Coverage ratios examine which aspect of a firm?

Coverage ratios are primarily concerned with a firm's ability to meet its financial obligations, specifically focusing on the income statement measures of cash flow. This means they assess how well a company's earnings or cash flows can cover its debt payments, interest obligations, and other fixed financing expenses. For example, ratios like the interest coverage ratio, which compares earnings before interest and taxes to interest expenses, directly measure the firm's ability to make interest payments from its operating income.

Understanding coverage ratios is crucial for stakeholders, as they provide insight into the risk level associated with the firm's leverages, such as how vulnerable it might be during periods of financial stress or economic downturns. High coverage ratios indicate a strong ability to service debt, while low ratios can signal potential difficulties in meeting financial commitments.

The other options do not pertain to the focus of coverage ratios. Investment in fixed assets relates more to capital budgeting and long-term investment strategies. Reliance on short-term debt looks at the structure of a company’s liabilities but doesn’t incorporate cash flow assessments directly. Sales efficiency measures how effectively a company generates sales from its operations, which is not within the scope of what coverage ratios evaluate.