Besides the ratios mentioned above, we can also use the coverage ratios in conjunction with the leverage ratios to measure a company’s ability to pay its financial obligations.

The most common coverage ratios are:

  • Interest coverage ratio: The ability of a company to pay the interest expense (only) on its debt
  • Debt service coverage ratio: The ability of a company to pay all debt obligations, including repayment of principal and interest
  • Cash coverage ratio: The ability of a company to pay interest expense with its cash balance
  • Asset coverage ratio: The ability of a company to repay its debt obligations with its assets