Methodology
Debt Service Coverage Planner methodology
Educational only: Business decision support, not accounting, tax or legal advice.
Privacy: Calculations run locally; Margin101 does not receive your commercial inputs.
Update policy: Reviewed when formulas or official dependencies change.
Scope: Market-neutral small-business planning using your own assumptions.
1. Formulas and units
debtService = interest due + principal due + lease and other debt dueWhere
- interestDue
- Interest due (currency units/selected debt-service period)Source: Business record
- principalDue
- Principal due (currency units/selected debt-service period)Source: Business record
- leaseAndOtherDebtDue
- Lease and other debt due (currency units/selected debt-service period)Source: Business record
- debtService
- Debt Service (currency units, ex tax)Source: Calculated output
baseCoverageRatio = operating cash available ÷ debt serviceWhere
- operatingCashAvailable
- Operating cash available (currency units/selected debt-service period)Source: Business record
- debtService
- Debt Service (currency units, ex tax)Source: Calculated output
- baseCoverageRatio
- Base Coverage Ratio (coverage multiple)Source: Calculated output
downsideCoverageRatio = operating cash available × (1 − downside reduction) ÷ debt serviceWhere
- operatingCashAvailable
- Operating cash available (currency units/selected debt-service period)Source: Business record
- downsideCashReductionRate
- Downside cash reduction (decimal fraction of operating cash removed in the downside scenario (1 = 100%))Source: Business record
- debtService
- Debt Service (currency units, ex tax)Source: Calculated output
- downsideCoverageRatio
- Downside Coverage Ratio (coverage multiple)Source: Calculated output
baseCoverageGap = operating cash available − debt service × minimum coverage ratioWhere
- operatingCashAvailable
- Operating cash available (currency units/selected debt-service period)Source: Business record
- minimumCoverageRatio
- Minimum coverage ratio (decimal debt-service coverage ratio: operating cash / total debt service)Source: User decision
- debtService
- Debt Service (currency units, ex tax)Source: Calculated output
- baseCoverageRatio
- Base Coverage Ratio (coverage multiple)Source: Calculated output
- baseCoverageGap
- Base Coverage Gap (currency units, ex tax)Source: Calculated output
Money inputs and outputs use the currency selected in the scenario without changing the canonical methodology. Rates, margins, utilisation and buffers are entered as percentages and converted to decimal values for calculation.
2. Worked example
Input assumptions
The worked rows below come directly from the registered engine and visible default fixture.
Calculation and outputs
Example
The worked rows below come directly from the registered engine and visible default fixture.
- Debt Service
- 120,000 currency units
- Base Coverage Ratio
- 1.5
- Downside Coverage Ratio
- 1.28
- Base Coverage Gap
- 30,000 currency units
The exact engine-derived outputs are shown in the labelled rows below.
Interpretation
Coverage is a planning ratio based on the entered definition of operating cash and debt service, not a covenant assessment.
3. Validation and boundary checks
- All inputs must be finite and within the visible boundaries.
- Cash, debt and timing values use one consistent planning period.
- Payment counts and frequencies must be positive whole numbers.
4. Assumptions and source classification
- All balances, rates, timing and coverage thresholds are user-supplied records or explicit assumptions.
- No lender covenant, market rate, policy threshold or future cash flow is inferred.
This planner has no current policy-data dependency. Its commercial assumptions are user supplied. Registered family-level regression suites exercise the shared business-logic engine and worked-result reconciliation.
5. Limitations
- The model excludes lender fees, taxes, covenant definitions and lender-specific credit assessments.
- It does not replace accounting, tax, legal or financial advice.
This is educational decision support, not tax, accounting, legal or financial advice. Check the treatment of your actual transactions under the rules that apply to your business and seek qualified advice where appropriate.
6. Update and evidence policy
Registered family-level suites test formula invariants and example reconciliation; the release ledger records that coverage without claiming a separate oracle for every line of public copy. There is no official threshold or benchmark to refresh for this planner. Commercial inputs remain user-supplied because they vary by business and contract.
Change history
- : Initial public release of the Debt Service Coverage planner and methodology.
Related reading
Guides to interpret the decision and its assumptions.
- Business Borrowing: Repayment and Cash Coverage
Review repayment, total interest, a declared cash-based affordability ceiling and downside debt-service coverage without treating a ratio as lender approval.
Read guide