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Get access to simple, ready to use excel templates to help you calculate key project finance ratios. Whether you are building a model or analysing performance, these are tools are designed to do more than just give you the numbers, they show you how the numbers work.

Debt Service Coverage Ratio (DSCR)

The DSCR, is one of the most important metrics in project finance. It tells you whether a project or business can generate enough cash to meet its debt obligations , both principal and interest.

DSCR=Cash Flow Available for Debt Service (CFADS)/Debt Service (Principal + Interest)

CFADS usually comes from your project’s net operating cash flow after tax, adjusted for working capital movements and maintenance capex.

  • A DSCR above 1.0 means the project generates enough cash to cover debt payments ,and then some.

  • A DSCR of exactly 1.0 means you’re just breaking even on repayments.

  • A DSCR below 1.0 signals that the cash flow isn’t enough to meet obligations, which could indicate distress.

Lenders often set a minimum DSCR covenant (e.g., 1.2x) in the loan agreement, and falling below that can trigger defaults or restrictions.

LLCR is a key metric in project finance that measures whether a project has enough cash flow over its entire loan term to repay its debt.

LLCR = Net Present Value (NPV) of Cash Flow Available for Debt Service (CFADS) / Outstanding Loan Balance

It calculates the total CFADS expected over the remaining life of the loan, discounts it to its current value, and compares it to the outstanding principal.

  • An LLCR above 1.0 indicates that the project is expected to generate more value than the debt it incurs, a positive sign for long-term bankability.

  • An LLCR of 1.0 means future cash flows just match the debt.

  • An LLCR below 1.0 indicates potential repayment risk, especially if there’s no strong equity cushion.

Lenders often use LLCR to assess overall debt sustainability and set minimum thresholds (e.g., 1.3x–1.5x) during the structuring process. A lower LLCR could result in tighter terms, shorter tenor, or even deal rejection.

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PLCR is a long-term credit metric in project finance that shows whether a project’s total future cash flows can cover its outstanding debt. It’s beneficial when the loan tenor is shorter than the project life, especially for projects with strong post-loan cash flow generation.

PLCR = Net Present Value (NPV) of Cash Flow Available for Debt Service (CFADS) over the whole project life / Outstanding Loan Balance

It’s similar to LLCR, but instead of considering cash flows only until debt maturity, PLCR considers all projected cash flows over the entire asset life, then discounts them to today’s value and compares that to the current debt balance.

  • A PLCR above 1.0 indicates that the project’s full life cash flows are expected to exceed its current debt, which is a positive signal for long-term repayment capacity.

  • A PLCR of 1.0 suggests the project’s total cash flow covers the outstanding loan, with no cushion.

  • A PLCR below 1.0 indicates a potential inability to repay debt solely from project cash flow.

PLCR is especially important when lenders are relying on refinancing, residual value, or long tails. It’s often used alongside LLCR and DSCR to give a more complete picture of a project’s credit profile.

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Debt sizing is the process of determining the amount of debt a project can safely support based on its projected future cash flows. Rather than guessing or using fixed percentages, lenders rely on financial models to calculate the maximum loan amount the project can repay, without falling into distress.

One of the most common methods is DSCR-based sizing, where you use the projected CFADS (Cash Flow Available for Debt Service), set a target DSCR (e.g., 1.25x), and back-calculate the amount of debt the cash flow can service.

Example
If your model shows $20 million in average annual CFADS and a minimum DSCR of 1.25x, the maximum allowable debt service is:
$20 million ÷ 1.25 = $16 million/year.
From there, the model calculates the corresponding loan size based on interest rate and tenor.

But lenders don’t stop there. They often apply multiple constraints, such as:

Loan Life Coverage Ratio (LLCR) to test full-term debt coverage

Gearing caps, e.g., max 70% debt-to-equity

PLCR tests, especially if the project has an extended cash flow tail

Ultimately, debt sizing ensures the loan is right-sized, neither too aggressive nor too conservative, based on what the project can afford to repay.

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