View source for Fixed-Charge Coverage Ratio

{{infobox4
|list1=
<ul>
<li>[[Normal cost]]</li>
<li>[[Debt service coverage]]</li>
<li>[[Debt to total assets ratio]]</li>
<li>[[Accrual rate]]</li>
<li>[[Combined Ratio]]</li>
<li>[[Solvency ratios]]</li>
<li>[[Closed-End Lease]]</li>
<li>[[Ebitda ratio]]</li>
<li>[[Yield maintenance]]</li>
</ul>
}}

'''Fixed-Charge [[Coverage ratio|Coverage Ratio]]''' - is defined as financial ratio, also known as '''FCCR'''. '''FCCR''' determines company's long-term ability to pay all of its fixed charges from the income generated before any fixed financing charges are considered (earnings before interest and taxes + lease payments) <ref>Besley S., Brigham E.F. 2009, p. 239</ref>. It is an ability to satisfy all of fixed financial costs, more precisely - fixed charges <ref>Peterson P.P., Fabozzi F.J. 1999, p. 94</ref>.

FCCR is more advanced version of another ratio - '''Times Interest Earned Ratio''' ('''TIE''') <ref>Beenhakker H.L. 1996, p. 16</ref>. Fixed-Charge [[Coverage ratio|Coverage Ratio]] represents the ratio of fixed charges to some degree of cash flow. Fixed charges can be defined as covering dividends and interests expense <ref>Fridson M.S. 2018, Chapter 1</ref>. A ratio is calculated by dividing earnings which are available to cover all fixed charges by all fixed charges. Fixed charges include: long-term lease obligations (lease payments), [[insurance]] payments, sinking funds payments and preferred [[dividend]] payments <ref>Besley S., Brigham E.F. 2009, p. 238-239</ref>. In particular by using ratios like '''Fixed-Charge [[Coverage ratio|Coverage Ratio]]''', the company can avoid any difficulties of assessing leverage during worse period and for example fluctuating property values <ref>Block R.L. 2012, p. 197</ref>.

==Fixed-Charge Coverage Ratio Formula==
The formula is <ref>Qatar Financial Centre 2015</ref>:
<center><math>FCCR = \frac{EBIT + FCBT}{FCBT + I}</math></center>

Where:
* '''FCCR''' - Fixed-Charge [[Coverage ratio|Coverage Ratio]] 
* '''EBIT''' - Earnings Before Interest and Taxes
* '''FCBT''' - Fixed Charge Before Tax
* '''I''' - Interest

==Example of calculation Fixed-Charge Coverage Ratio==
Company X has $1,000,000 of income before interest and taxes and $100,000 of interest expense. The [[enterprise]] also bears the costs of lease payments - $200,000.

The solution:
<math>FCCR = \frac{$1,000,000 + $200,000}{$200,000 + $100,000} = 4</math>

The ratio presents that company's earnings before interest and taxes can cover fixed charges 4 times <ref>Peterson P.P., Fabozzi F.J. 1999, p. 95</ref>.

==Interpretation of Fixed-Charge Coverage Ratio==
Fixed-Charge [[Coverage ratio|Coverage Ratio]] enable to carry out the coverage test. The higher the ratio, the better for investors and creditors. The lower the ratio, the more risky and unstable [[company]] is <ref>Gadge A., Deora B., Kasture R. 2013, p. 224</ref>.

==Advantages of Fixed-Charge Coverage Ratio==
Fixed-Charge Coverage Ratio is a useful tool for assessing a company’s ability to pay its fixed obligations. It provides a simple calculation that allows lenders and investors to quickly assess the financial health of a company. The following are some of the advantages of the fixed-charge coverage ratio: 
* It provides a quick and easy way to measure a company’s ability to pay its fixed expenses.
* It gives lenders and investors a useful benchmark to assess a company’s financial health.
* It takes into account both operating income and any lease payments made by the company.
* It provides a measure of the company’s ability to meet its current obligations while still accumulating additional capital.
* It is an easily understandable measure of a company’s financial health that can be used by all stakeholders.

==Limitations of Fixed-Charge Coverage Ratio==
The Fixed-Charge Coverage Ratio (FCCR) is a financial ratio used to measure a company's ability to pay its fixed charges from its income. Although it is a useful tool in analyzing a company's financial health, there are several key limitations to consider when using this ratio. These limitations include:
* The ratio does not take into account the company's cash flows which can be an important factor in assessing a company's financial stability.
* The ratio does not consider the company's total debt obligations, only the fixed financing charges, which may not give an accurate picture of a company's financial health.
* The ratio is subject to manipulation and does not account for non-cash items such as depreciation and amortization expenses.
* The ratio does not consider other important factors such as the company's working capital and the quality of its assets.
* The ratio is backward-looking, so it does not provide any insight into a company's future financial health.

