asset-coverage test

Definition

A test that is used to determine whether or not a company will be allowed to issue bonds. This test is calculated by subtracting a company's current liabilities from its net assets and then dividing the quantity by its total debts and / or preferred stock obligations. This can be expressed either as a dollar amount or as a percentage. Typically, a higher asset coverage test is preferable because this will indicate that the level of debt is low in comparison to net assets.
Browse Definitions by Letter: # A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
asset-based lending asset/equity ratio