# WHAT DO coverage ratios tell us?

## WHAT DO coverage ratios tell us?

A coverage ratio, broadly, 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 make interest payments on its debt or pay dividends.

How do you interpret cash coverage ratio?

A cash coverage ratio of one means that the business has just enough cash to pay off current liabilities. If the ratio is above one, it means that the business has the means to pay off its current debts with funds leftover.

### What type of ratio is coverage ratio?

A Coverage ratio is a type of financial ratio. It indicates the ability of a firm to pay off the outsiders obligations. Normally, a ratio greater than 1 implies a sound position of a firm to pay off the liability or obligation under concern.

What is insurance coverage ratio?

The life insurance coverage ratio is the amount of insurance coverage in relation to the policyholder’s income. The coverage ratio indicates the extent to which insurance is adequate. It helps to determine whether death benefits and investments are sufficient to cover the daily expenses and health of the family.

#### What are coverage ratio examples?

The debt service coverage ratio. (DSCR) evaluates a company’s ability to use its operating income to repay its debt obligations including interest. For example, a DSCR of 0.9 means that there is only enough net operating income to cover 90% of annual debt and interest payments.

What is the importance of the term interest coverage ratio?

1. It helps in understanding the present risk of a firm that a bank is going to give loan to. 2. It helps in evaluating the emerging risk of a firm that a bank is going to give loan to. The higher a borrowing firm’s level of Interest Coverage Ratio, the worse is its ability to service its debt.

## What does a 1.5 coverage ratio mean?

Understanding the Interest Coverage Ratio The lower the ratio, the more the company is burdened by debt expenses and the less capital it has to use in other ways. When a company’s interest coverage ratio is only 1.5 or lower, its ability to meet interest expenses may be questionable.

How is coverage ratio calculated?

The interest coverage ratio is calculated by dividing a company’s earnings before interest and taxes (EBIT) by its interest expense during a given period. The interest coverage ratio is sometimes called the times interest earned (TIE) ratio.

### Why is insurance coverage low in India?

One of the reasons for low coverage is that Indians have relied more on endowment policies and ULIPs where life insurance coverage may not be adequate. However, over the years term life insurance has been playing an important role in improving insurance coverage ratio in India.

What does efficiency ratio indicate?

Efficiency ratios measure a company’s ability to use its assets and manage its liabilities effectively in the current period or in the short-term. These ratios measure how efficiently a company uses its assets to generate revenues and its ability to manage those assets.

#### What is ACR in banking?

The asset coverage ratio is a financial metric that measures how well a company can repay its debts by selling or liquidating its assets. Banks and creditors often look for a minimum asset coverage ratio before lending money.

What is the importance of the term interest coverage ratio of a form in India?

Qn 2020) What is the importance of the term “Interest Coverage Ratio” of a firm in India? It helps in understanding the present risk of a firm that a bank is going to give a loan to. It helps in evaluating the emerging risk of a firm that a bank is going to give a loan to.

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