How to Calculate DSCR for a Bank Loan: Solved Example

If you are learning how to calculate DSCR for a bank loan project report with an example, start from the version of the formula used in term-loan appraisals. It adds back the non-cash and interest items to profit, then compares the result with what the loan demands that year. Below are the formula, a one-year numerical and a five-year schedule with an average DSCR, all computed with our DSCR calculator engine.

What DSCR measures

The debt service coverage ratio compares the money a business has available to repay a loan with the repayment due. A DSCR of 1.00 means everything earned for debt service goes straight to the lender. Below 1.00, the business must find cash elsewhere. Above 1.00, there is a cushion.

In corporate finance the numerator is often net operating income or EBITDA. Project reports for term loans usually build it from the profit and loss account instead, which is the version used here. For lender benchmarks and covenant tests, see our guide to DSCR for business loans.

DSCR formula for a term-loan project report

Calculate each year separately, because principal, interest and profit all change over the life of the loan.

Use the same interest figure in the numerator and the denominator. Only include instalments and interest on the loans being serviced, and leave out working-capital interest unless the lender’s format asks for it.

Solved examples

Example 2 shows why the yearly figures matter more than the average. The average of 1.18 looks comfortable, but Year 1 does not cover its own repayment. A lender reading this report would ask how the Year 1 gap is funded, for example through a moratorium on principal, promoter contribution or a longer repayment period. Interest falls each year as principal is repaid, which is why DSCR improves even after profit stops growing.

What a principal moratorium does to Year 1

Lenders sometimes defer principal repayment in the first year of a new project, so only interest is paid. Rework Year 1 of Example 2 on that basis: income available stays ₹14,00,000, but debt service falls to the interest of ₹5,00,000. DSCR becomes 2.80. The deferred principal does not disappear, though. It is added to later instalments, so recalculate every later year with the revised repayment schedule before quoting an average.

Also check which profit figure the projections use. DSCR should be built from projected profit after tax for the same year as the repayment, not from the previous year’s audited profit, and depreciation should match the fixed-asset schedule in the same report.

Common mistakes students make

• Using profit before tax in the numerator while also adding interest back, which double counts the tax that has to be paid.
• Leaving interest out of the denominator and dividing only by the principal instalment.
• Taking the simple average of yearly ratios when the question asks for total available divided by total debt service.
• Using the same interest figure every year even though the loan balance falls after each instalment.
• Adding back depreciation in the denominator as well as the numerator.

Run your own numbers

In the DSCR calculator, enter income available for debt service (PAT + depreciation + interest) and total debt service (principal + interest) for each year. If the loan is repaid by equal EMIs instead of equal principal instalments, split each year’s EMIs into principal and interest with the loan amortization calculator first.

Last updated: 23 October 2026