Fixed Charge Coverage Ratio Calculator
Calculate Fixed Charge Coverage Ratio from EBIT, interest, lease payments, and principal.
See if a company can cover all fixed financial obligations.
Fixed Charge Coverage Ratio (FCCR)
The Fixed Charge Coverage Ratio measures a company’s ability to pay all of its fixed financial obligations from its operating earnings. Lenders use FCCR to assess creditworthiness before approving loans or setting covenants.
Formula:
FCCR = (EBIT + Lease Payments) / (Interest Expense + Lease Payments + Principal Payments / (1 - Tax Rate))
Where:
- EBIT = Earnings Before Interest and Taxes
- Lease payments are added back to the numerator because they reduce EBIT
- Principal repayments are grossed up by (1 - tax rate) because they are paid from after-tax income
- Interest and lease are tax-deductible; principal repayment is not
Simplified version (when no lease payments):
FCCR = EBIT / (Interest Expense + Principal / (1 - Tax Rate))
Interpretation:
| FCCR | Assessment |
|---|---|
| Above 2.0 | Strong, comfortable coverage of all obligations |
| 1.25 to 2.0 | Adequate, reasonable buffer |
| 1.0 to 1.25 | Thin, little margin for error |
| Below 1.0 | Distressed, cannot cover fixed charges from operations |
FCCR vs DSCR vs Interest Coverage:
- Interest Coverage Ratio = EBIT / Interest (simpler, ignores principal and leases)
- Debt Service Coverage Ratio (DSCR) = Net Operating Income / Total Debt Service (used in real estate)
- FCCR is more conservative than interest coverage because it includes principal repayments
Practical note: A covenant of FCCR ≥ 1.25 is common in commercial loan agreements. If FCCR falls below the covenant minimum, the lender can call the loan or demand additional collateral.