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?

What factors can influence the coverage ratios of a company?

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

How is the debt service coverage ratio calculated?

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

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

Discuss the implications of having a high interest coverage ratio.