Explore commonly used personal finance terms.
The asset coverage test is a financial metric that assesses whether a company has enough assets to cover its outstanding liabilities. Calculated by dividing total assets by total debt, it helps creditors and investors evaluate a company’s solvency. A higher ratio indicates strong financial health, suggesting that the company can comfortably meet its debt obligations. Asset coverage tests are especially important for companies with significant debt, as they provide insight into the risk level for creditors and help maintain financial stability.
