Fixed charge coverage ratio measures the number of dollars of operating earnings available to meet each dollar of interest obligations on the firm's debt.
What is fixed coverage ratio?
- Fixed charge coverage ratio or FCCR measures the firms ability to understand the fixed charges that includes interest expenses, equipment lease expenses and debt payments.
- It shows the performance of a company in its earnings and the ability to cover the fixed expenses.
- Banks look at the Fixed charge coverage ratio to evaluate whether to lend money for business.
- Rents, debt payments and utilities are also covered in the fixed charges under FCCR.
- In nutshell Fixed charge coverage ratio helps to assess the company's overall credit worthiness.
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