Fixed Charge Coverage Ratio Template
This Fixed Charge Coverage Ratio Template will show you how to compute the fixed charge coverage ratio using annual expenses and EBIT figures.
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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 and insurance. 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 4.51 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.