Fixed Charge Coverage Ratio

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Definition: Fixed Charge Coverage Ratio

Fixed Charge Coverage Ratio

Quick Summary of Fixed Charge Coverage Ratio

Profits before income taxes and interest payments, divided by long-term interest, for a given period of time.

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Full Definition of Fixed Charge Coverage Ratio

Fixed Charge Coverage Ratio sheds light on a company’s ability to satisfy fixed financing expenses such as interest and leases.

Fixed Charge Coverage Ratio is calculated by summing up Earnings before interest and Taxes (EBIT) and fixed charges which are divided by fixed charges before tax and interest. EBIT, taxes and the interest expenses are to be taken from the income statement of the company. The lease payments are taken from the balance sheet, usually appearing as a footnote of the balance sheet.
The Fixed Charge Coverage Ratio is the number of times the company is able to meet its fixed charges per year. Therefore this means that by calculating the fixed charge coverage ratio, it helps in ascertaining the company’s ability to pay various fixed costs.
The Fixed Charge Coverage Ratio provides investors with a better understanding of the company’s loss-taking capacity in the event of unforeseen misfortune.

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Definition Sources

Definitions for Fixed Charge Coverage Ratio are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 20th November, 2021 | 0 Views.