You have debt.
You want to know if it’s helping or hurting.
You need honest assessment.
You need the truth.
Debt health assessment. DSCR. Debt-to-equity. Your truth.
This guide shows you how.
Debt assessment. Ratio analysis. Honest evaluation. Your clarity.
Read this. Calculate ratios. See the truth.
Key Takeaways
- Calculate DSCR—use Debt Service Coverage Ratio Calculator to see if you can cover debt payments
- Calculate debt-to-equity—use Debt-to-Equity Ratio Calculator to see your leverage position
- DSCR above 1.25 is healthy—ratios below 1.0 indicate you can't cover debt payments
- Debt-to-equity varies by industry—high ratios may be normal in capital-intensive businesses
- Read both together—DSCR shows payment capacity, debt-to-equity shows leverage risk
Table of Contents
Why Assessment Matters
Assessment reveals truth.
What happens without assessment:
- Debt problems go unnoticed
- Payment capacity is unknown
- Leverage risk is hidden
- Crises develop
What happens with assessment:
- Debt problems are visible
- Payment capacity is known
- Leverage risk is clear
- Crises are prevented
The reality: Assessment enables action.
DSCR Assessment
Assess debt service coverage:
What DSCR Shows
What it measures:
- Ability to cover debt payments
- Operating income relative to debt service
- Payment capacity
- Debt sustainability
Why it matters: DSCR shows payment capacity.
How to Calculate
Calculate it:
- Use our Debt Service Coverage Ratio Calculator
- Enter operating income and debt service
- See coverage ratio
Why it matters: Calculation reveals capacity.
What Results Mean
Interpret results:
- Below 1.0: Critical warning—can’t cover debt payments
- 1.0 to 1.25: Tight—minimal safety margin
- 1.25 to 1.5: Healthy—adequate coverage
- Above 1.5: Strong—excellent payment capacity
Why it matters: Interpretation guides action.
Pro tip: Calculate DSCR. Use our Debt Service Coverage Ratio Calculator to see your payment capacity.
Debt-to-Equity Assessment
Assess debt-to-equity:
What Debt-to-Equity Shows
What it measures:
- Financial leverage
- Debt relative to equity
- Risk level
- Financial structure
Why it matters: Debt-to-equity shows leverage risk.
How to Calculate
Calculate it:
- Use our Debt-to-Equity Ratio Calculator
- Enter total debt and total equity
- See leverage ratio
Why it matters: Calculation reveals leverage.
What Results Mean
Interpret results:
- Very high: High risk—heavy debt burden
- High: Moderate risk—significant leverage
- Moderate: Balanced—reasonable debt levels
- Low: Conservative—minimal debt
Why it matters: Interpretation guides action.
Pro tip: Calculate debt-to-equity. Use our Debt-to-Equity Ratio Calculator to see your leverage position.
Reading Them Together
Read both ratios together:
Complete Picture
What the assessment shows:
- Payment capacity from DSCR
- Leverage risk from debt-to-equity
- Overall debt health
- Action priorities
Why it matters: Together they show complete health.
Common Patterns
What patterns to recognize:
- Strong DSCR, low debt-to-equity: Excellent position
- Weak DSCR, high debt-to-equity: Critical warning
- Strong DSCR, high debt-to-equity: Manageable but risky
- Weak DSCR, low debt-to-equity: Cash flow problem
Why it matters: Patterns reveal situations.
Debt Health Status
What status to determine:
- Helping: Debt enables growth, payments are manageable
- Neutral: Debt is balanced, no immediate concerns
- Hurting: Debt creates problems, action needed
Why it matters: Status guides decisions.
Pro tip: Read them together. Complete picture, common patterns, debt health status. See our financial health checkup guide for comprehensive assessment.
Debt Health Status
Determine your status:
Debt Is Helping
What helping looks like:
- DSCR above 1.25
- Debt-to-equity reasonable for industry
- Debt enables growth
- Payments are manageable
Why it matters: Helping debt should be maintained.
Debt Is Neutral
What neutral looks like:
- DSCR around 1.0 to 1.25
- Debt-to-equity moderate
- No immediate concerns
- Monitor regularly
Why it matters: Neutral debt needs monitoring.
Debt Is Hurting
What hurting looks like:
- DSCR below 1.0
- Debt-to-equity very high
- Payments are difficult
- Growth is constrained
Why it matters: Hurting debt needs action.
Pro tip: Determine status. Debt is helping, neutral, or hurting. See our debt spiral prevention guide for warning signs.
Action Planning
Plan actions based on status:
If Debt Is Helping
What actions to take:
- Maintain current structure
- Monitor ratios regularly
- Consider strategic debt for growth
- Optimize debt terms
Why it matters: Actions maintain health.
If Debt Is Neutral
What actions to take:
- Monitor ratios monthly
- Improve cash flow
- Reduce debt gradually
- Avoid additional debt
Why it matters: Actions prevent problems.
