What is fixed charge coverage ratio (fccr)?
The Fixed Charge Coverage Ratio (FCCR) compares the company’s ability to generate sufficient cash flow to meet its fixed charge obligations, such as the required principal and interest payments on debt. It may include leases and other fixed charges.
Why is a fixed-charge coverage ratio important?
The fixed-charge coverage ratio is regarded as an important financial ratio because it shows the ability of a company to repay its ongoing financial obligations when they are due. If a company cannot meet its financial obligations, it may be in financial distress.
How do you calculate a company's ability to cover fixed charges?
The calculation for determining a company's ability to cover its fixed charges starts with earnings before interest and taxes (EBIT) from the company's income statement and then adds back interest expense, lease expense, and other fixed charges. Next, the adjusted EBIT is divided by the amount of fixed charges plus interest.