Final answer:
The long-term debt coverage ratio is used to assess a company's ability to repay its long-term debts with annual cash flows from operations. It is calculated by dividing annual cash flows from operations by long-term debt. A ratio greater than 1 indicates sufficient cash flow to cover debts.
Step-by-step explanation:
The long-term debt coverage ratio is a financial ratio that assesses a company's ability to repay its long-term debts using its annual cash flows from operations. The formula for calculating the long-term debt coverage ratio is:
Long-Term Debt Coverage Ratio = Annual Cash Flows from Operations / Long-Term Debt
This ratio helps determine if a company generates enough cash flow to cover its long-term debt obligations. A ratio greater than 1 indicates that the company is generating sufficient cash flow to cover its debts, while a ratio less than 1 suggests potential difficulties in repaying its long-term debts.