easy · Private Credit underwriting-credit-analysis
The Fixed Charge Coverage Ratio (FCCR) is designed to measure a company's ability to service its obligations.
If a borrower has an FCCR of 0.95×, what does this indicate to a lender?
- The company is not generating enough cash flow from operations to cover its mandatory debt service and taxes.
- The company is generating roughly 5% more cash flow than required to meet its fixed obligations.
- The company's EBITDA covers its interest expense but not its scheduled principal amortisation payments each year.
- The company is highly profitable but is simply holding too much excess idle cash, unrelated to its debt service ability.
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