> For the complete documentation index, see [llms.txt](https://help.modelreef.io/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://help.modelreef.io/help/financial-outputs-and-valuation/debt-service-logic.md).

# Debt Service Logic

This article explains **debt service logic** in Model Reef.

You will learn:

* How interest and principal repayments are calculated.
* How they appear across P\&L, Balance Sheet, Cashflow and the Cash Waterfall.
* How to think about debt service in scenarios and valuation.

Debt service represents the cash required to meet loan obligations.

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### Components of debt service

Debt service in Model Reef includes:

* **Interest expense**
  * Calculated on opening loan balances and any relevant rate drivers.
  * Appears in the P\&L below EBIT.
* **Interest paid**
  * Cash outflow when interest is actually paid.
  * Appears in Operating cashflows and in the Cash Waterfall financing section.
* **Principal repayments**
  * Cash outflow for reducing loan balances.
  * Appear in Financing cashflows and in the Cash Waterfall debt movement section.
  * Do not appear in P\&L directly.

Together, these make up the total cash burden of debt in each period.
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### Loan structures and debt service

Model Reef can represent different loan structures via Liability variables, for example:

* **Amortising loans**
  * Principal repaid over the term according to a schedule.
  * Interest declines as the principal reduces.
* **Interest only loans**
  * Only interest is paid during the interest only period.
  * Principal repaid in a bullet or refinanced later.
* **Custom or manual structures**
  * Drawdowns, interest and repayments tailored through explicit schedules or formulas.

Debt service amounts are then derived automatically from these structures and timing settings.
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### Debt service across the statements

Across the statements:

* **P\&L**
  * Shows interest expense.
* **Balance Sheet**
  * Shows loan balances and any interest payable between accrual and payment.
* **Cashflow Statement**
  * Shows interest paid in Operating cashflows.
  * Shows principal repayments and new drawdowns in Financing cashflows.
* **Cash Waterfall**
  * Shows interest paid and net debt movements in clearly labelled lines.

This integrated view allows you to quickly see the burden of debt on cash and equity.
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### Debt service in scenarios and planning

You can test debt service robustness by:

* Changing interest rates.
* Changing principal repayment profiles.
* Adding or removing new debt tranches.
* Combining these with different revenue, cost and capex paths.

Key questions include whether:

* Operating cashflow comfortably covers interest and scheduled repayments.
* The business needs further funding to meet obligations.
* Dividends or growth capex should be adjusted in tight periods.

Model Reef does not enforce hard covenants by default, but you can build dashboards and KPIs to monitor coverage ratios.
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***

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* [Build a Synergy & Integration Model](/how-tos/investment-and-transactions/build-a-synergy-and-integration-model.md)
* [Tax Logic](/help/financial-outputs-and-valuation/tax-logic.md)
* [Editing Frequency](/syntax/how-input-fields-work/editing-frequency.md)