Asset Coverage Ratio
Calculate the asset coverage ratio, a solvency ratio that measures how well a company’s tangible assets, after settling non-debt current liabilities, can cover its total debt.
This ratio is commonly used by lenders and bondholders to assess the extent to which a company’s hard (tangible) assets would be available to repay debt obligations in a liquidation scenario, since intangible assets (e.g. goodwill) typically have little to no recovery value and non-debt current liabilities are assumed to be settled first out of current assets. Short-term debt is netted out of current liabilities before subtracting, since it is already captured in total debt and would otherwise be double-counted.
The formula is as follows:
\[\text{Asset Coverage Ratio} = \left[(\text{Total Assets} - \text{Intangible Assets}) - (\text{Total Current Liabilities} - \text{Short Term Debt})\right] / \text{Total Debt}\]Asset Coverage Ratio in Python
get_asset_coverage_ratio is part of the Ratios module of the open-source Finance Toolkit. Install it with:
pip install financetoolkit -U
Then call get_asset_coverage_ratio as shown below.
from financetoolkit import Toolkit
toolkit = Toolkit(["AAPL", "TSLA"], api_key="FINANCIAL_MODELING_PREP_KEY")
asset_coverage_ratios = toolkit.ratios.get_asset_coverage_ratio()
Parameters
get_asset_coverage_ratio accepts the following parameters:
- rounding (int, optional): The number of decimals to round the results to. Defaults to 4.
- growth (bool, optional): Whether to calculate the growth of the ratios. Defaults to False.
- lag (int | str, optional): The lag to use for the growth calculation. Defaults to 1.
- standardize (bool, optional): Whether to standardize (Z-Score) the result. When combined with growth=True, standardizes the growth values instead of the raw values. Defaults to False.
- trailing (int): Defines whether to select a trailing period. E.g. when selecting 4 with quarterly data, the TTM is calculated.