A Coverage Ratio is the ratio of a company's total assets to its total debt liabilities. It is calculated by dividing the company's total assets by its total debt liabilities, expressed as a percentage. The coverage ratio is considered a liquidity ratio because it shows a company's ability to cover short-term debt obligations. It is also considered a solvency ratio because it indicates how well a company fulfills its short-term and long-term obligations. A coverage ratio is calculated at the same time as the current ratio and the quick ratio.A coverage ratio, broadly, is a metric intended to measure a company's ability to service its debt and meet its financial obligations, such as interest payments or dividends. A ratio can take into account how much debt the company has, how much it's earning in revenue, and how much it's earning in profit, while still evaluating the company's ability to pay off its debt obligations. However, a company must be careful when calculating a coverage ratio because the ratio may not show the whole picture due to a company's tax obligation.
