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.

RELATED TERMS
  1. EBITDA - Earnings Before Interest, ...

    EBITDA stands for earnings before interest, taxes, depreciation ...
  2. Adjusted EBITDA

    Adjusted EBITDA is a measure computed for a company that looks ...
  3. EBITDA Margin

    EBITDA margin is a measurement of a company's operating profitability ...
  4. Earnings Before Interest, Tax, ...

    Earnings Before Interest, Tax, Amortization And Exceptional Items ...
  5. Funds From Operations (FFO) To ...

    Funds from operations (FFO) to total debt ratio is a leverage ...
  6. EBITA

    EBITA is a variation of the more commonly used EBITDA (earnings ...
Related Articles
  1. Investing

    Calculating the Net Debt to EBITDA Ratio

    Financial analysts typically use the net debt to EBITDA ratio to determine a company’s ability to pay its debt.
  2. Investing

    EBITDA: Challenging The Calculation

    This measure has a bad rap, but it's still a valuable tool when used appropriately.
  3. Investing

    Debt Ratio

    The debt ratio divides a company’s total debt by its total assets to tell us how highly leveraged a company is—in other words, how much of its assets are financed by debt. The debt component ...
  4. Investing

    Turning Dimes Into Dollars

    We examine five stocks from apparel stores and specialty retail industries, looking for the most efficent companies at turning capital expenditures into profits.
  5. Investing

    4 Ratios to Evaluate Dividend Stocks

    Discover details about fundamental analysis ratios that could help to evaluate dividend paying stocks, and learn how to calculate these ratios.
  6. Investing

    The Contrarian: Analyst Crapshoot on Valeant

    Stifel has reiterated its buy rating on shares of Valeant and a $45 price target, but all we have are questions.
  7. Investing

    Ratio Analysis

    Ratio analysis is the use of quantitative analysis of financial information in a company’s financial statements. The analysis is done by comparing line items in a company’s financial ...
  8. Investing

    Why the Debt/EBITDA Ratio is Crucial to Junk Bonds

    Debt/EBITDA ratios are vital to estimate a firm’s capability to pay off incurred debt—specifically in order to examine the default risk of junk bonds.
RELATED FAQS
  1. What is the formula for calculating EBITDA?

    EBITDA measures the profitability of a company by stripping out various items from the income statement, but the two formulas ... Read Answer >>
  2. How do I calculate an EBITDA margin using Excel?

    Learn about the EBITDA (earnings before interest, tax, depreciation and amortization) profit margin and how to use Microsoft ... Read Answer >>
  3. What external factors can influence EBITDA margins?

    Learn what external factors influence EBITDA margins, such as consumer preferences, laws, inflation or deflation, price movements ... Read Answer >>
  4. What is the difference between EBIT and EBITDA?

    EBIT and EBITDA are two metrics that measure profitability whereby they share similarities, but the differences in their ... Read Answer >>
Trading Center