Fixed Charge Coverage Ratio Calculator: Cover Costs?

Is a 4.50 fixed charge coverage ratio high or low?

On the defaults — $240,000 of EBIT, $30,000 of interest and $30,000 of lease payments — the fixed charge coverage ratio is 4.50. A 4.50 ratio is very comfortable: the company earns $270,000 before fixed charges against $60,000 of fixed charges, so it has $210,000 of slack after paying them — it could lose more than three quarters of its earnings and still pay its fixed charges. A ratio of 1.00 means the earnings exactly cover the fixed charges — one bad month and the company is short. A ratio below 1.00 means the earnings do not cover the fixed charges at all — the company must dip into cash, sell assets, or borrow to pay bills it cannot avoid. Lenders generally look for a ratio of 1.25 or higher before lending — below that the margin is too thin for comfort — and a ratio above 2.00 is comfortable for most businesses.

Three things about the model are worth stating plainly.

First, the fixed charge coverage ratio is ($240,000 + $30,000) ÷ ($30,000 + $30,000) = $270,000 ÷ $60,000 = 4.50. Second, the fixed charges are $30,000 + $30,000 = $60,000.00 and the earnings before fixed charges are $240,000 + $30,000 = $270,000.00. And third, the interest-only coverage (EBIT ÷ interest) is $240,000 ÷ $30,000 = 8.00 — higher than the fixed charge coverage ratio, because it ignores the lease payments; all listed in Accuracy & limitations.

The worked example, line by line

Setup: EBIT $240,000, interest expense $30,000, lease payments $30,000, target ratio 3.00.

Line 1 — the fixed charges. The fixed charges are $30,000 + $30,000 = $60,000.00.

Line 2 — the earnings before fixed charges. The earnings before fixed charges are $240,000 + $30,000 = $270,000.00.

Line 3 — the fixed charge coverage ratio. The fixed charge coverage ratio is $270,000 ÷ $60,000 = 4.50.

Line 4 — the EBIT needed. The EBIT needed for a 3.00 ratio at the same charges is 3.00 × $60,000 − $30,000 = $150,000.00.

Line 5 — the interest allowed. The interest allowed for a 3.00 ratio is $270,000 ÷ 3.00 − $30,000 = $60,000.00.

Line 6 — the lease allowed. The lease payments allowed for a 3.00 ratio are ($240,000 − 3.00 × $30,000) ÷ (3.00 − 1) = $75,000.00.

Line 7 — the check. At $150,000 of EBIT the ratio is 3.00, the target ratio; and at $60,000 of interest the ratio is 3.00, the target ratio.

Every branch, checked

EBIT $120,000: EBIT $120,000.00; interest $30,000.00; lease payments $30,000.00; fixed charges $60,000.00; earnings before fixed charges $150,000.00; fixed charge coverage ratio 2.50; interest-only coverage 4.00; EBIT needed for the 3.00 target $150,000.00; interest allowed for the 3.00 target $20,000.00; lease allowed for the 3.00 target $15,000.00 — With EBIT of $120,000 the ratio falls to 2.50 — the earnings still cover the fixed charges two and a half times over.

EBIT $180,000: EBIT $180,000.00; interest $30,000.00; lease payments $30,000.00; fixed charges $60,000.00; earnings before fixed charges $210,000.00; fixed charge coverage ratio 3.50; interest-only coverage 6.00; EBIT needed for the 3.00 target $150,000.00; interest allowed for the 3.00 target $40,000.00; lease allowed for the 3.00 target $45,000.00 — With EBIT of $180,000 the ratio rises to 3.50 — comfortably above the 3.00 target.

EBIT $300,000: EBIT $300,000.00; interest $30,000.00; lease payments $30,000.00; fixed charges $60,000.00; earnings before fixed charges $330,000.00; fixed charge coverage ratio 5.50; interest-only coverage 10.00; EBIT needed for the 3.00 target $150,000.00; interest allowed for the 3.00 target $80,000.00; lease allowed for the 3.00 target $105,000.00 — With EBIT of $300,000 the ratio rises to 5.50 — the company earns $330,000 before fixed charges against $60,000 of fixed charges.

