Fixed-Charge Coverage Ratio

AAA

DEFINITION of 'Fixed-Charge Coverage Ratio'

A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. It is calculated as the following:

Fixed-Charge Coverage Ratio

INVESTOPEDIA EXPLAINS 'Fixed-Charge Coverage Ratio'

For example, since leases are a fixed charge, the calculation determining a company's ability leases would be (EBIT + Lease Expenses) / (Lease Expenses + Interest).

RELATED TERMS
  1. Earnings Before Interest & Tax ...

    An indicator of a company's profitability, calculated as revenue ...
  2. Coverage Ratio

    A measure of a company's ability to meet its financial obligations. ...
  3. Debt Financing

    When a firm raises money for working capital or capital expenditures ...
  4. Lease

    A legal document outlining the terms under which one party agrees ...
  5. Leverage

    1. The use of various financial instruments or borrowed capital, ...
  6. Lease Payments

    A line item under long-term debt on a balance sheet that indicates ...
Related Articles
  1. Ratio Analysis Tutorial
    Fundamental Analysis

    Ratio Analysis Tutorial

  2. How To Analyze A Company's Financial ...
    Markets

    How To Analyze A Company's Financial ...

  3. Debt Reckoning
    Investing

    Debt Reckoning

  4. Advanced Financial Statement Analysis
    Options & Futures

    Advanced Financial Statement Analysis

comments powered by Disqus
Hot Definitions
  1. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  2. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  3. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  4. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  5. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  6. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
Trading Center