What is the 'Asset Coverage Ratio'
The asset coverage ratio is a test that determines a company's ability to cover debt obligations with its assets after all liabilities have been satisfied. It is calculated as the following:
Next Up
BREAKING DOWN 'Asset Coverage Ratio'
When calculating the asset coverage ratio, investors should exercise caution with respect to asset value. Using the book value of assets may result in an inaccurate asset coverage ratio if the actual liquidation value of assets is significantly less. As a rule of thumb, utilities should have an asset coverage ratio of at least 1.5, and industrial companies should have a ratio of at least 2.
RELATED TERMS

Coverage Ratio
A measure of a company's ability to meet its financial obligations. ... 
Interest Coverage Ratio
A debt ratio and profitability ratio used to determine how easily ... 
Current Ratio
The current ratio is a liquidity ratio measuring a company's ... 
Cash Asset Ratio
The current value of marketable securities and cash, divided ... 
Liquidity Ratios
A class of financial metrics that is used to determine a company's ... 
Liquidity Coverage Ratio  LCR
Highly liquid assets held by financial institutions in order ...
Related Articles

Fundamental Analysis
How to Calculate a Coverage Ratio
In broad terms, the higher the coverage ratio, the better the ability of the enterprise to fulfill its obligations to its lenders. 
Fundamental Analysis
An Introduction To Coverage Ratios
Interest coverage ratios help determine a company's ability to pay down its debt. 
Budgeting
3. Interest Coverage Ratio
Companies provide distress signals long before they go under. Find out how to read them. 
Investing Basics
Do Your Investments Have ShortTerm Health?
If a company is strong enough to survive tough times, it is more likely to provide longterm value. 
Economics
Explaining the Liquidity Coverage Ratio
The liquidity coverage ratio requires banks and other financial institutions to hold enough cash and liquid assets on hand to weather market stress. 
Markets
Liquidity Measurement Ratios: Introduction
By Richard Loth (Contact  Biography)The first ratios we'll take a look at in this tutorial are the liquidity ratios. Liquidity ratios attempt to measure a company's ability to pay off its shortterm ... 
Active Trading Fundamentals
Analyzing WalMart's Debt Ratios in 2016 (WMT)
Analyze WalMart's debttoequity ratio, interest coverage ratio and cash flowtodebt ratio to evaluate the company's financial health and debt management. 
Economics
Calculating LongTerm Debt to Total Assets Ratio
A company’s longterm debt to total assets ratio shows the percentage of its assets that are financed with longterm debt. 
Professionals
Ratio analysis: Liquidity Ratios
Ratio analysis: Liquidity Ratios 
Investing
Asset Turnover Ratio
Investopedia explains: The asset turnover ratio is a measure of a company's ability to use its assets to generate sales or revenue, and is a calculation of the amount of sales or revenue generated ...
RELATED FAQS

What's the difference between the coverage ratio and the liquidity coverage ratio?
Understand the difference between coverage ratios and the liquidity coverage ratio and why the liquidity coverage ratio rule ... Read Answer >> 
Which types of coverage ratios should I look at when deciding to invest in a company?
Find out why coverage ratios are useful for investors to know and which three coverage ratios an investor should understand ... Read Answer >> 
What is a bad interest coverage ratio?
Understand how interest coverage ratio is calculated and what it signifies, and learn what market analysts consider to be ... Read Answer >> 
What's the difference between the coverage ratio and the levered free cash flow to ...
Learn the differences between the equity evaluation metric, the levered free cash flow to enterprise value ratio and various ... Read Answer >> 
What is a good interest coverage ratio?
Learn the importance of the interest coverage ratio, one of the primary debt ratios analysts use to evaluate a company's ... Read Answer >> 
What is the difference between interest coverage ratio and TIE?
Read about the times interest earned, also known as the interest coverage ratio. Find out why this is an important ratio ... Read Answer >>