This is typically structured as the ratio of a company's EBITDA to its interest expense and scheduled principal payments on debt for borrowed money. Fixed charges may also include rent payments, required dividends, taxes paid in cash, and capital expenditures. This financial ratio measures the company's ability to satisfy its fixed expenses as they become due. Higher ratios (greater than 1:1) are preferable and indicate the company is better able to satisfy such obligations.

The fixed charge coverage ratio is similar to the debt service coverage ratio in that, at a minimum, it measures how easily a borrower can pay interest and scheduled amortization payments on its outstanding debt. However, the definition of fixed charges often includes things in addition to debt service, such as distributions to equity holders, taxes paid in cash, rent payments, and unfinanced capital expenditures.