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 include leases and insurance costs.This ratio is often used by lenders to see if a company is creditworthy. The FCCR is especially helpful when a company has a lot of debt. It indicates whether a drop in profits may leave the company unable to pay its bills. To calculate the ratio, fixed costs are divided into the company’s earnings, showing how many times the earnings will cover the costs. FCCR = (EBIT + FC) / (FC + interest) The FCCR is equal to earnings before interest and taxes (EBIT) plus the fixed costs. This sum is divided by the sum of the fixed costs, including interest charges if not already included. Steve’s Salmon Shop sells smoked salmon. He wants a loan of \$50,000 to buy new equipment. He has earnings before interest and taxes of \$200,000 per year. His interest expenses are \$10,000 per year, and his fixed costs amount to \$6,000 per month, or \$72,000 per year. Steve’s FCCR would be: 200,000 + 72,000 divided by 72,000 + 10,000, which equals 3.3 In other words, Steve could pay his lease, bills and interest 3.3 times with his current earnings. The lender will decide if this is strong enough to lend him \$50,000.