Interest $60,000: EBIT $240,000.00; interest $60,000.00; lease payments $30,000.00; fixed charges $90,000.00; earnings before fixed charges $270,000.00; fixed charge coverage ratio 3.00; interest-only coverage 4.00; EBIT needed for the 3.00 target $240,000.00; interest allowed for the 3.00 target $60,000.00; lease allowed for the 3.00 target $30,000.00 — With interest of $60,000 the fixed charges rise to $90,000 and the ratio falls to 3.00 — exactly at the 3.00 target.

Lease payments $90,000: EBIT $240,000.00; interest $30,000.00; lease payments $90,000.00; fixed charges $120,000.00; earnings before fixed charges $330,000.00; fixed charge coverage ratio 2.75; interest-only coverage 8.00; EBIT needed for the 3.00 target $270,000.00; interest allowed for the 3.00 target $20,000.00; lease allowed for the 3.00 target $75,000.00 — With lease payments of $90,000 the fixed charges rise to $120,000 and the ratio falls to 2.75 — the leases weigh on the ratio even though EBIT is unchanged.

EBIT $360,000: EBIT $360,000.00; interest $30,000.00; lease payments $30,000.00; fixed charges $60,000.00; earnings before fixed charges $390,000.00; fixed charge coverage ratio 6.50; interest-only coverage 12.00; EBIT needed for the 3.00 target $150,000.00; interest allowed for the 3.00 target $100,000.00; lease allowed for the 3.00 target $135,000.00 — With EBIT of $360,000 the ratio rises to 6.50 — the company earns $390,000 before fixed charges against $60,000 of fixed charges.

Ratio bars — EBIT $200,000, interest $45,000, lease payments $15,000: EBIT $200,000: fixed charge coverage ratio 3.83 (unrounded 3.8333); interest $45,000: fixed charge coverage ratio 3.60; lease payments $15,000: fixed charge coverage ratio 5.67 (unrounded 5.6667) — EBIT of $200,000 gives a ratio of 3.83 (unrounded 3.8333); interest of $45,000 gives a ratio of 3.60; lease payments of $15,000 give a ratio of 5.67 (unrounded 5.6667).

The reverses, worked backwards

Smallest EBIT for the ratio to REACH 3.00: At the displayed $150,000 the figures are EBIT $150,000.00; interest $30,000.00; lease payments $30,000.00; fixed charges $60,000.00; earnings before fixed charges $180,000.00; fixed charge coverage ratio 3.00; interest-only coverage 5.00; EBIT needed for the 3.00 target $150,000.00; interest allowed for the 3.00 target $30,000.00; lease allowed for the 3.00 target $30,000.00. At the displayed $150,000 the ratio is 3.00 (exactly 3.00). At $149,999 the ratio is 3.00 (unrounded 2.9999833 — print it) — it displays as 3.00 but is below the 3.00 target — so $150,000 is the smallest EBIT for the ratio to reach 3.00.

Largest interest for the ratio to STAY at or above 3.00: At the displayed $60,000 the figures are EBIT $240,000.00; interest $60,000.00; lease payments $30,000.00; fixed charges $90,000.00; earnings before fixed charges $270,000.00; fixed charge coverage ratio 3.00; interest-only coverage 4.00; EBIT needed for the 3.00 target $240,000.00; interest allowed for the 3.00 target $60,000.00; lease allowed for the 3.00 target $30,000.00. At the displayed $60,000 the ratio is 3.00 (exactly 3.00). At $60,001 the ratio is 3.00 (unrounded 2.9999667 — print it) — it displays as 3.00 but is below the 3.00 target — so $60,000 is the largest interest for the ratio to stay at or above 3.00.

Largest lease payments for the ratio to STAY at or above 3.00: At the displayed $75,000 the figures are EBIT $240,000.00; interest $30,000.00; lease payments $75,000.00; fixed charges $105,000.00; earnings before fixed charges $315,000.00; fixed charge coverage ratio 3.00; interest-only coverage 8.00; EBIT needed for the 3.00 target $240,000.00; interest allowed for the 3.00 target $30,000.00; lease allowed for the 3.00 target $75,000.00. At the displayed $75,000 the ratio is 3.00 (exactly 3.00). At $75,001 the ratio is 3.00 (unrounded 2.9999810 — print it) — it displays as 3.00 but is below the 3.00 target — so $75,000 is the largest lease payments for the ratio to stay at or above 3.00.

