Overview

The fixed charge coverage ratio (FCCR) is a financial ratio which evaluates how well a company meets its fixed charge obligations such as interest expenses and lease expenses. It is a broader measure than the interest coverage ratio because it accounts for other fixed costs besides interest such as leases and insurance. The formula for the fixed charge coverage ratio is as follows:

Fixed Charge Coverage Ratio = (EBIT = Fixed Charges Before Tax) / (Fixed Charges Before Tax + Interest)

Generally speaking, a higher fixed charge coverage ratio is good for a company because it means that the company has a stable revenue and cash flows to fulfill its fixed charge obligations.

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