Debt-Service Coverage Ratio (DSCR)

A fancy way to see how easily a company's cash flows are covering their debt payments.

Cash flow is a measure of the way money is moving in and out of an organization. Positive cash flow indicates more money is coming in than is going out. Negative cash flow represents the opposite. Duh.

Meanwhile, any debt a company takes on needs to get serviced. Or paid. This might sound vaguely sleazy (imagine if we had said "a company needs to service its debt load"), but it just means that there's a cost to debt. "Interest" = "Rent." You need to pay back any debt you take on, plus interest. These payments spread out over a period of time (think of your mortgage payment as an example).

So the debt-service coverage ratio takes into account the company's cash flow and the total amount it needs to pay in order to service its debt. Specifically, it consists of the company's operating income (a measure of cash flow) and the debt-service charges. The number is typically given on an annual basis, meaning both numbers are given as the amounts earned or incurred over the course of a year.