Smallest EBIT for the ratio to REACH 2.00: At the displayed $90,000 the figures are EBIT $90,000.00; interest $30,000.00; lease payments $30,000.00; fixed charges $60,000.00; earnings before fixed charges $120,000.00; fixed charge coverage ratio 2.00; interest-only coverage 3.00; EBIT needed for the 2.00 target $90,000.00; interest allowed for the 2.00 target $30,000.00; lease allowed for the 2.00 target $30,000.00. At the displayed $90,000 the ratio is 2.00 (exactly 2.00). At $89,999 the ratio is 2.00 (unrounded 1.9999833 — print it) — it displays as 2.00 but is below the 2.00 target — so $90,000 is the smallest EBIT for the ratio to reach 2.00.

Largest interest for the ratio to STAY at or above 2.00: At the displayed $105,000 the figures are EBIT $240,000.00; interest $105,000.00; lease payments $30,000.00; fixed charges $135,000.00; earnings before fixed charges $270,000.00; fixed charge coverage ratio 2.00; interest-only coverage 2.29; EBIT needed for the 2.00 target $240,000.00; interest allowed for the 2.00 target $105,000.00; lease allowed for the 2.00 target $30,000.00. At the displayed $105,000 the ratio is 2.00 (exactly 2.00). At $105,001 the ratio is 2.00 (unrounded 1.9999852 — print it) — it displays as 2.00 but is below the 2.00 target — so $105,000 is the largest interest for the ratio to stay at or above 2.00.

Largest lease payments for the ratio to STAY at or above 5.00: At the displayed $22,500 the figures are EBIT $240,000.00; interest $30,000.00; lease payments $22,500.00; fixed charges $52,500.00; earnings before fixed charges $262,500.00; fixed charge coverage ratio 5.00; interest-only coverage 8.00; EBIT needed for the 5.00 target $240,000.00; interest allowed for the 5.00 target $30,000.00; lease allowed for the 5.00 target $22,500.00. At the displayed $22,500 the ratio is 5.00 (exactly 5.00). At $22,501 the ratio is 5.00 (unrounded 4.9999238 — print it) — it displays as 5.00 but is below the 5.00 target — so $22,500 is the largest lease payments for the ratio to stay at or above 5.00.

A warning about the neighbours: every neighbour above sits one dollar from the star, and every neighbour displays as the target when rounded to two decimals, yet sits below it. The ratio is linear in each input, so every reverse has an exact closed form: the EBIT needed is the target times the fixed charges minus the lease payments, the interest allowed is the earnings before fixed charges divided by the target minus the lease payments, and the lease allowed is the EBIT minus the target times the interest, divided by the target minus one. The page prints the unrounded ratios in full so the rounding does not mislead you: 2.9999833, 2.9999667, 2.9999810, 1.9999833, 1.9999852 and 4.9999238.

