One way that the Debt Service Coverage Ratio ("DSCR") is calculated is by first determining EBIDA(R) and then dividing it by the total debt service requirements.
EBIDA(R) is earnings before interest depreciation amortization (rent). To calculate it, start with the net income and add back interest expense, all non-cash expenses (which includes depreciation, amortization and depletion for example), any extraordinary expenses and rent expense in certain instances. For example, rent would be added back if a company is purchasing a building to replace the space currently being rented. The purpose of this is to add back anything that will not continue to be an expense to the business or will not actually use cash - which is the case with depreciation.
Then determine the debt service requirements by adding together all loan payments, both principal and interest. This is why you add the interest back in EBIDA(R), if it were not added it back, the cash flow would be reduced by the interest portion of payments twice.
A typical benchmark for DSCR is 1.25:1. This means that for every $1 of debt, the net income is $1.25. MB98.215.218.208 (talk) 00:14, 27 April 2010 (UTC)