Fixed charge coverage ratio

Fixed charge coverage ratio,

Definition of Fixed charge coverage ratio:

  1. Indicates the number of times the interest (on bonds and long-term debt) and lease expenses can be covered by the indebted firms earnings (revenue). Since a failure to meet interest payments would mean a default under the terms of a bond indenture, this ratio indicates the available margin of safety. However, too high a ratio (too much safety) indicates an undesirably low level of leverage. Formula: (EBIT + lease expense) ÷ (Interest + lease expense).

Meaning of Fixed charge coverage ratio & Fixed charge coverage ratio Definition