what is the asset coverage ratio 
the asset coverage ratio is a financial metric that measures how well a company can repay its debts by selling or liquidating its assets the asset coverage ratio is important because it helps lenders investors and analysts measure the financial solvency of a company banks and creditors often look for a minimum asset coverage ratio before lending money understanding the asset coverage ratiothe asset coverage ratio provides creditors and investors with the ability to gauge the level of risk associated with investing in a company once the coverage ratio is calculated it can be compared to the ratios of companies within the same industry or sector it s important to note that the ratio is less reliable when comparing it to companies of different industries companies within certain industries may typically carry more debt on their balance sheet than others for example a software company might not have much debt while an oil producer is usually more capital intensive meaning it carries more debt to finance the expensive equipment such as oil rigs but then again has assets on its balance sheet to back the loans asset coverage ratio calculationthe asset coverage ratio is calculated with the following equation assets intangible assets current liabilities short term debt total debtin this equation assets refers to total assets and intangible assets are assets that can t be physically touched such as goodwill or patents current liabilities are liabilities due within one year and short term debt is debt that is also due within one year total debt includes both short term and long term debt all of these line items can be found in the annual report 