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

VIDEO

Loading the player...

BREAKING DOWN '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. Lease Payments

    A line item under long-term debt on a balance sheet that indicates ...
  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. Coverage Ratio

    A measure of a company's ability to meet its financial obligations. ...
  6. Leverage

    1. The use of various financial instruments or borrowed capital, ...
Related Articles
  1. Fundamental Analysis

    What's the FCCR?

    The fixed charge coverage ratio (FCCR) is an accounting calculation that shows a company’s ability to pay its fixed costs – expenses that generally do not vary with production level. This may ...
  2. Fundamental Analysis

    Ratio Analysis Tutorial

    If you don't know how to evaluate a company's present performance and its possible future performance, you need to learn how to analyze ratios.
  3. Markets

    How To Analyze A Company's Financial Position

    Find out how to calculate important ratios and compare them to market value.
  4. Investing

    Debt Reckoning

    Learn about debt ratios and how to use them to assess a company's financial health. You could save a lot of money!
  5. Options & Futures

    Advanced Financial Statement Analysis

    Learn what it means to do your homework on a company's performance and reporting practices before investing.
  6. Economics

    Explaining Replacement Cost

    The replacement cost is the cost you’d have to pay to replace an asset with a similar asset at the present time and value.
  7. Term

    What are Articles of Association?

    Articles of association are a document that specifies the regulations for a company’s operations.
  8. Investing Basics

    What Does Window Dressing Mean?

    Window dressing is the actions taken close to the end of a reporting period by managers to try and make their financial numbers look better.
  9. Economics

    What Does Business-to-Business Mean?

    The term business-to-business refers to transactions or communication that takes place between two or more businesses.
  10. Economics

    What are Barriers to Entry?

    A barrier to entry is any obstacle that restricts or impedes a company’s efforts to enter an industry.
RELATED FAQS
  1. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  2. What are the pros and cons of using the fixed charge coverage ratio?

    One main advantage of using the fixed-charge coverage ratio is it provides a good, fundamental assessment for lenders or ... Read Full Answer >>
  3. How does the International Monetary Fund function?

    When unfunded capital expenditures and distributions are higher, the resulting fixed charge coverage ratio will be lower. ... Read Full Answer >>
  4. How can I calculate funds from operation in Excel?

    In general, the terms "work in progress" and "work in process" are used interchangeably to refer to products midway through ... Read Full Answer >>
  5. When does Q4 start and finish?

    Most companies such as Facebook have financial years that end on December 31st. For these companies, the fourth quarter begins ... Read Full Answer >>
  6. When is it useful to look at a company's fixed asset turnover ratio?

    It is useful to look at a company's fixed asset turnover ratio when an outside observer, such as an investor, wants to know ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
  2. Tiger Cub Economies

    The four Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand. Tiger cub economy indicates that ...
  3. Gorilla

    A company that dominates an industry without having a complete monopoly. A gorilla firm has large control of the pricing ...
  4. Elephants

    Slang for large institutions that have the funds to make high volumes trades. Due to the large volumes of stock that elephants ...
  5. Widow's Exemption

    In general terms, a widow's exemption refers to the amount that can be deducted from taxable income by a widow, thereby reducing ...
  6. Wedding Warrant

    A warrant that can only be exercised if the host asset, typically a bond or preferred stock, is surrendered. Until the call ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!