==Other approaches related to Fixed-Charge Coverage Ratio==
* '''Operating Income Coverage Ratio (OICR)''': This ratio measures the ability of a company to cover its fixed charges with operating income. It is calculated by dividing operating income by total fixed charges.
* '''Cash Flow Coverage Ratio (CFCR)''': This ratio measures the ability of a company to cover its fixed charges with cash flow. It is calculated by dividing cash flow from operations by total fixed charges.
* '''Debt Service Coverage Ratio (DSCR)''': This ratio measures the ability of a company to cover its fixed charges with debt service payments. It is calculated by dividing total debt service payments by total fixed charges.

In summary, Fixed-Charge Coverage Ratio is a financial ratio used to measure the ability of a company to cover its fixed charges with income generated before any fixed financing charges are considered. Other approaches related to Fixed-Charge Coverage Ratio include Operating Income Coverage Ratio, Cash Flow Coverage Ratio, and Debt Service Coverage Ratio.

== Footnotes ==
<references/>

==References==
* Beenhakker H.L. (1996), [https://books.google.pl/books?id=TWhRrbStLG4C&pg=PA15&dq=fccr+ratio&hl=pl&sa=X&ved=0ahUKEwjM3Lnc6rLlAhXZwcQBHf8AD1MQ6AEIKTAA#v=onepage&q=fccr&f=false ''Investment Decision Making in the Private and Public Sectors''], Quorum Books
* Besley S., Brigham E.F. (2009), [https://books.google.pl/books?id=GF_EO-ZxyM4C&pg=PA238&dq=fixed+charge+coverage+ratio&hl=pl&sa=X&ved=0ahUKEwjb9pmq67LlAhWJysQBHZPuBRIQ6AEIOzAC#v=onepage&q=fixed%20charge%20coverage%20ratio&f=false ''Principles of Finance''], Cengage Learning
* Block R.L. (2012), [https://books.google.pl/books?id=DroPNYJwTGMC&pg=PA36&dq=upreit&hl=pl&sa=X&ved=0ahUKEwiQlqugj6PlAhXLo4sKHW3ICq4Q6AEIWTAF#v=snippet&q=fixed%20charge%20coverage&f=false ''Investing in REITs: Real Estate Investment Trusts''], John Wiley & Sons
* Fridson M.S. (2018), [https://books.google.pl/books?id=65RxDwAAQBAJ&pg=PT62&dq=fccr+ratio&hl=pl&sa=X&ved=0ahUKEwjM3Lnc6rLlAhXZwcQBHf8AD1MQ6AEITjAE#v=onepage&q=fccr%20ratio&f=false ''Foundations of High-Yield Analysis''], CFA Institute Research Foundation
* Gadge A., Deora B., Kasture R. (2013), [https://books.google.pl/books?id=NDvNAgAAQBAJ&pg=PA224&dq=fccr+ratio&hl=pl&sa=X&ved=0ahUKEwjM3Lnc6rLlAhXZwcQBHf8AD1MQ6AEIQzAD#v=onepage&q=fccr%20ratio&f=false ''Certified Credit Research Analyst (CCRA) Level 1''], Taxmann
* Peterson P.P., Fabozzi F.J. (1999), [https://books.google.pl/books?id=RA-KNAhFy4cC&pg=PA94&dq=fixed+charge+coverage+ratio&hl=pl&sa=X&ved=0ahUKEwjb9pmq67LlAhWJysQBHZPuBRIQ6AEIRjAD#v=onepage&q=fixed%20charge%20coverage%20ratio&f=false ''Analysis of Financial Statements''], John Wiley & Sons
* Qatar Financial Centre (2015), [https://books.google.pl/books?id=-TczBQAAQBAJ&printsec=frontcover&dq=QFinance:+The+Ultimate+Resource&hl=pl&sa=X&ved=0ahUKEwiFu6eNnrPlAhUQxcQBHVT_DB4Q6AEILDAA#v=onepage&q=fixed-charge&f=false ''QFINANCE: The Ultimate Resource''], Bloomsbury

{{a|Oksana Szłapowska}}

[[Category:Financial management]]