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Asset Coverage Ratio Calculator

Enter assets, intangibles, current liabilities, short-term debt, and total debt.

How it is calculated

The tool uses ACR = ((total assets − intangibles) − (current liabilities − short-term debt)) / total debt. All five inputs are amounts in the same currency from the same balance sheet. Short-term debt is subtracted from current liabilities first, because it is part of total debt and must not be counted twice; what remains are non-debt liabilities such as payables. Total debt must be above zero, otherwise no result appears. Current liabilities and short-term debt cannot be negative, and short-term debt cannot be larger than current liabilities, since it is a part of them; those cases give no result either. The tool shows the ratio to two decimals, plus the numerator as net assets available for debt. A ratio of 1.00 means these assets exactly equal the debt; the minimum a lender asks for depends on the agreement and the industry.

Worked example

Total assets are 5,000,000, intangibles 800,000, current liabilities 900,000, of which short-term debt is 300,000, and total debt is 2,400,000. Step 1: tangible assets = 5,000,000 − 800,000 = 4,200,000. Step 2: non-debt current liabilities = 900,000 − 300,000 = 600,000. Step 3: 4,200,000 − 600,000 = 3,600,000. Step 4: 3,600,000 / 2,400,000 = 1.5. The coverage ratio is 1.50, with net assets of $3,600,000.00.

Try this example →

Common mistakes

  • Subtracting all current liabilities including short-term debt, which counts that debt twice and lowers the ratio.
  • Forgetting to remove goodwill and other intangibles from total assets, which flatters the ratio.
  • Entering total debt as only long-term debt when short-term debt is also entered; total debt must contain both.
  • Using figures from different balance-sheet dates, such as assets from year-end and debt from a mid-year loan statement.

About this calculator

The asset coverage ratio measures how well a company's tangible assets could repay its debt if the company were liquidated: (Total Assets − Intangible Assets − Current Liabilities excluding short-term debt) ÷ Total Debt. Subtracting intangibles like goodwill and patents keeps the numerator to assets a lender could realistically sell, and subtracting non-debt current liabilities accounts for obligations (like accounts payable) that get paid before debt holders in a wind-down.

Credit analysts and bond rating agencies use this ratio to gauge how much cushion a company's hard assets provide bondholders if things go badly, commercial lenders often write it directly into loan covenants as a minimum threshold the borrower must maintain, and corporate treasury and finance teams track it to stay compliant with those covenants and to benchmark solvency against peers.

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Comments (1)

  • Editorial team

    Book values rarely survive a forced sale, so try a stress test: rerun the tool with lower asset figures. Taking the example's 5,000,000 of assets down by 20% to 4,000,000 moves the ratio from 1.50 to about 1.08, which shows how little headroom a covenant minimum may leave. The tool also returns no result when short-term debt is larger than current liabilities, so check that figure if the result disappears. What haircut would you apply?

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