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Seventy-two thousand of income on 42,000 of payments
Revenue is 240,000. Operating expenses are 168,000, with loan payments left out. Net operating income is 72,000. Annual principal and interest together are 42,000.
Revenue: 25% lower
Change revenue to 180,000 while keeping the other example values the same.
Revenue: 25% higher
Change revenue to 300,000 while keeping the other example values the same.
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Quick answer
What does the Debt service coverage ratio calculate?
Does this period’s operating income cover the year’s loan payments? This calculator uses revenue, operating expenses (exclude debt service), and annual debt service to estimate operating income versus this year’s loan payments immediately in your browser.
With the values currently entered, the result is 1.71× — debt service coverage. It also shows net operating income, annual debt service, and cash after debt service.
How to use the Debt service coverage ratio
- Replace the example values with your own numbers.
- Review the result and supporting figures as they update automatically.
- Check the formula and assumptions before using the estimate for a decision.
Inputs used
- Revenue
- Operating expenses (exclude debt service)
- Annual debt service
Debt service coverage ratio formula
Net operating income = revenue − operating expenses. DSCR = net operating income ÷ annual debt service.
Assumptions
- HUD writes DSCR as net operating income divided by the sum of the annual loan payments. A ratio below 1.0 means this period’s operating income does not cover those payments.
- HUD’s income approach keeps debt service out of net operating income. Leave principal and interest in the debt-service box, not in operating expenses.
Verify the inputs
Authoritative sources
These sources explain the definitions, factors, or rules behind this tool. Their geographic scope is shown because an official source for one country is not automatically valid somewhere else.
Defines DSCR as net operating income divided by the sum of the annual loan payments. A ratio below 1.0 means the period’s operating income does not cover those payments.
Income approach to valueUS Department of Housing and Urban DevelopmentScope: HUD Handbook 4465.1 Chapter 7Treats annual net income after operating expenses as the income that capitalization converts into value. Debt service is not part of that net income.
Sources do not endorse Calculum. Check the source date, scope, and your own documents before making a financial, tax, insurance, or reporting decision.
Practical guide
Debt service coverage ratio example and edge cases
Debt service coverage asks whether this period’s operating income covers the year’s loan payments. HUD writes DSCR as net operating income divided by those annual payments. HUD’s income approach keeps debt service out of that income.
Example: Seventy-two thousand of income on 42,000 of payments
Revenue is 240,000. Operating expenses are 168,000, with loan payments left out. Net operating income is 72,000. Annual principal and interest together are 42,000.
- Revenue
- 240,000
- Operating expenses (exclude debt service)
- 168,000
- Annual debt service
- 42,000
Calculated result1.71×debt service coverage
72,000 ÷ 42,000 is 1.71 times. Cash after the payments is 30,000. Household debt payments over personal pay is the debt-to-income calculator.
Example results use the default display profile. The calculator above follows your selected country and units.
How to read the result
- Read the multiple first. Then check cash after debt service. A ratio under 1.0 means this period’s operating income does not cover the scheduled payments.
- Keep principal and interest in the debt-service box. Putting them in operating expenses shrinks income and the ratio together.
Edge cases worth checking
You also pay extra principal
HUD’s ratio uses required loan payments. Extra principal is a choice. Leave it out of debt service if you want the covenant-style coverage, or add it if you want the cash that actually left.
The owner draw sits in operating expenses
A draw is not an operating cost on HUD’s income line. Take it out if you want the lender-style NOI, or the ratio looks worse than the shop’s operations.
What changes the result most
Revenue
Use a current amount for revenue. Include fees or recurring costs that belong in the same figure.
Operating expenses (exclude debt service)
Use a current amount for operating expenses (exclude debt service). Include fees or recurring costs that belong in the same figure.
Annual debt service
Use a current amount for annual debt service. Include fees or recurring costs that belong in the same figure.
Try a different scenario
Small changes show whether the answer is stable or sensitive.
Revenue: 25% lower
180,0000.29×debt service shortfall
Revenue: 25% higher
300,0003.14×debt service coverage
Operating expenses (exclude debt service): 25% higher
210,0000.71×debt service shortfall
Common mistakes
Check revenue
HUD writes DSCR as net operating income divided by the sum of the annual loan payments. A ratio below 1.0 means this period’s operating income does not cover those payments. Make sure this matches the number you enter.
Keep annual debt service consistent
HUD’s income approach keeps debt service out of net operating income. Leave principal and interest in the debt-service box, not in operating expenses. Use the same units and time period throughout the calculation.
Do not rely on one debt service coverage ratio scenario
Run a cautious case and an optimistic case. The range is often more useful than one exact-looking number.
Use this result well
Does this period’s operating income cover the year’s loan payments?
It does not replace a quote, contract, accountant, or local employment guidance.