The fixed charge coverage ratio includes all of the following except in the denominator.
A)lease payments
B)preferred dividends before tax
C)before tax sinking fund
D)common stock dividends

Question

Quizplus · Accepted Answer

The fixed charge coverage ratio measures a company's ability to meet its fixed expenses like interest expenses, preferred dividends, sinking fund payments, and lease payments, from its earnings before interest and taxes (EBIT). Common stock dividends, on the other hand, are paid after all other expenses and they are not part of the fixed expenses that the company needs to cover with its EBIT. Therefore, D (common stock dividends) is not included in the denominator of the fixed charge coverage ratio.

The Fixed Charge Coverage Ratio Includes All of the Following