Definition
Fixed charge coverage extends debt service coverage to include lease payments and other fixed obligations. It provides a comprehensive view of a company's ability to meet all its fixed commitments. Important for companies with significant operating leases.
Formula
FCCR = (EBIT + Lease Payments) / (Interest + Lease Payments + Principal)
Example
EBIT of $50M plus $10M leases divided by ($10M interest + $10M leases + $15M principal) = 1.71x. The company can cover fixed charges 1.71 times.
FAQ
What is Fixed Charge Coverage Ratio?
Earnings available to cover all fixed financial obligations.
How do you calculate Fixed Charge Coverage Ratio?
A common formula for Fixed Charge Coverage Ratio is: FCCR = (EBIT + Lease Payments) / (Interest + Lease Payments + Principal)
Why is Fixed Charge Coverage Ratio important?
Fixed Charge Coverage Ratio helps investors evaluate leverage and make more informed decisions.