Friday, October 30

Fixed Charge Coverage Ratio – Formula | Analysis | Example

The fixed charge coverage ratio is afinancial ratio that steps a company’s capability to cover all its fixed fees or expenses using its earnings before interest and income taxation. The fixed charge coverage ratio is essentially an enlarged version of thetimes interest gained ratioor the days interest coverage ratio.

The fixed charge coverage ratio is quite flexible to be used with any fixed price after all fixed costs such as rental payments, insurance premiums, and also preferred dividend payments could be built into the calculation.

Formula

The fixed charge coverage ratio begins with the times got interest ratio and provides in related fixed expenses. We’ll use lease obligations for this particular case, but any given price is inserted in. This ratio could be computed like that:

Fixed Charge Coverage Ratio