What is the difference between a cash flow DSCR and an accounting-based DSCR?

• A. Cash flow DSCR uses net income; accounting DSCR uses cash flow
• B. Cash flow DSCR uses cash available for debt service; accounting DSCR uses net income plus noncash addbacks
• C. They are the same
• D. Cash flow DSCR uses EBITDA; accounting DSCR uses operating income

Answer: (B)

DSCR compares how much cash is actually available to service debt with how much debt service is due. The cash flow version starts from cash available for debt service, which is based on real cash movements—typically cash flow from operations minus sustaining capital expenditures. The accounting-based version starts from net income and adds back noncash items (like depreciation and amortization) to approximate cash generation from an accrual perspective. The key is that one is grounded in actual cash flow, while the other is built from accrual earnings with noncash adjustments. EBITDA or operating income, by contrast, rely on accounting profits and often ignore changes in working capital and capital spending, so they don’t represent true cash availability for debt service.