DEBT SERVICE COVERAGE RATIO
It is essential to calculate DEBT SERVICE COVERAGE RATIO in an Industrial Project report. It is to find out the loan repayment capacity of the business unit or the promoter. The promoter and the funding agency need to know the repayment of the loan raised for the business. If the project in hand does not ensure reasonable repayment of loan the project can not be considered as viable. In order to calculate the DSCR at first we have to calculate the Net Profit. Debt Service Coverage Ratio is calculated on the basis of the Projected Profit and Loss Account for the five years.
DSCR = Net Profit+ Depreciation+ Interest on Term Loan
Loan Instalment+ Interest on Term Loan
The minimum desirable DSCR is 1:2
