Mr. Davis specializes in corporate credit risk, capital structure analysis, and fixed obligation management.
The **Fixed Charge Coverage Ratio Calculator** (FCCR) is a strict solvency metric that measures a company’s ability to cover both its interest expense and fixed charges (like lease payments) using its operating profits. This four-variable calculator solves for any missing input: **EBIT**, **Interest Expense (IE)**, **Fixed Charges (FC)**, or the **FCCR Ratio (R)**. **Input any three of the four core variables** to find the missing one.
Fixed Charge Coverage Ratio Calculator
Fixed Charge Coverage Ratio Formulas
The FCCR is calculated by dividing the sum of EBIT and Fixed Charges (FC) by the sum of Interest Expense (IE) and Fixed Charges (FC):
Formula Source: Investopedia: Fixed Charge Coverage Ratio
Variables Explained
The FCCR calculation relies on financial statement components that reflect fixed financial obligations:
- EBIT (Earnings Before Interest and Taxes): The company’s operating profit before interest and taxes.
- Interest Expense (IE): The cost of the company’s debt for the period.
- Fixed Charges (FC): Primarily non-cancellable, fixed obligations like lease or rental payments.
- FCCR Ratio (R): The final ratio, measuring how many times operating income can cover all fixed financial charges. (Expressed as a number, e.g., 3.0).
Related Calculators
Assess corporate risk and creditworthiness using related debt metrics:
- Times Interest Earned Calculator
- Debt Service Coverage Ratio Calculator
- Debt-to-Asset Ratio Calculator
- Degree of Financial Leverage Calculator
What is the Fixed Charge Coverage Ratio (FCCR)?
The **Fixed Charge Coverage Ratio (FCCR)** is a financial solvency ratio that extends the Times Interest Earned (TIE) ratio by including other mandatory, non-interest financial obligations, most commonly lease or rental payments. This ratio provides a stricter test of a company’s ability to cover its total fixed financial commitments using its operating income (EBIT).
The FCCR is a key metric for lenders and creditors because these fixed charges must be paid regardless of the company’s operational performance. A ratio of **1.25 or higher** is generally considered healthy, indicating the company’s earnings are sufficient to cover its entire fixed charge burden. A ratio below 1.0 suggests the company is facing significant difficulty meeting its mandatory financial obligations.
How to Calculate FCCR (Example)
-
Identify Components:
A company has $\mathbf{EBIT}$ of $\mathbf{\$200,000}$, $\mathbf{Interest\ Expense\ (IE)}$ of $\mathbf{\$30,000}$, and $\mathbf{Fixed\ Charges\ (FC)}$ of $\mathbf{\$10,000}$.
-
Calculate Numerator and Denominator:
Total funds available to cover fixed charges: $EBIT + FC = \$200,000 + \$10,000 = \mathbf{\$210,000}$.
Total fixed charges: $IE + FC = \$30,000 + \$10,000 = \mathbf{\$40,000}$.
-
Apply the FCCR Formula:
$$ FCCR = \frac{EBIT + FC}{IE + FC} = \frac{\$210,000}{\$40,000} $$
-
Determine the Ratio:
The result is $\mathbf{5.25}$. This ratio indicates the company’s earnings are 5.25 times greater than its total fixed financial obligations.
Frequently Asked Questions (FAQ)
A: Historically, lease payments (a common Fixed Charge) were accounted for differently than interest. By adding FC to both the numerator (EBIT) and the denominator, we effectively measure earnings *before* deducting those charges against the total fixed obligations.
A: The Times Interest Earned (TIE) ratio only measures interest coverage. The FCCR is a more comprehensive measure that includes all fixed, non-cancellable financial obligations, offering a stricter test of solvency.
A: A ratio of 1.0 means the company is just breaking even on its fixed financial costs. Lenders typically prefer an FCCR of 1.25 or higher, though industry norms may vary.
A: Yes. While typically used for operating lease payments, Fixed Charges can also include non-interest, non-operating components that represent mandatory, ongoing obligations defined in credit agreements.