1. What is Service Coverage Ratio?

The Service Coverage Ratio (SCR) is a financial metric that measures a company's ability to cover its debt obligations with its operating income. It indicates how many times a company can pay its debt service from its operating income.

2. How Does the Calculator Work?

The calculator uses the SCR formula:

Where:

• \( \text{Operating Income} \) — Company's earnings before interest and taxes (EBIT) in USD
• \( \text{Debt Service} \) — Total debt payments (principal + interest) due in the period in USD

Explanation: A higher ratio indicates better ability to service debt from operating earnings.

3. Importance of SCR Calculation

Details: Lenders and investors use SCR to assess a company's financial health and creditworthiness. It helps determine if a company generates sufficient cash flow to meet its debt obligations.

4. Using the Calculator

Tips: Enter operating income and debt service in USD. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good SCR value?
A: Generally, a ratio of 1.5 or higher is considered healthy, indicating the company can cover its debt payments 1.5 times over.

Q2: What if SCR is less than 1?
A: An SCR below 1 indicates the company doesn't generate enough operating income to cover its debt payments, which is a warning sign for creditors.

Q3: How often should SCR be calculated?
A: SCR should be monitored regularly, typically quarterly or annually, depending on the debt repayment schedule.

Q4: What's the difference between SCR and DSCR?
A: Debt Service Coverage Ratio (DSCR) is similar but uses EBITDA instead of operating income and may include other adjustments.

Q5: Can SCR be used for personal finance?
A: While not common, individuals can adapt the concept to compare their income to loan payments.