Law Practice
Sep. 6, 2014
What does your firm's 'coverage ratio' really mean?
Coverage ratios are relevant for evaluating rate of return risk on investment, by calculating what is left after servicing debt obligations. How does this apply to lawyers? By Edwin B. Reeser
"Coverage ratios" are applied to businesses to forecast current and future solvency, a tool for banks and bondholders interested in the security for repayment of debt. But law firms typically don't have long term bank or bond debt. When they do, it's usually for tenant improvements and equipment purchases, which are usually "financed" in whole or part within the terms of the office lease. While this keeps it off bala...
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