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Fixed charge coverage – cash basis definition

Description

Fixed charge coverage – cash basis ratio is very similar to fixed charge coverage ratio. The only difference is that this ratio is calculated relying on the background of cash flow, whereas the fixed charge coverage ratio is calculated relying on EBIT plus leases expenses. Data needed to calculate this ratio is collected from cash flow and income statement.

In brief, fixed charge coverage cash basis helps to understand how many times a company can cover its’ financial fixed charges. Fixed charges are defined as committed periodic payments to cover leases and debt.

Norms and limitations

There are no general norms for this ratio.

It is recommended to compare this ratio with the ratios of companies working within the same industry.

Formula

Adjusted operating cash flow equals cash flow from operations plus fixed charges plus tax payments.

Fixed charges are calculated adding leases expenses to interest payment.