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Sunday, May 1, 2011

Fixed Charge Coverage Ratio Analysis

Definition: Fixed Charge Coverage Ratio is used to measure how well the firm covers their fixed costs such as interest expense and leases.

Formula:
Fixed Charge Coverage Ratio = (Earnings Before Interest and Taxes (EBIT)+ fixed charge) / (total interest + fixed charge)
Or,
Fixed Charge Coverage Ratio = (EBIT + Lease Expenses) / (Lease Expenses + Interest expense)

Example 1:
SK Ltd has $32,000

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