where 
total assets tangibles such as land buildings machinery and inventoryas a rule of thumb utilities should have an asset coverage ratio of at least 1 5 and industrial companies should have an asset coverage ratio of at least 2 other coverage ratiosseveral other coverage ratios are also used by analysts though they are not as prominent as the above three examples of coverage ratiosto see the potential difference between coverage ratios let s look at a fictional company cedar valley brewing the company generates a quarterly profit of 200 000 ebit is 300 000 and interest payments on its debt are 50 000 because cedar valley did much of its borrowing during a period of low interest rates its interest coverage ratio looks extremely favorable interest coverage ratio 3 0 0 0 0 0 5 0 0 0 0 6 0 begin aligned text interest coverage ratio frac 300 000 50 000 6 0 end aligned interest coverage ratio 50 000 300 000 6 0 the debt service coverage ratio however reflects a significant principal amount the company pays each quarter totaling 140 000 the resulting figure of 1 05 leaves little room for error if the company s sales take an unexpected hit dscr 2 0 0 0 0 0 1 9 0 0 0 0 1 0 5 begin aligned text dscr frac 200 000 190 000 1 05 end aligned dscr 190 000 200 000 1 05 even though the company is generating a positive cash flow it looks riskier from a debt perspective once debt service coverage is taken into account 