What are coverage ratios?

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Accepted Answer

Coverage ratios are financial ratios used to measure a company's ability to meet its financial obligations.

Coverage ratios are used to assess a company's ability to pay its debts and interest on those debts.
Common coverage ratios include debt service coverage ratio, interest coverage ratio, and fixed charge coverage ratio.
Debt service coverage ratio measures a company's ability to pay its debt obligations, interest coverage ratio measures its ability to pay interest on its debt, and fixed charge coverage ratio measures its ability to pay fixed expenses.
Higher coverage ratios indicate a company is better able to meet its financial obligations.
Coverage ratios are important for lenders and investors to evaluate a company's financial health and creditworthiness.

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