The Covering Margins 

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The covering margins expresses in absolute value the capacity of the enterprise’s business financing structure in covering fixed investments.

Let's break down the most important covering margins used to analyse company solidity and financing structure by Bankers Analysts Traders and Investors. 

1️⃣ Covering Margin (I)

This is the Covering Margin of I level. This value takes into account two variables coming from the balance sheet. This margin is referred to as "Equity less non-current assets" in fact, the covering margin (I) is the difference between the equity invested (net equity) and the fixed assets (capital employed in the company for long terms: so called "fixed assets" or "non current assets").

🧠 CM (I) 🟰 EQUITY ➖ NON CURRENT ASSETS

NON CURRENT ASSETS 🟰 FIXED ASSETS 

FIXED ASSETS  🟰  PP&E ➕ Intangibel Assets ➕ Associates and/or Joint Ventures ➕ Long-term financial assets ➕ Net Pensions Assets ➕ Goodwill

It gives to the world of creditors and investors the first basic information on the soundness and stability of the enterprise's long term investments. As a fact of the matter its value indicates the company's ability to cover fixed investments (fixed assets) with its own means (net equity).

This KPI is an indicator typically used for solidity analysis in which the main purpose is to assess the sustainability of the company within the equity-financial balance or to understand the characteristics of its structural solidity. In fact, it is precisely the analysis of solidity that aims to understand whether the company is managed in an acceptable balance sheet and therefore the coimpany's solvency in the medium to long term.

Even though it must be considered that enterprises typically get external funding to carry out the business activity so that it is highly rare to find out a positive value of the covering margin among different industries, expecially when enterprises have good profitability ratios and generate positive operating cash flows. 

In the cases when the covering maring is positive, the ratio indicates that the amount of equity invested by the shareholders (shareholders’ equity) completely covers the net investment of fixed assets which means financial solidity of the company.

1️⃣ Covering Margin (II) 

👉  This is the Covering Margin of II level. This margin expresses, in terms of absolute value, the normal structure of the sources/investments shown in the balance sheet.  It indicates if the own equity invested by the body of shareholders (shareholders’ equity) plus the long-term debts (medium/long-term source of financing) which would be equal to a total amount of Long term investment in the company (Equity plus Long term Debts), it cover the total amount Fixed Assets as operating assets invested in the company. 

🧠 CM (II) 🟰 (EQUITY ➕ DEBT) ➖ FIXED ASSETS 

 The equity balance as determined in this Covering Margin (II), takes into account a wider range of sources funded by debt and equity which are referred to as "permanent capital" (equity plus long-term liabilities).

it is well known that a company invetments are balanced if it uses sources of capital destined to remain in the company for a long period, so-called long term investments have been used to cover fixed assets (or total assets minus current assets) while the sources of financing short term capital such as current liabilities (short-term debts) are used to cover current assets (working capital and the overall operating cycle such as cash available, marketable securities, accounts receivables and inventory plus expenditures that will expire within one year from the balance sheets date representing a typical prepayment from an expense that has not yet been incurred (i.e. insurrance costs).

How to calculate Fixed Assets ? 

To calculate Fixed Assets (Tangible and Intangible), including Gross and Net Values (i.e., before and after Depreciation and Amortization), using XBRL tags in SEC filings

📘 Key Definitions

• Gross Fixed Assets = Original cost (before depreciation/amortization)

• Net Fixed Assets = Gross value minus Accumulated Depreciation/Amortization

• Tangible Assets = Property, Plant, and Equipment (PP&E)

• Intangible Assets = Software, licenses, goodwill, etc.

✅ IFRS XBRL Tags for Tangible & Intangible Assets

🔹 1. Property, Plant, and Equipment (PP&E) – Tangible Assets

💡 If the gross and accumulated depreciation are not explicitly tagged, you'll need to extract them from the notes (e.g., "Note on PP&E").

🔹 2. Intangible Assets

Goodwill is often excluded from operating metrics but is separately tagged:

• Goodwill (Net): ifrs:Goodwill

🔹 3. Depreciation and Amortization Expense (Income Statement)

To get annual depreciation and amortization expense:

These appear in the income statement, sometimes under "Operating Expenses" or "Cost of Sales".

🔄 Comparison: Common Fixed Asset Tags

🧠 Summary

• US companies (10-K) use the us-gaap: XBRL taxonomy (US GAAP tags).

• Foreign issuers (20-F) use the ifrs: taxonomy.

• The underlying financial concepts are similar, but the tag names differ.

• When building models across companies using XBRL, always filter tags by namespace: us-gaap for 10-K, ifrs for 20-F.

Covering Margins usefulness

This KPI indicator is used for structural analysis and analysis of solidity, also called margin analyzes, and for the matrix analyzes that have always been used for the Internal Rating Based Systems of Banks (IRBS).

Covering Margins are useful to indicate whether the choices made by the management relating to the use of the sources of capital (financing mix) in covering the business financial needs (investments) were balanced and do not create risks for creditors and money lenders.

Being an absolute value, when it is positive it certifies that the company's shareholding structure fully covers its fixed assets (long term investments) and, residually, also can covering current assets. This very positive situation means that the company is fully solid, on the other hands it has sufficient assets to generate long term sustainability.

In fact, reported balance sheet indicates whether the choices relating to the use of sources of capital in covering financial needs have been balanced. Accordingly with major doctrine, a company will be balanced in terms of capital if it uses slow or zero rotation sources of capital (such as equity + consolidated liabilities also called "sources of permanent capital") for fixed assets (long-term slow rotation cycle "investments") and sources of financing with fast rotation (such as short-term debts) in order to cover current assets (loans with fast rotation cycle).

Capital solidity is therefore the company's ability to bear unforeseen negative internal or external events and for this reason the margin indicator is often used by creditors and lenders of the company who intend to evaluate the risk management opportunity to hedge risks with different instruments.

Credit Risk Management

1. Working Capital
2. Current ratio