Enter the EBIT value in your selected currency.
Enter the interest expenses value in your selected currency.
Enter the fixed expenses value in your selected currency.
History:

Explanation

What is the Fixed Charge Coverage Ratio (FCCR)?

The Fixed Charge Coverage Ratio (FCCR) is a financial metric used to assess a company’s ability to meet its fixed financial obligations, such as interest expenses and lease payments, with its earnings before interest and taxes (EBIT). A higher FCCR indicates a greater ability to cover these fixed charges, which is a positive sign for investors and creditors.

How to calculate the Fixed Charge Coverage Ratio?

The FCCR can be calculated using the following formula:

Fixed Charge Coverage Ratio (FCCR):

§§ \text{FCCR} = \frac{\text{EBIT} + \text{Fixed Expenses}}{\text{Interest Expenses}} §§

where:

  • § \text{FCCR} § — Fixed Charge Coverage Ratio
  • § \text{EBIT} § — Earnings Before Interest and Taxes
  • § \text{Fixed Expenses} § — Fixed financial obligations (e.g., lease payments)
  • § \text{Interest Expenses} § — Interest payments on debt

Example Calculation

Let’s say a company has the following financial figures:

  • EBIT: $10,000
  • Interest Expenses: $2,000
  • Fixed Expenses: $3,000

Using the formula, we can calculate the FCCR:

§§ \text{FCCR} = \frac{10,000 + 3,000}{2,000} = \frac{13,000}{2,000} = 6.5 §§

This means the company can cover its fixed charges 6.5 times with its earnings before interest and taxes.

When to use the Fixed Charge Coverage Ratio Calculator?

  1. Financial Analysis: Investors and analysts can use the FCCR to evaluate a company’s financial health and its ability to meet fixed obligations.

    • Example: Assessing a company’s risk before investing.

  2. Credit Assessment: Lenders may use the FCCR to determine the creditworthiness of a borrower.

    • Example: Evaluating a loan application based on the company’s ability to pay interest.

  3. Business Planning: Companies can use the FCCR to plan for future financial obligations and ensure they have sufficient earnings to cover them.

    • Example: Preparing for upcoming lease payments or debt repayments.

  4. Performance Monitoring: Businesses can track their FCCR over time to monitor changes in their financial stability.

    • Example: Comparing FCCR year-over-year to assess improvements or declines in financial health.

Practical Examples

  • Corporate Finance: A corporation may use this calculator to determine if it can comfortably meet its debt obligations before making new investments.
  • Startups: New businesses can assess their financial projections to ensure they can cover fixed costs as they grow.
  • Real Estate: Property management companies can calculate their FCCR to ensure they can meet lease obligations from rental income.

Definitions of Key Terms

  • EBIT (Earnings Before Interest and Taxes): A measure of a firm’s profit that includes all incomes and expenses (except interest and income tax expenses).
  • Fixed Expenses: Regular, recurring expenses that do not change with the level of production or sales, such as rent or lease payments.
  • Interest Expenses: The cost incurred by an entity for borrowed funds, typically expressed as a percentage of the principal amount.

Use the calculator above to input different values and see the Fixed Charge Coverage Ratio change dynamically. The results will help you make informed decisions based on the financial data you have.