Which of the following formula is used for calculating Debt Service Coverage Ratio (DSCR)?

Correct option is C

Debt Service Coverage Ratio (DSCR) is a key financial metric used to measure a firm’s ability to service its debt, i.e., to pay interest and repay principal obligations from its operating profits.
The correct formula for calculating DSCR is:
DSCR=PAT + Depreciation + Interest + Non-cash expenses /Interest + Principal repayment + Preference Dividend (if treated as debt)
The numerator represents cash available for debt servicing, as non-cash expenses (like depreciation) are added back. The denominator includes actual cash obligations—interest and repayment of principal.
Thus, the correct option is (c).
The other options either calculate different ratios (like interest coverage ratio) or unrelated financial indicators.
Hence, the correct answer is (c).
Information Booster
1. DSCR above 1 indicates sufficient income to service debt; below 1 signals financial stress.
2. Lenders use DSCR during loan approval, credit risk assessment, and project financing decisions.
3. Non-cash expenses such as depreciation are added back because they do not reduce actual cash flows.
4. DSCR is critical in long-term loan agreements and often included as a loan covenant.
5. A healthy DSCR ensures solvency, liquidity stability, and reduces risk of loan default.