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This Fixed Charge Coverage Ratio Template will show you how to compute the fixed charge coverage ratio using annual expenses and EBITDA figures.
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Learn more about the fixed charge coverage ratio and other important ratios to track financial health in CFI’s Loan Covenants course!
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What is the Fixed-Charge Coverage Ratio (FCCR)?
The Fixed-Charge Coverage Ratio (FCCR) is a measure of a company’s ability to meet fixed-charge obligations such as interest expenses and lease expenses. The FCCR is a broader measure of the times interest coverage ratio, more complete by virtue of the fact that it also includes other fixed costs such as leases. As with other commonly used debt ratios, a higher ratio value – preferably 2 or above – indicates a more financially healthy, and less risky, company or situation. A lower ratio value – less than 1 – indicates that the company is struggling to meet its regularly scheduled payments.
The FCCR is used to determine a company’s ability to repay its fixed payments. In the example above, Jeff’s salon would be able to meet its fixed payments 4.17 times. The fixed-charge coverage ratio is regarded as a solvency ratio because it shows the ability of a company to repay its ongoing financial obligations when they are due. If a company is unable to meet its recurring monthly or annual financial obligations, then it is in serious financial distress. Unless the situation is remedied quickly, efficiently, and safely, it is unlikely that the company will be able to remain financially afloat for very long.
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Below is a break down of subject weightings in the FMVA® financial analyst program. As you can see there is a heavy focus on financial modeling, finance, Excel, business valuation, budgeting/forecasting, PowerPoint presentations, accounting and business strategy.
A well rounded financial analyst possesses all of the above skills!
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CFI is the global institution behind the financial modeling and valuation analyst FMVA® Designation. CFI is on a mission to enable anyone to be a great financial analyst and have a great career path. In order to help you advance your career, CFI has compiled many resources to assist you along the path.
In order to become a great financial analyst, here are some more questions and answers for you to discover:
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