# How to calculate DSCR without missing a cash shortfall

By Reza Esfahanian, Founder & CTO of FINKI

A debt service coverage ratio of 1.25 means that, under the definitions used, available cash flow is 1.25 times debt service for the period. It does not tell you that cash will be available on the payment date.

That distinction matters when a project spends money months before it receives revenue.

## Start with an explicit definition

For this example:

`DSCR = cash flow available for debt service / debt service due`

The numerator is often called CFADS. Its definition must specify the relevant receipts, costs and adjustments. Do not substitute EBITDA without checking what the calculation requires. Taxes, investment and working-capital movements may matter.

A facility agreement can define the ratio differently. Use its applicable rules for a contractual test.

## Work through the numbers

This fictional example uses euros and matching annual periods. Debt service comprises €160,000 interest and €640,000 principal. It excludes other fees and reserve movements.

| Scenario | CFADS | Debt service | DSCR |
|---|---:|---:|---:|
| Base | 1,000,000 | 800,000 | 1.25 |
| Reduced cash flow | 850,000 | 800,000 | 1.0625 |
| Further decline | 750,000 | 800,000 | 0.9375 |

The final scenario has a €50,000 periodic shortfall. Whether that constitutes a contractual breach depends on the actual agreement and test. There is no universal approval threshold supplied by this example.

The [scenario CSV](/resources/finance/dscr-examples.csv) contains the inputs and expected results.

## Do not turn missing inputs into a reassuring result

Keep currency, period and calculation version explicit. Distinguish historical from forecast results.

If debt service is zero, the ratio is undefined. Display that condition rather than infinite coverage or a healthy indicator. Explain negative cash flows; do not replace them with zero. If a material input is missing, the calculation should remain incomplete.

## Compare periods, not just a single ratio

Use the same definition across periods and explain whether a change comes from cash flow or debt service. Lower scheduled principal can improve the ratio without increasing the cash the project earns. Changing the payment schedule requires the relevant contractual approvals.

Show the weakest period alongside the annual figure, and distinguish forecasts from completed periods. A healthy average can conceal a later shortfall.

## Check the payment calendar separately

An annual ratio can offset a payment due in March with a receipt expected in November. Your account cannot do that.

Add a dated cash-flow plan showing available funds, restricted balances and any committed funding conditions. Test a delayed receipt and identify the maximum funding need. Monthly totals are useful, but a within-month mismatch may require daily analysis.

Use the ratio to ask a better question about debt coverage. Use the payment calendar to decide what still needs financing. Both require the definitions and evidence of the actual transaction, not a generic green score.

Canonical: https://finki.ai/insights/dscr-calculation

Published: 2026-09-27