DSCR and Fixed Charge Coverage Ratio (FCCR): Formulas and Examples

Debt service coverage

Define cash available for debt service before deducting the debt service in the denominator. Include scheduled principal, not just interest, and distinguish required payments from optional sweeps. A lender may define availability after maintenance CapEx, taxes or other adjustments.

DSCR = Cash available for debt service / (cash interest + required principal)

Worked DSCR example

Cash available is $6m, cash interest is $2m and scheduled principal is $2m. DSCR is $6m / $4m = 1.50x. At an illustrative minimum of 1.25x, the cushion is 0.25x; the ratio could fall to the threshold if available cash fell to $5m.

If interest is $2m but scheduled principal increases to $4m, DSCR falls to 1.00x even though EBITDA interest coverage may not change. This is why amortization matters.

Fixed charge coverage

One cash-based FCCR compares cash before fixed charges with cash interest, mandatory principal and other specified fixed charges such as lease payments. Another definition may adjust EBIT for rental expense. Use the agreement’s precise definition rather than transferring a formula from another industry.

Illustrative cash FCCR = Cash before defined fixed charges / (interest + mandatory principal + other defined fixed charges)

Worked FCCR example without double counting rent

Cash before financing payments and rent is $7m. Interest is $2m, required principal $2m and rent $1m. FCCR is $7m / $5m = 1.40x. If your numerator already deducts the $1m rent, add it back before using this particular definition, or choose a consistent alternative definition.

Interpretation and edge cases

A ratio below 1.0x indicates a shortfall under that defined cash measure, but it does not automatically determine legal default. Covenants may have cure rights, testing periods or permitted adjustments. Zero required debt service makes DSCR undefined rather than a useful infinite score. A negative numerator signals distress, not positive coverage.

How this relates to diophos

Use the diophos debt schedule and displayed DSCR and interest coverage to inspect forecast debt affordability. FCCR here is an educational reference, not a separate promise of an app covenant calculation. Stress the cash and principal assumptions against the actual loan terms.