The Fixed Charge Coverage Ratio is a financial ratio that finds out how well a business's earnings cover its fixed charges. This ratio is an expanded version of the ‘times interest earned ratio’.
An income statement shows $300,000 income before interest and taxes and interest expense of $30,000. The current lease payment is $2,000 a month or $24,000 a year. On applying the formula, the Fixed Charge Coverage Ratio equals 6 (six).
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