DSCR is calculated as: (Net profit + depreciation - distributions) / CPLTD.
It correctly captures the concept that the use of the fixed asset generates revenue that is used to repay the CPLTD. The portion of the taxi that is "used up" (depreciated) in generating revenue is effectively converted into cash flow.
In George's case, next year's depreciation expense (CPFA) of $5,000 will be adequate to repay the CPLTD of $4,000.
To be clear, it is neither the depreciation expense nor the CPFA that repays the CPLTD. Revenue repays CPLTD.
If the company suffers a net loss, there may not be enough revenue to cover both cash expenses and CPLTD. Of course, any company that consistently loses money will have a hard time repaying its long-term debt.
If the premise is accepted that CPLTD is repaid from CPFA and not from current assets, it must follow that the current ratio is flawed by including CPLTD as a current liability that must be paid from current assets.
This approach would take CPLTD out of current liabilities, or at least adjust the calculation of working capital and current ratio accordingly That would require inventing some new terms:
Replace working capital with: Trading cycle capital = current assets - (current liabilities - CPLTD).
Replace the current ratio formula with: Trading cycle ratio = current assets / (current liabilities - CPLTD).
Solution 2: Developing a new "current ratio." The alternate solution is to leave CPLTD with current liabilities, but calculate CPFA and report it with current assets.
Replace working capital with: Current capital = current assets (including CPFA) - current liabilities (including CPLTD).
Replace current ratio with: Current period ratio = current assets (including CPFA) / current liabilities (including CPLTD).