In business finance, it is usually the sum of cash flow on hand to meet the yearly interest and principal payments on debt that is so important and that includes sinking fund payments. In government finance, it is the sum of the earnings from export transfer that must be met yearly to be able to meet the interest and the principal payments in a country in terms of external debts. In person finance, it is the proportion used by the bank loan personnel to know the income property loan tax that matters most. This ratio must be more than 1. This may mean that the property is making a lot of money to pay the debt obligations it has. It will be computed as:
Net operating income
Total debt service
More about debt service coverage ratio
Debt service coverage ratio of lower than 1 may mean a negative cash flow, debt service of less than 1 like 95 may mean there is only adequate net operating income to be able to cover 95% of the yearly payable debts. For instance, in the context of personal finance, it may mean that the debtor may need to investigate in his/her personal funds monthly to keep the project on-going. Normally, the lenders mope in a negative cash flow, but some just agree if the borrower has enough outside revenue.