Coverage Ratios


coverage ratios keep confusing me.

I thought that I could remember it this way:

For the xxx coverage ratio xxx is the Denominator (e.g. interest coverage, dividend coverage)

It’s the same with turnover ratios!

Unfortunately, it’s not true! FCFE Coverage is FCFE / (dividends + share repurchases).

How do you remember all the ratios? Any mneumonic?


The “coverage” is how much does numerator cover out of denominator expenses. LIke EBIT/interest rate or the one you mention FCFE/(dividends + stock repurchase).

But unfortunately no mnemonics. I glance at my Level I quick sheet, don’t know how I will solve it on Saturday though, probably by cramming plus realising there’s some logic in it so inventory turnover rather has to do with COGS than with Sales for instance (which is on the “other side” of the income statement).