What DSCR means in a loan appraisal (with the formula)

Debt Service Coverage Ratio (DSCR) answers one question: does the borrower generate enough cash in a year to cover that year’s loan repayment obligations? It is the core sizing test in most term-loan appraisals.

The formula

DSCR = Cash Available for Debt Service (CADS) ÷ Debt Service. CADS is typically built as profit after tax + depreciation and other non-cash charges + interest on the long-term debt being serviced. Debt Service is the sum of interest plus scheduled principal repayment on that debt for the period. A DSCR of 1.0 means cash exactly covers the obligation; lenders generally look for a comfortable margin above that, and an average across the loan tenure rather than a single year.

Where judgement enters

• Which non-cash charges genuinely add back, and whether reported profit needs normalising for one-off items.
• Whether interest on short-term / working-capital borrowing belongs in the numerator or the denominator.
• Projected vs historical: a projections-based DSCR is only as good as the revenue assumptions behind it.

Why one year is not enough

A healthy first-year DSCR can mask a repayment structure that tightens sharply once a moratorium ends or a balloon installment falls due. The appraisal needs the year-by-year DSCR across the full schedule, plus a sensitivity check on the key revenue and cost drivers.

How Yogin AI helps

The banking workspace computes DSCR year by year from the financials and the repayment schedule you provide, with the add-backs itemised so the credit officer can see and adjust every component. It also assembles a draft Credit Appraisal Memo around those numbers. It does not make the sanction decision, assign an internal rating, or run Basel III capital or AML screening.