Fixed Charge Coverage Ratio (FCCR) is a financial ratio used to determine a company's ability to meet its fixed financial obligations, such as debt payments and lease payments. It measures the company's ability to cover these fixed costs with its operating income.
The FCCR is calculated by dividing the company's earnings before interest, taxes, depreciation, and amortization (EBITDA) by its total fixed charges. Fixed charges include interest payments and lease payments.
The formula for calculating the FCCR is as follows:
A ratio of 1 or higher indicates that the company's operating income is sufficient to cover its fixed charges, while a ratio of less than 1 suggests that the company may have difficulty meeting its financial obligations.
The FCCR is commonly used by lenders and investors to evaluate the creditworthiness of a company. A high FCCR indicates that the company is less risky and has a greater ability to pay back its debts. Therefore, a high FCCR may make it easier for a company to obtain financing at a lower cost.
In addition, the FCCR can also be used as a benchmark for a company's financial performance over time. By comparing the FCCR of one period to another, analysts can assess whether a company's financial health is improving or deteriorating.
Overall, the Fixed Charge Coverage Ratio is a critical financial measure used in the analysis of a company's creditworthiness and financial stability.
Fixed Charge Coverage Ratio
Financial Term
Fixed Charge Coverage Ratio (FCCR) is a financial ratio used to determine a company's ability to meet its fixed financial obligations, such as debt payments and lease payments. It measures the company's ability to cover these fixed costs with its operating income.
The FCCR is calculated by dividing the company's earnings before interest, taxes, depreciation, and amortization (EBITDA) by its total fixed charges. Fixed charges include interest payments and lease payments.
The formula for calculating the FCCR is as follows:
A ratio of 1 or higher indicates that the company's operating income is sufficient to cover its fixed charges, while a ratio of less than 1 suggests that the company may have difficulty meeting its financial obligations.
The FCCR is commonly used by lenders and investors to evaluate the creditworthiness of a company. A high FCCR indicates that the company is less risky and has a greater ability to pay back its debts. Therefore, a high FCCR may make it easier for a company to obtain financing at a lower cost.
In addition, the FCCR can also be used as a benchmark for a company's financial performance over time. By comparing the FCCR of one period to another, analysts can assess whether a company's financial health is improving or deteriorating.
Overall, the Fixed Charge Coverage Ratio is a critical financial measure used in the analysis of a company's creditworthiness and financial stability.