue, including all product lines.
DSCR uses profit after tax. If you are a small proprietor, check whether tax applies, because it changes the ratio.
DSCR in a Project Report
Banks read the DSCR table in every project report for a term loan. Therefore, it should cover the full repayment period, not just the first year. Show the moratorium period clearly, because no principal falls due then and the ratio looks very high.
Furthermore, keep the profit projections consistent with your sales and cost sheets. A DSCR that rises sharply without a reason invites questions. In contrast, a steady ratio backed by realistic capacity use builds the banker’s confidence.
| Common mistake | Correct approach |
|---|---|
| Leaving out depreciation | Add it back, because it is a non-cash cost |
| Using total interest including working capital | Use term loan interest in this ratio |
| Showing only the average | Show year-wise DSCR and the lowest year too |
| Ignoring tax | Use profit after tax where tax applies |
For the official lending framework that banks follow for small businesses, read the RBI master circular on lending to the MSME sector.
Related Tools
The project report maker builds a full five-year DSCR for you from costs and sales. In addition, test your working capital with the working capital loan calculator, find your break-even point, and read our business loan scheme guides.
Frequently Asked Questions
What is the DSCR formula?
DSCR = (Net profit after tax + Depreciation + Interest on term loan) ÷ (Interest on term loan + Principal repayment). It shows how many times your cash earnings cover your yearly loan repayment.
What is the full form of DSCR?
DSCR stands for Debt Service Coverage Ratio. In banking, it measures whether a business earns enough cash to repay its term loan.
What is an ideal DSCR ratio?
Many banks look for an average DSCR of about 1.5 or more. A DSCR below about 1.25 is usually treated as weak, and below 1 means cash flow does not cover the repayment.
What does average DSCR mean?
Average DSCR is the total cash available for debt service over the loan period divided by the total interest and principal due. It smooths out a weak year or a strong year.
Why is interest added back in the DSCR formula?
Interest is part of the repayment you must make, so it is added back to profit to show the cash available before paying it, and included again in the amount due.
Can DSCR be negative?
Yes, if the business makes a large loss. A negative or very low DSCR tells the bank the loan cannot be repaid from business cash flow.
Business Reports is an independent information website. We are not affiliated with, endorsed by or acting for any government department, bank, NBFC, KVIC, NABARD, SIDBI or MUDRA, and we do not provide loans or process applications. Figures are indicative; confirm details on official portals or with your bank. Read our disclaimer and advertising disclosure.