What the defaults assume

The defaults are EBIT $240,000, interest $30,000, lease payments $30,000 and a target ratio of 3.00 — EBIT $240,000.00; interest $30,000.00; lease payments $30,000.00; fixed charges $60,000.00; earnings before fixed charges $270,000.00; fixed charge coverage ratio 4.50; interest-only coverage 8.00; EBIT needed for the 3.00 target $150,000.00; interest allowed for the 3.00 target $60,000.00; lease allowed for the 3.00 target $75,000.00. With EBIT $120,000, EBIT $120,000.00; interest $30,000.00; lease payments $30,000.00; fixed charges $60,000.00; earnings before fixed charges $150,000.00; fixed charge coverage ratio 2.50; interest-only coverage 4.00; EBIT needed for the 3.00 target $150,000.00; interest allowed for the 3.00 target $20,000.00; lease allowed for the 3.00 target $15,000.00. With EBIT $180,000, EBIT $180,000.00; interest $30,000.00; lease payments $30,000.00; fixed charges $60,000.00; earnings before fixed charges $210,000.00; fixed charge coverage ratio 3.50; interest-only coverage 6.00; EBIT needed for the 3.00 target $150,000.00; interest allowed for the 3.00 target $40,000.00; lease allowed for the 3.00 target $45,000.00. With EBIT $300,000, EBIT $300,000.00; interest $30,000.00; lease payments $30,000.00; fixed charges $60,000.00; earnings before fixed charges $330,000.00; fixed charge coverage ratio 5.50; interest-only coverage 10.00; EBIT needed for the 3.00 target $150,000.00; interest allowed for the 3.00 target $80,000.00; lease allowed for the 3.00 target $105,000.00. With Interest $60,000, EBIT $240,000.00; interest $60,000.00; lease payments $30,000.00; fixed charges $90,000.00; earnings before fixed charges $270,000.00; fixed charge coverage ratio 3.00; interest-only coverage 4.00; EBIT needed for the 3.00 target $240,000.00; interest allowed for the 3.00 target $60,000.00; lease allowed for the 3.00 target $30,000.00. With Lease payments $90,000, EBIT $240,000.00; interest $30,000.00; lease payments $90,000.00; fixed charges $120,000.00; earnings before fixed charges $330,000.00; fixed charge coverage ratio 2.75; interest-only coverage 8.00; EBIT needed for the 3.00 target $270,000.00; interest allowed for the 3.00 target $20,000.00; lease allowed for the 3.00 target $75,000.00. With EBIT $360,000, EBIT $360,000.00; interest $30,000.00; lease payments $30,000.00; fixed charges $60,000.00; earnings before fixed charges $390,000.00; fixed charge coverage ratio 6.50; interest-only coverage 12.00; EBIT needed for the 3.00 target $150,000.00; interest allowed for the 3.00 target $100,000.00; lease allowed for the 3.00 target $135,000.00. With Ratio bars, EBIT $200,000: fixed charge coverage ratio 3.83 (unrounded 3.8333); interest $45,000: fixed charge coverage ratio 3.60; lease payments $15,000: fixed charge coverage ratio 5.67 (unrounded 5.6667). With Interest $0, lease payments $0, EBIT $240,000.00; interest $0.00; lease payments $0.00; fixed charges $0.00; earnings before fixed charges $240,000.00; fixed charge coverage ratio undefined — there are no fixed charges to cover — no fixed charges to cover, so the ratio is undefined. With EBIT $0, EBIT $0.00; interest $30,000.00; lease payments $30,000.00; fixed charges $60,000.00; earnings before fixed charges $30,000.00; fixed charge coverage ratio 0.50; interest-only coverage 0.00; EBIT needed for the 3.00 target $150,000.00; interest allowed for the 3.00 target −$20,000.00; lease allowed for the 3.00 target −$45,000.00 — nothing earned, only the lease payments count toward the top. With Lease payments $0, EBIT $240,000.00; interest $30,000.00; lease payments $0.00; fixed charges $30,000.00; earnings before fixed charges $240,000.00; fixed charge coverage ratio 8.00; interest-only coverage 8.00; EBIT needed for the 3.00 target $90,000.00; interest allowed for the 3.00 target $80,000.00; lease allowed for the 3.00 target $75,000.00 — it equals the interest-only coverage (EBIT ÷ interest). With EBIT −$60,000, EBIT −$60,000.00; interest $30,000.00; lease payments $30,000.00; fixed charges $60,000.00; earnings before fixed charges −$30,000.00; fixed charge coverage ratio −0.50; interest-only coverage −2.00; EBIT needed for the 3.00 target $150,000.00; interest allowed for the 3.00 target −$40,000.00; lease allowed for the 3.00 target −$75,000.00 — losing money before interest, shown with a note, never hidden. With Interest $30,000.50, EBIT $240,000.00; interest $30,000.50; lease payments $30,000.00; fixed charges $60,000.50; earnings before fixed charges $270,000.00; fixed charge coverage ratio 4.4999625; interest-only coverage 8.00; EBIT needed for the 3.00 target $150,001.50; interest allowed for the 3.00 target $60,000.00; lease allowed for the 3.00 target $74,999.25 (unrounded 4.4999625) — displays 4.50 but is below 4.50 unrounded. With EBIT $149,999.99, EBIT $149,999.99; interest $30,000.00; lease payments $30,000.00; fixed charges $60,000.00; earnings before fixed charges $179,999.99; fixed charge coverage ratio 2.9999998; interest-only coverage 5.00; EBIT needed for the 3.00 target $150,000.00; interest allowed for the 3.00 target $30,000.00; lease allowed for the 3.00 target $30,000.00 (unrounded 2.9999998) — displays 3.00 but is below 3.00 unrounded. With Ratio bars, interest $15,000: fixed charge coverage ratio 6.00; lease payments $60,000: fixed charge coverage ratio 3.33; EBIT $90,000: fixed charge coverage ratio 2.00.

