Coverage ratios are comparisons designed to measure a company’s ability to pay its liabilities. On the surface, coverage ratios might sound a lot like liquidity and solvency ratios, but there is a distinct difference. Coverage ratios analyze a company’s ability to service its debt and other obligations.
In other words, these ratios measure how well companies can afford to make the interest payments associated with their debt. Some ratios also include obligations that are not typical liabilities like regular dividend payments to stockholders.
Here are the main coverage ratios used to analyze companies.
