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The Fixed Charge Coverage Ratio (FCCR) broadens the Interest Coverage Ratio / Times Interest Earned test by also folding in other recurring fixed obligations, such as lease payments — lenders use it to confirm a borrower can cover ALL its fixed contractual payments, not just loan interest, out of operating earnings. It's a standard part of commercial lending analysis, and it's frequently written directly into loan covenants as a minimum threshold a borrower must maintain throughout the life of a loan. The ratio matters most for businesses with significant recurring fixed obligations beyond debt interest — retailers, restaurants, and airlines, for example, often lease the majority of their real estate or equipment rather than owning it outright, so a coverage test that only looks at interest expense would miss a large chunk of their true fixed financial commitments. FCCR closes that gap by treating lease payments (and similar recurring fixed charges) the same way it treats interest — as a mandatory obligation that operating earnings need to cover.
How it works
Enter EBIT, fixed charges (such as lease payments), and interest expense for the period. The tool adds fixed charges to EBIT in the numerator (since lease payments are typically expensed before EBIT is calculated, they need to be added back to see the true earnings available to cover all fixed obligations), then divides that by the sum of fixed charges and interest expense in the denominator: FCCR = (EBIT + fixed charges) ÷ (fixed charges + interest expense). A ratio above 1.0 means operating earnings, once fixed charges are added back, more than cover the total of fixed charges and interest combined.
- Enter eBIT (operating income).
- Enter fixed charges (e.g. lease payments).
- Enter interest expense.
- Click Calculate to see your results.
Examples
A retailer with lease obligations
$150,000 EBIT, $30,000 in lease payments, and $20,000 interest expense gives an FCCR of (150,000 + 30,000) ÷ (30,000 + 20,000) = 180,000 ÷ 50,000 = 3.6 — comfortably covering all fixed obligations more than three times over.
A tightly leveraged company near covenant minimum
$80,000 EBIT, $40,000 in lease payments, and $25,000 interest expense gives an FCCR of (80,000 + 40,000) ÷ (40,000 + 25,000) = 120,000 ÷ 65,000 ≈ 1.85 — still comfortably above a typical 1.25 covenant minimum, but with less cushion than the first example.
A company with no lease obligations
$100,000 EBIT, $0 in fixed lease charges, and $20,000 interest expense gives an FCCR of (100,000 + 0) ÷ (0 + 20,000) = 5.0 — when there are no fixed charges beyond interest, FCCR simplifies toward a standard interest-coverage-style result.
Who should use it
- Checking compliance with a loan covenant.
- Assessing a company's ability to service debt and lease obligations together.
- Evaluating credit risk for a lease-heavy business before extending financing.
Industry applications
- Commercial lending and credit analysis
- Corporate finance
Advantages
- Captures a fuller picture of fixed obligation coverage than interest-only ratios.
- Commonly used directly in loan covenants.
- Better suited than Times Interest Earned for lease-heavy industries.
Limitations
- Requires correctly identifying and totaling all "fixed charges," which takes more judgment than a plain interest figure.
- Definitions of "fixed charges" can vary between lenders, making cross-comparison tricky.
Common mistakes to avoid
- Only counting interest and forgetting to include lease payments or other recurring fixed obligations in "fixed charges".
- Forgetting to add fixed charges back into the numerator (EBIT), which understates true coverage capacity.
- Using a generic 1.25 covenant threshold without checking the actual threshold specified in the relevant loan agreement.
Best practices
- Use FCCR instead of plain interest coverage for businesses with significant operating leases (retail, restaurants, airlines).
- Check the exact definition of "fixed charges" specified in a loan covenant, since it can vary between lenders.
- Track FCCR over multiple periods, not just a single snapshot, to spot a deteriorating trend before it breaches a covenant.
Tips
- Compare against the Times Interest Earned Calculator to see how much lease obligations change the coverage picture.
- Track FCCR each reporting period if it's tied to an active loan covenant, so you can react before a breach occurs.