1. What is the Fixed Charge Coverage Ratio?

The Fixed Charge Coverage Ratio (FCCR) is a financial metric that measures a company's ability to cover its fixed charges, such as interest and lease expenses, with its operating income. It indicates the financial health and risk level of a business.

2. How Does the Calculator Work?

The calculator uses the FCCR formula:

Where:

• \( EBIT \) — Earnings Before Interest and Taxes ($)
• \( Fixed\ Charges \) — Total fixed financial obligations ($)

Explanation: The ratio shows how many times a company can cover its fixed charges with its earnings. A higher ratio indicates better financial health.

3. Importance of FCCR Calculation

Details: Lenders and investors use FCCR to assess a company's ability to meet its fixed financial obligations. A ratio below 1 indicates the company cannot cover its fixed charges from operating income.

4. Using the Calculator

Tips: Enter EBIT and Fixed Charges in dollars. Both values must be positive, and Fixed Charges must be greater than zero for accurate calculation.

5. Frequently Asked Questions (FAQ)

Q1: What is considered a good FCCR?
A: Generally, a ratio of 1.5 or higher is considered healthy, indicating the company can comfortably cover its fixed charges.

Q2: How does FCCR differ from interest coverage ratio?
A: FCCR includes all fixed charges (leases, insurance premiums, etc.), while interest coverage ratio only considers interest expenses.

Q3: What fixed charges should be included?
A: Include interest expenses, lease payments, insurance premiums, and any other contractual fixed financial obligations.

Q4: Can FCCR be negative?
A: No, FCCR cannot be negative as both EBIT and Fixed Charges are positive values in the calculation.

Q5: How often should FCCR be calculated?
A: It should be calculated regularly, typically quarterly or annually, to monitor financial health and risk levels.