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What is the fixed charge coverage ratio and how is it calculated?

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What is the fixed charge coverage ratio and how is it calculated?

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What is the fixed charge coverage ratio and how is it calculated?Answer: The fixed charge coverage ratio is a broader measure of how well a firm covers their fixed costs than the times interest earned ratio. The fixed charge coverage ratio includes lease payments as well as interest payments. Lease payments, like interest payments, must be met on an annual basis. The fixed charge coverage ratio is especially important for firms that extensively lease equipment, for example. Here is the calculation for the fixed charge coverage ratio: Earnings Before Interest and Taxes (EBIT) + Lease Payments/Interest Expense + Lease Payments = # Times Interpretation: EBIT, Taxes, and Interest Expense are taken from the company’s income statement. Lease Payments are taken from the balance sheet and are usually shown as a footnote on the balance sheet. The result of the fixed charge coverage ratio is the number

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