Financial Statement Analysis
 Ratio Analysis of Financial Statements (Formula, Types, Excel)
 Ratio Analysis Advantages
 Ratio Analysis
 Liquidity Ratios
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 Cash Ratio Formula
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 Quick Ratio Formula
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 Acid Test Ratio Formula
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 Changes in Net Working Capital
 Change in Net Working Capital (NWC) Formula
 Cash Flow from Operations Ratio
 Cash Flow Per Share
 Cash Reserve Ratio
 Operating Cycle Formula
 Current Ratio vs Quick Ratio
 Bid Ask Spread
 Liquidity vs Solvency
 Liquidity
 Solvency
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 Days Inventory Outstanding
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 Cash Conversion Cycle (CCC) Formula
 Fixed Asset Turnover Ratio Formula
 Debtor Days Formula
 Working Capital Turnover Ratio
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 Profitability Ratios Formula
 Common Size Income Statement
 Vertical Analysis of Income Statement
 Profit Margin
 Gross Profit Margin Formula
 Gross Profit Percentage
 Operating Profit Margin Formula
 EBIT Margin Formula
 Operating Income Formula
 Net Profit Margin Formula
 EBIDTA Margin
 Degree of Operating Leverage Formula (DOL)
 NOPAT Formula
 OIBDA
 Earnings Per Share
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 Basic EPS vs Diluted EPS
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 ROIC Formula (Return on Invested Capital)
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 ROIC vs ROCE
 ROE vs ROA
 CFROI
 Cash on Cash Return
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 Capital employed Employed
 Return on Average Assets (ROAA)
 Return on Average Equity (ROAE)
 Return on Assets Formula
 Return on Equity Formula
 DuPont Formula
 Net Interest Margin Formula
 Earnings Per Share Formula
 Diluted EPS Formula
 Contribution Margin Formula
 Unit Contribution Margin
 Revenue Per Employee Ratio
 Operating Leverage
 EBIT vs EBITDA
 EBITDAR
 Capital Gains Yield
 Tax Equivalent Yield
 LTM Revenue
 Operating Expense Ratio Formula
 Overhead Ratio Formula
 Variable Costing Formula
 Capitalization Rate
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 Comparative Income Statement
 Capacity Utilization Rate Formula
 Total Expense Ratio Formula
 Markup Percentage Formula
 Efficiency Ratios
 Dividend Ratios
 Debt Ratios
 Debt to Equity Ratio
 Debt Coverage Ratio
 Debt Ratio
 Debt to Asset Ratio Formula
 Coverage Ratio
 Coverage Ratio Formula
 Debt to Income Ratio Formula (DTI)
 Capital Gearing Ratio
 Capitalization Ratio
 Overcapitalization
 Interest Coverage Ratio
 Times Interest Earned Ratio
 Debt Service Coverage Ratio (DSCR)
 DSCR Formula (Debt service coverage ratio)
 Financial Leverage Ratio
 Financial Leverage Formula
 Degree of Financial Leverage Formula
 Net Debt Formula
 Leverage Ratios
 Leverage Ratios Formula
 Operating Leverage vs Financial Leverage
 Current Yield
 Debt Yield Ratio
 Solvency Ratio Formula
Related Courses
Debt Coverage Ratio Formula
We use debt coverage ratio formula to determine how much net operating income a firm can generate in terms of the debt payment it has to make in the same period.
Let’s have a look at the Debt Coverage Service Ratio Formula –
Example of Debt Coverage Ratio Formula
Let’s look at a practical example to illustrate how we can calculate the debt coverage service ratio formula.
Jaymohan Company has been looking for debt financing. They approached nearby banks and financial institutions. Jaymohan Company has found out that the debt service cost would be around $40,000 for a particular period. They want to know whether their net operating income is enough to cover the expenses. You are the accountant of Jaymohan Company and you found out that the operating income for this particular period is $500,000. Would you think that Jaymohan Company should go for debt financing after all?
The solution lies in debt coverage service ratio calculation.
As an accountant, you should first see the proportion between the net operating income and the debt service cost.
4.9 (1,067 ratings)
 Formula = Net Operating Income / Debt Service Cost
 = $500,000 / $40,000 = 12.5.
As per the ratio is concerned, Jaymohan Company has enough net operating income to cover the debt service cost for the period.
However, the accountant also needs to see whether similar companies under the same industry have similar or closer results. Or the accountant can also check the norm of the industry to be certain that 12.5 is a good proportion.
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Explanation of Debt Coverage Ratio Formula
The formula is important to two groups of individuals.
 The first groups of people are those who would like to invest in that particular company. Before they ever loan the amount to the firm, they want to know whether the firm has enough operating income to cover the payments.
 The second groups of individuals are internal people. They can be from top management or they can report to the top management. They use this formula to see whether the firm has enough operating income to go for external sources of finance like debt finance.
By using this formula, we get a clear idea of whether a firm is capable of handling the debt payment regularly or not. If the proportion between the net operating income and the debt payment is too low (like 1 or less), it’s better not to go for debt financing; and for investors, it’s better not to loan the amount to that particular company.
Also, you may have a look at this detailed post on DSCR
Uses
Before the groups of investors decide to loan the amount of debt to the company, they look at various metrics.
One of the most important metrics is to see whether the company has been earning enough operating income to cover the debt payment. If not, then the investors drop the idea of investment into that particular company.
This ratio may not be the only formula for the investors to check the stability of the company they would like to invest into, but it certainly is one of the most important to ratio to check whether a firm is worthy or not.
Debt Coverage Ratio Calculator
You can use the following Debt Coverage Ratio Calculator
Net Operating Income  
Debt Service Cost  
Debt Coverage Ratio Formula  
Debt Coverage Ratio Formula = 


Debt Coverage Service Ratio Formula in Excel (with Excel Template)
Let us now do the same example above in Excel. This is very simple. You need to provide the two inputs of net operating income and the debt service cost. You can easily calculate the ratio in the template provided.
You can download this debt coverage ratio template here – Debt Coverage Ratio Excel Template
Debt Coverage Ratio Formula Video
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This has been a guide to debt coverage ratio formula, practical examples and debt coverage ratio calculator along with excel templates. You may also have a look at these articles below to learn more about Financial Analysis –