Final answer:
The Debt Coverage Ratio is a financial ratio used to assess a company's ability to cover its debt obligations. A ratio greater than 1 indicates that the cash flow available for debt service exceeds the total debt service costs, which is considered favorable.
Step-by-step explanation:
The Debt Coverage Ratio is a financial ratio used to assess a company's ability to cover its debt obligations. In this context, (a) refers to the cash flow available for debt service, while (b) represents the total debt service costs.
A Debt Coverage Ratio greater than 1 indicates that the cash flow available for debt service is more than enough to cover the total debt service costs. For example, a ratio of 1.5 means that the cash flow is 1.5 times higher than the debt service costs, indicating a healthy financial position.
Overall, the Debt Coverage Ratio is an important measure in evaluating a company's ability to meet its debt obligations, and a ratio greater than 1 is generally considered favorable.