DEFINITION of EBITDA To Fixed Charges
Earnings before interest, taxes, depreciation and amortization (EBITDA) is essentially net income with interest, taxes, depreciation and amortization added back to it. EBITDA can be used to analyze and compare profitability among companies and industries as it eliminates the effects of financing and accounting decisions. EBITDA To Fixed Charges is a ratio used to ascertain a company's ability to incur additional debt or its ability to pay off existing debt. The ratio is usually measured as EBITDA over fixed charges over a trailing four-quarter period. In this ratio, fixed charges generally refers to interest expenses, but there are variations on this ratio. Compliance by debt holders to maintain a specific level of EBITDA to fixed charges is often required in debt agreements.
BREAKING DOWN EBITDA To Fixed Charges
EBITDA to Fixed Charges is not defined under GAAP principles; rather it is an extra measure used to better inform investors about future growth possibilities. Because it is not GAAP, uniformity among companies cannot be guaranteed.