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