A note on the rounding: the ratio is displayed to two decimals, half-up. At $149,999 of EBIT the unrounded ratio is 2.9999833 — it displays as 3.00 but is below the 3.00 target. At $60,001 of interest the unrounded ratio is 2.9999667 — it displays as 3.00 but is below the 3.00 target. At $75,001 of lease payments the unrounded ratio is 2.9999810 — it displays as 3.00 but is below the 3.00 target. At $89,999 of EBIT the unrounded ratio is 1.9999833 — it displays as 2.00 but is below the 2.00 target. At $105,001 of interest the unrounded ratio is 1.9999852 — it displays as 2.00 but is below the 2.00 target. At $22,501 of lease payments the unrounded ratio is 4.9999238 — it displays as 5.00 but is below the 5.00 target. At $30,000.50 of interest the unrounded ratio is 4.4999625 — it displays as 4.50 but is below 4.50 unrounded. At $149,999.99 of EBIT the unrounded ratio is 2.9999998 — it displays as 3.00 but is below 3.00 unrounded. The page prints the unrounded ratios so the rounding does not mislead you.

Output · formula · meaning

Who uses this

• The lender checking a borrower: they learn $240,000 of EBIT against $60,000 of fixed charges gives a ratio of 4.50 — and they check the $150,000 reverse to see the EBIT a 3.00 ratio needs.
• The analyst screening for stretched companies: they learn a company with heavy leases can look safe on interest coverage and still be stretched once the leases are counted — and they check the $60,000 reverse to see the interest a 3.00 ratio allows.
• The student learning coverage ratios: they learn fixed charge coverage is (EBIT + lease payments) ÷ (interest + lease payments) — and they check the $75,000 reverse to see the lease payments a 3.00 ratio allows.
• The founder planning the next lease: they learn a ratio of 4.50 leaves $210,000 of slack after paying the fixed charges — and they check the $22,500 reverse to see the lease payments a 5.00 ratio allows.

Accuracy & limitations

The math is first-principles: the fixed charge coverage ratio is (EBIT + lease payments) ÷ (interest expense + lease payments); the fixed charges are interest plus lease payments; the earnings before fixed charges are EBIT plus lease payments; the interest-only coverage is EBIT divided by interest expense; the EBIT needed at the target is the target times the fixed charges minus the lease payments; the interest allowed at the target is the earnings before fixed charges divided by the target minus the lease payments; the lease allowed at the target is the EBIT minus the target times the interest, divided by the target minus one — all in dollars, the ratio displayed to two decimals half-up. At $0 interest and $0 lease payments the fixed charges are $0.00 and the ratio is undefined (division by zero) — the calculator shows “undefined” with a note, never a number, never hidden. At −$60,000 EBIT with $30,000 interest and $30,000 lease payments the ratio is −0.50 — negative EBIT means the company is losing money before interest — it earns nothing toward its fixed charges, so the ratio goes negative — the calculator shows the −0.50 figure with a note, never hides it. At $0 EBIT the ratio is 0.50 — nothing earned, only the lease payments count toward the top. Negative interest or lease inputs are clamped at 0 in the calculator — a negative interest expense or a negative lease payment is not a real input, so the model treats it as zero and says so. What the model cannot do is judge the business: the ratio says nothing about whether the company is growing or earning well — a company with almost no debt and no leases has a high ratio because it has almost no fixed charges — and it says nothing about cash: the ratio is an earnings view, not a cash view, so a company can cover its fixed charges on paper and still be short of cash if its customers pay late. The ratio differs from interest coverage: interest coverage divides EBIT by interest only, and ignores lease payments — a company with heavy leases can look safe on interest coverage and still be stretched once the leases are counted. The ratio differs from debt service coverage: debt service coverage is a cash view, operating cash flow against principal plus interest, while fixed charge coverage is an earnings view that counts leases but not principal repayments. The ratio differs from the current ratio: the current ratio is a snapshot of short-term assets against short-term debts, while fixed charge coverage is a flow — how much the business earns against the bills that keep coming. The model assumes the lease payments and interest stay the same for the year — real companies refinance, sign new leases and pay down loans, so treat the ratio as a snapshot, not a forecast. Use it to see how many times the earnings cover the must-pay bills — then check the cash and the growth before you lend or invest.

Frequently asked questions