Understanding Coverage Ratios in Accountancy

The video tutorial introduces coverage ratios, focusing on debt service coverage ratio (DSCR) and interest coverage ratio. It explains how these ratios assess a company's ability to meet debt obligations, providing formulas and examples. The DSCR is calculated using net operating income and debt payments, while the interest coverage ratio uses EBIT and interest expenses. The video emphasizes the importance of these ratios for lenders and investors, and previews upcoming topics on preference dividend and fixed charge coverage ratios.

What are coverage ratios and why are they important for a company?

Evaluate responses using AI:

OFF

What factors can influence the coverage ratios of a company?

Evaluate responses using AI:

OFF

Explain the concept of debt service coverage ratio and its significance.

Evaluate responses using AI:

OFF

How is the debt service coverage ratio calculated?

Evaluate responses using AI:

OFF

What does a debt service coverage ratio of less than one indicate about a company?

Evaluate responses using AI:

OFF

Describe the interest coverage ratio and its role in assessing a company's financial health.

Evaluate responses using AI:

OFF

Discuss the implications of having a high interest coverage ratio.

Evaluate responses using AI:

OFF