Source: https://guthlabs.ai/docs/instruments/debt-service-coverage-ratio-dscr/mechanism/

instrument mechanism / verified-clean

# Debt Service Coverage Ratio (DSCR) mechanism

The inspectable method record for Debt Service Coverage Ratio (DSCR), kept separate from implementation and qualification.

Status: **VERIFIED_CLEAN**Lifecycle: **verified-clean**

## Model scope

The core arithmetic formula passes for rental-property DSCR under consistent annual units and positive debt service. Review is required because the spec claims applicability to both businesses and rental properties without defining the business cash-flow numerator, and it requests a lender-style pass/fail note without supplying a threshold. The educational-only and underwriting-standards-varying label is appropriate.

- DSCR=NOI/DebtService is standard for rental-property analysis when NOI and total debt service are consistently defined.

- Using NOI for a general business is ambiguous: business DSCR commonly uses operating cash flow, EBITDA, or another lender-defined cash-flow measure instead.

- The requested lender-typical pass/fail threshold is not specified and cannot be determined from the provided inputs; thresholds vary by lender, property type, loan type, and underwriting policy.

## Units and conventions

- NOI and debt service must use the same currency and time period, preferably annual amounts.

- Annual debt service should include the lender-relevant required principal and interest payments; whether other required debt-related payments are included must be defined.

- Monthly debt payments must be multiplied by 12 before comparison with annual NOI.

- DSCR is dimensionless and assumes debt service is a positive amount.

## Inspectable vector

One of 4 source-bound review vectors:

````
{
  "inputs": {
    "net_operating_income_annual": 120000,
    "annual_debt_service": 80000
  },
  "expected_outputs": {
    "dscr": 1.5,
    "threshold_note": "No pass/fail determination; lender threshold is unspecified."
  },
  "working": "DSCR = NOI / Debt Service = 120000 / 80000 = 1.5."
}
````

## Failure boundary

**BREAK_CLAIMED** · SELF_FLAGGED

A zero annual-debt-payment input makes the ratio undefined and must be rejected or surfaced as an explicit error. The pass/fail note also has an unstated threshold convention, and signed versus magnitude debt-service inputs can produce different DSCR values.

## Other records

[01**Overview**](<https://guthlabs.ai/docs/instruments/debt-service-coverage-ratio-dscr/>)[03**Implementation**](<https://guthlabs.ai/docs/instruments/debt-service-coverage-ratio-dscr/implementation/>)[04**Qualification**](<https://guthlabs.ai/docs/instruments/debt-service-coverage-ratio-dscr/qualification/>)

## Sources and evidence

These pointers bind the page to evidence. They do not grant authority or collapse verification into deployment.

- `VERIFIED_LEDGER.json`

- `evidence-tranche5/tranche5-results.json`

- `BOUNDARY_HAZARD_CATALOG.json`