The fixed charge coverage ratio recognises that firms often lease equipment under contract and thus, some firms must meet more than just their scheduled interest payments out of earnings.Therefore, the fixed charge coverage is more inclusive than the TIE ratio.

Question

Quizplus · Accepted Answer

The statement accurately describes the difference between the fixed charge coverage ratio and the times interest earned (TIE) ratio. The fixed charge coverage ratio takes into account other fixed expenses, such as lease payments, whereas the TIE ratio only considers interest payments.

The Fixed Charge Coverage Ratio Recognises That Firms Often Lease