Examples of coverage ratios include
•
Asset Coverage Ratio: Definition, Calculation, and Example
What Is the Asset Coverage Ratio?
The asset coverage ratio is a key financial metric that measures how well a company can repay its debts by selling or liquidating its assets. It's important because it helps lenders, investors, and analysts measure a company's financial solvency and risk profile. A higher asset coverage ratio generally indicates that the company has more than enough assets to cover its debt, making it less risky to lenders; a lower ratio suggests that it may face difficulty paying its debt. Banks and creditors often consider a minimum asset coverage ratio before lending money.
Key Takeaways
- The asset coverage ratio is a financial metric that measures how well a company can repay its debts by selling or liquidating its assets.
- The higher the asset coverage ratio, the more times a company can cover its debt.
- Therefore, a company with a high asset coverage ratio is considered to be l
•
Coverage Ratio Definition, Types, Formulas, Examples
What Is a Coverage Ratio?
A coverage ratio is a metric that measures a company's ability to service its debt and meet its financial obligations, including its interest payments and dividends. A high coverage ratio indicates that it's likely the company will be able to man all its future interest payments and meet all its financial obligations.
Analysts and investors may study any changes in a company's coverage ratio over time to assess the company's financial position.
Key Takeaways
- A coverage ratio is a measure of a company's ability to service its debt and meet its financial obligations.
- A high coverage ratio indicates that it's likely the company will be able to man all its future interest payments and meet all its financial obligations.
- A coverage ratio can be used to help identify companies in a potentially troubled financial situation.
- There are different types of coverage ratios; common c
- Coverage ratios are commonly used by lenders to assess the debt servicing ability of a company;
- The DSCR and LLCR are typically inserted in loan document and used in project finance; and
- A coverage ratio of more than 1 implies sound ability to meet debt-servic
•
Coverage Ratios
By Sher Mehta |
July 8, 2021
What are “Coverage Ratios?”
Coverage ratios are a set of financial ratios that measure the ability of a company to meet its debt servicing obligations. Such ratios are commonly used by lenders and creditors to analyze a company’s debt servicing ability and financial standing. While leverage ratios focus on the balance sheet of a company, coverage ratios focus on the income statement and cash flows. The common coverage ratios are the debt service coverage ratio (DSCR), loan life coverage ratio (LLCR), interest coverage ratio (ICR), cash coverage ratio (CCR), and the asset coverage ratio (ACR).
Key Learning Points