DSCR of a client or supplier: how to calculate it from the accounts

In short: the DSCR (debt service coverage ratio) is the ratio between a company's available cash flows and its debt instalments (principal and interest) for the same period. Above 1, the cash flows cover the instalments; below 1, they do not. From a client's filed accounts you can only estimate a historical and approximate version: a signal, not a verdict.

What the DSCR is

The DSCR answers a simple question: with the money the company generates, can it pay the instalments on its financial debts? The document of the National Council of Chartered Accountants and Accounting Experts (Consiglio nazionale dei dottori commercialisti, CNDCEC) on the 2019 early-warning indicators describes it, in its simplest version, as the ratio between the free cash flows expected in the following six months available for repaying debts and the debts to be repaid in the same period. Values above one indicate the estimated ability to sustain debts; values below one indicate the corresponding inability.

For those who extend credit this matters because it looks at cash, not the accounting result: a client with a good EBITDA but heavy bank instalments can have a DSCR below 1.

The formula

In its general form:

DSCR = cash flows available for debt service / (principal + interest to be paid in the period)

The CNDCEC document of 2019 provided two ways of calculating it, both based on a treasury budget prepared by the company:

• first approach: in the denominator, the principal portions of financial debts (to banks or other lenders) due under the contracts in the following six months; in the numerator, all expected receipts, including the opening cash, less all expected payments except those repayments;
• second approach: in the numerator, the cash flows from operating activities less those from investments, plus the opening liquidity and the available credit lines; in the denominator, the capital and interest payments on financial debt, the overdue or instalment-plan tax and social security debts, and the trade payables overdue beyond the normal level, falling due in the six months.

Both require internal forward-looking data (the treasury budget), which someone looking at the company from the outside does not have.

How to estimate it from the outside, using filed accounts

From the outside you can build a historical DSCR: how much the company generated in the last financial year, compared with the debt to be serviced in the following twelve months. You need the income statement (art. 2425 c.c.), the balance sheet for two years (art. 2424 c.c.) and the notes to the accounts.

Numerator: the available cash flow

1. start from EBITDA: difference A - B plus depreciation and write-downs (B10) and provisions (B12 and B13);
2. subtract the taxes for the year (item 20);
3. subtract the increase in working capital: trade receivables plus inventories less trade payables, comparing the two balance sheets (if working capital decreases, add the difference);
4. subtract investments: the purchases of fixed assets during the year, which the notes to the accounts report in the movements of fixed assets (art. 2427, no. 2, c.c.).

If the client prepares a cash flow statement (art. 2425-ter c.c.), you can start from the cash flow from operating activities and subtract the investment cash flow. However, check where interest and taxes are classified, so that you do not count them twice.

Denominator: debt service

• interest: item C17 of the income statement;
• principal: in the full accounts, the debts to banks, to other lenders and the bonds due within the following financial year. The balance sheet shows separately the amounts due beyond the following financial year: the portion due within twelve months is the total less that portion.

Numerical example (invented figures)

Example: a supplier, which we will call Beta Srl, with full accounts. The figures are invented to show the calculation.

Now suppose you know, for example from the client itself, that 100,000 € of the 150,000 is a current account overdraft facility that the bank renews every year. If you remove it from the denominator, debt service falls to 90,000 € and the DSCR rises to 2.44. Same accounts, very different result: this is why a DSCR calculated from the outside must always be accompanied by the assumptions you have made. The CNDCEC document also addressed this point: credit lines falling due go into the denominator, unless their renewal or maintenance is considered reasonable.

Why it is only an approximation

• It is historical, not forward-looking. The CNDCEC DSCR looks at future cash flows; yours looks at the closed year, which may be many months old.
• You do not see overdue debts. The second CNDCEC approach puts tax, social security and overdue trade debts in the denominator: the accounts show total debts, not how many are overdue.
• With abbreviated accounts the denominator is missing. The abbreviated balance sheet shows only total debts, divided between those due within and beyond the following financial year, without separating banks and suppliers (art. 2435-bis c.c.), and there is no cash flow statement. In that case the realistic calculation is interest coverage: EBITDA divided by interest (C17). This is explained in the guide on abbreviated accounts and micro-company accounts.

DSCR and the Business Crisis Code: what the law says today

In the original version of the Business Crisis and Insolvency Code (Codice della crisi d'impresa, D.Lgs. 14/2019), art. 13 dealt with crisis indicators and, in paragraph 2, entrusted the CNDCEC with drawing up the indices. The CNDCEC document of October 2019 indicated as indices that reasonably presume a crisis negative net equity and a six-month DSCR below 1, and only in the absence of a reliable DSCR five sector indices.

The current text is different:

• art. 13 was replaced by D.Lgs. 83/2022 and now establishes the national online platform for negotiated composition (composizione negoziata), with a checklist, a practical test and a protocol defined by a directorial decree of the Ministry of Justice. According to EC News, the directorial decree of 23 April 2026 updated the practical test, which measures the complexity of the restructuring through the ratio between the debt to be restructured and the flows available to service it;
• art. 3, also replaced by D.Lgs. 83/2022, requires the entrepreneur to adopt measures or structures that allow imbalances of equity or of economic-financial nature to be detected, and to verify the sustainability of debts and the prospects of continuity for at least the following twelve months. Paragraph 4 lists precise signals: wages overdue by at least thirty days exceeding half of the monthly payroll, trade payables overdue by at least ninety days exceeding those not yet overdue, bank exposures overdue or over the limit for more than sixty days amounting to at least five per cent of the total, and the exposures referred to in art. 25-novies;
• art. 2 defines crisis as the state that makes insolvency likely and that is shown by the inadequacy of prospective cash flows to meet obligations in the following twelve months.

The current text mentions neither the DSCR nor the CNDCEC indices. According to an article published by FiscoeTasse in 2023, the CNDCEC indices are no longer mandatory but may continue to be adopted as a reference. The DSCR, in short, measures exactly what the definition of crisis is about (cash flows compared with debts), but it is not a statutory threshold. The signals of art. 3, paragraph 4, are internal data: you do not see them in the filed accounts.

How to use it to decide on credit

A historical DSCR below 1 means that, in the last year, cash flows were not enough to cover instalments and interest: the company used cash, new debts or contributions from shareholders. It does not mean it will fail, but for a supplier it is a reason to reduce exposure: shorter payment terms, smaller amounts, advance payments. Cross-check it with the other readings in the guide to reading a client's or supplier's accounts, with the net financial position, and with protests and proceedings, which the accounts do not show. To turn all of this into an amount, there is the guide on how to calculate a trade credit line.

Sources

• CNDCEC, The early-warning indices under art. 13, para. 2 of the Business Crisis and Insolvency Code, version dated 19 October 2019, sections 3.1.2 and 3.2.2 (copy published by Diritto Bancario) (accessed 2026-11-01)
• Art. 3 D.Lgs. 14/2019, current text (Brocardi.it) (accessed 2026-11-01)
• Art. 13 D.Lgs. 14/2019, current text (Brocardi.it) (accessed 2026-11-01)
• Art. 2 D.Lgs. 14/2019, definitions (Brocardi.it) (accessed 2026-11-01)
• FiscoeTasse, Business Crisis Code: detection of economic, equity and financial imbalances (2023-09-12) (accessed 2026-11-01)
• EC News, Ministerial Decree of 23 April 2026: guidelines for negotiated composition updated (accessed 2026-11-01)
• Art. 2435-bis c.c., abbreviated-form accounts (Brocardi.it) (accessed 2026-11-01)
• Art. 2427 c.c., content of the notes to the accounts (Brocardi.it) (accessed 2026-11-01)