If Debt Is Hurting
What actions to take:
- Immediate debt reduction
- Improve cash flow
- Refinance if possible
- Seek professional help
Why it matters: Actions address problems.
Pro tip: Plan actions. If helping, maintain. If neutral, monitor. If hurting, act. See our debt strategy framework for detailed planning.
Your Next Steps
Calculate ratios. Assess health. Take action.
This Week:
- Review this guide
- Calculate DSCR
- Calculate debt-to-equity
- Assess debt health
This Month:
- Determine if debt is helping or hurting
- Create action plan
- Monitor ratios regularly
- Take necessary actions
Going Forward:
- Calculate ratios monthly
- Track trends
- Adjust as needed
- Maintain debt health
Need help? Check out our Debt Service Coverage Ratio Calculator for payment capacity, our Debt-to-Equity Ratio Calculator for leverage assessment, and our debt strategy framework for action planning.
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FAQs - Frequently Asked Questions About Is Your Debt Helping or Hurting? Using DSCR and D/E to Answer Honestly
What is DSCR and what do the different ratio ranges mean for your business?
DSCR is Debt Service Coverage Ratio showing if you can cover debt payments. Above 1.25 is healthy, below 1.0 is critical.
Learn More...
DSCR measures your ability to cover debt payments by comparing operating income to debt service. The article defines four ranges: below 1.0 is a critical warning meaning you cannot cover your debt payments, 1.0 to 1.25 is tight with minimal safety margin, 1.25 to 1.5 is healthy with adequate coverage, and above 1.5 is strong with excellent payment capacity. You can calculate your DSCR using a Debt Service Coverage Ratio Calculator.
How do you determine if your debt is helping, neutral, or hurting your business?
Compare DSCR and debt-to-equity ratio together to classify your debt health status.
Learn More...
The article defines three debt health statuses: debt is helping when DSCR is above 1.25, debt-to-equity is reasonable for your industry, debt enables growth, and payments are manageable. Debt is neutral when DSCR is around 1.0 to 1.25, debt-to-equity is moderate, and there are no immediate concerns but monitoring is needed. Debt is hurting when DSCR is below 1.0, debt-to-equity is very high, payments are difficult, and growth is constrained.
Why should you read DSCR and debt-to-equity ratio together instead of separately?
DSCR shows payment capacity while debt-to-equity shows leverage risk. Together they give the complete debt health picture.
Learn More...
Reading both ratios together reveals important patterns: strong DSCR with low debt-to-equity means excellent position, weak DSCR with high debt-to-equity is a critical warning, strong DSCR with high debt-to-equity means manageable but risky (you can make payments but are heavily leveraged), and weak DSCR with low debt-to-equity indicates a cash flow problem rather than a debt problem. Using only one ratio can give a misleading picture of your actual debt health.
What actions should you take if your debt health assessment shows debt is hurting your business?
Immediately reduce debt, improve cash flow, refinance if possible, and seek professional help.
Learn More...
When debt is hurting your business (DSCR below 1.0 and high debt-to-equity), the article recommends four immediate actions: pursue immediate debt reduction by paying down balances or negotiating with lenders, improve cash flow through revenue increases or cost cuts, refinance if possible to get better terms or lower payments, and seek professional help from financial advisors who can provide specific guidance for your situation. These actions should be prioritized because hurting debt constrains growth and threatens business survival.
What does the debt-to-equity ratio measure and what levels indicate too much leverage?
It measures total debt relative to owner equity, showing financial leverage. Very high ratios indicate heavy debt burden.
Learn More...
The debt-to-equity ratio divides total debt by total equity to show how much of your business is funded by debt versus owner investment. The article categorizes results as: very high ratio means high risk with heavy debt burden, high ratio means moderate risk with significant leverage, moderate ratio means balanced with reasonable debt levels, and low ratio means conservative with minimal debt. What counts as high varies by industry, as capital-intensive businesses normally carry more debt.
How often should you calculate DSCR and debt-to-equity to monitor debt health?
Calculate both ratios monthly, track trends over time, and adjust your strategy as needed.
Learn More...
The article recommends calculating both ratios monthly as part of ongoing financial monitoring. During the first week, calculate your current DSCR and debt-to-equity. During the first month, determine whether debt is helping or hurting, create an action plan, and begin monitoring regularly. Going forward, calculate ratios monthly, track trends over time to spot deterioration early, adjust your strategy as needed, and maintain debt health before problems become crises.
Sources & Additional Information
This guide provides general information about debt health assessment. Your specific situation may require different considerations.
For DSCR calculation, see our Debt Service Coverage Ratio Calculator.
For debt-to-equity calculation, see our Debt-to-Equity Ratio Calculator.
For debt strategy planning, see our Debt Strategy Framework.
Consult with professionals for advice specific to your situation.
