• The coverage ratio, in a broad sense, is a measure of a company’s ability to service its debt and meet its financial obligations.

  • The higher the coverage ratio, the easier it should be to pay interest on your debt or pay dividends.
  • Coverage ratios come in several forms and can be used to identify companies that are in a potentially problematic financial situation.
  • Common coverage ratios include interest coverage ratio, debt service coverage ratio and asset coverage ratio.