Debt Service Coverage Ratio
Calculate the debt service coverage ratio, a solvency ratio that measures how well a company’s operating earnings cover its debt service: the interest of the period and the principal due within a year.
The debt service coverage ratio compares EBITDA (operating income plus depreciation and amortization) with the total debt service, the interest expense plus the short-term debt on the balance sheet, which includes the current portion of long-term debt. A ratio below 1 means the operating earnings do not cover the debt service, so the company depends on refinancing or cash reserves; lenders often require 1.25 or more. A company without short-term debt and interest has no debt service, which gives NaN.
The formula is as follows:
\[\text{Debt Service Coverage Ratio} = (\text{Operating Income} + \text{Depreciation and Amortization}) / (\text{Interest Expense} + \text{Short Term Debt}\; x \;\text{Window Years})\]The short-term debt is the principal due over the next year, so it is scaled to the length of the window the earnings and interest cover: a quarter (0.25) with quarterly data, a year with yearly data and the trailing multiple of either with trailing (e.g. trailing=4 on quarterly data compares a year of earnings with a year of principal).
Also known as: DSCR, debt service ratio.
Debt Service Coverage Ratio in Python or via the MCP
Install the Finance Toolkit with:
pip install financetoolkit -U
Then call get_debt_service_coverage_ratio as shown below.
from financetoolkit import Toolkit
toolkit = Toolkit(
["WM", "RSG", "WCN"],
api_key="FINANCIAL_MODELING_PREP_KEY",
start_date="2021-01-01",
end_date="2025-12-31",
)
toolkit.ratios.get_debt_service_coverage_ratio()
Or, after setting up the Finance Toolkit MCP, ask:
What were the debt service coverage ratios of Waste Management, Republic Services and Waste Connections from 2021 to 2025?
Which returns:
| 2021 | 2022 | 2023 | 2024 | 2025 | |
|---|---|---|---|---|---|
| RSG | 10.7809 | 4.5724 | 3.0393 | 3.5467 | 4.4872 |
| WCN | 9.8794 | 10.422 | 7.8257 | 7.451 | 7.4022 |
| WM | 4.7698 | 7.0556 | 7.223 | 3.3464 | 3.2914 |
Parameters
get_debt_service_coverage_ratio accepts the following parameters.
| Parameter | Type | Description | Example |
|---|---|---|---|
rounding | int | None | The number of decimals to round the results to. Defaults to None, which uses the rounding of the Toolkit (4 unless set otherwise). | 2 |
growth | bool | Whether to calculate the growth of the ratios. Defaults to False. | True |
lag | int | list[int] | The lag to use for the growth calculation. Defaults to 1. | 4 |
compound | bool | Whether the growth is the compound annual growth rate over the lag (e.g. lag=5 for the five-year CAGR) instead of the total change. Defaults to False. | False |
standardize | bool | Whether to standardize (Z-Score) the result. When combined with growth=True, standardizes the growth values instead of the raw values. Defaults to False. | True |
trailing | int | The number of periods to sum flows (income and cash flow statement items) over, with balance sheet items averaged over the same number of period ends. E.g. 4 with quarterly data gives the trailing twelve months (TTM) and 3 with annual data a three-year cumulative figure. Defaults to None, which uses single-period flows (per quarter and not annualized with quarterly data). | 4 |