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. Debt Financing

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

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

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

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

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

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  2. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  3. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  4. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  5. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  6. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
Trading Center