Fixed-charge coverage ratio

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Fixed-charge coverage ratio

A measure of a firm's ability to meet its fixed-charge obligations: the ratio of (Earnings before interest, depreciation and amortization minus unfunded capital expenditures and distributions) divided by total debt service (annual principal and interest payments). Notice that lease payments are sometimes included in the calculations.

Fixed-Charge Coverage Ratio

A measure of a company's ability to pay its fixed expenses, such as rent and interest, on debt without resorting to more debt. A ratio over 1 indicates that the company is able to pay its fixed charges, while a ratio below one indicates the opposite. The fixed charge coverage ratio is calculated thus:

Fixed-charge coverage ratio = (EBIT + fixed charges before tax) / (fixed charged before tax + interest)
References in periodicals archive ?
--FLR in excess of 25% or fixed charge coverage ratios in the low single digits for a period of
* Fixed charge coverage ratios ranging from 1.35 to 1.50.
* Make sure that the fixed charge coverage ratio is about 1.50.
After their exhaustive study, they found the most common items found in debt covenants were debt-to-cash flow measures and both interest coverage and fixed charge coverage ratios
(6) three separate fixed charge coverage ratios. The first one (FxdChg) is defined as total pretax income plus interest expense and lease expenses, all divided by the sum of interest and lease expenses.
Also seen in the table, the three fixed charge coverage ratios typically had much higher levels of correlation with the credit ratings than the other ratios, much more so than even the more encompassing Z-score.
On the other hand, the two competing fixed charge coverage ratios (one-third versus present value rules) are very closely related, with a relationship that has become more significant over time.
This is particularly the case for the fixed charge coverage ratio.
Many financial management textbooks, such as Block & Hirt (2005), define the fixed charge coverage ratio as the ratio of income before fixed charges and taxes to fixed charges, with fixed charges defined as the sum of interest expenses and operating lease payments (sometimes also referred to as rental expenses).
* Minimum interest and fixed charge coverage ratios.