Investing for Beginners , investing

Cash coverage ratio measures company’s ability to repay its debts. It compares EBITDA (type of earnings) of the company and interest that is paid for company’s debts annually. EBITDA is not exactly equal to cash flow of the company but the relation between those two measures is very strong. 

The higher ratio signifies better financial condition of a company. 

Basically, this ratio is no different from ‘EBITDA coverage ratio’. There are more financial ratios that can be used to measure company’s insolvency risk:

• Interest coverage ratio
• Cash flow coverage ratio
• Cash debt coverage ratio