Coverage: Coverage refers to a firm’s ability to service debt that involves interest or premium payments. Ratios that measure coverage consist of one component to estimate flow of funds into the firm and another for periodic payments on debt.
Interpretation: This ratio is a measure of a firm’s ability to meet interest payments. A high ratio may indicate that a borrower would have little difficulty in meeting the interest obligations of a loan. This ratio also serves as an indicator of a firm’s capacity to take on additional debt.
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