A requirement to maintain a certain level of fixed charge coverage

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A requirement to maintain a certain level of fixed charge coverage indirectly limits a company's ability to pay dividends because it restricts the amount of funds available for distribution to shareholders. Fixed charges such as interest expenses must be paid before dividends can be declared, and if the company is unable to maintain the required level of coverage, it may have to use funds that would otherwise be available for dividends to meet its fixed obligations. Thus, while maintaining a certain level of fixed charge coverage is important for financial stability, it can also limit a company's flexibility to distribute earnings to shareholders in the form of dividends.

A Requirement to Maintain a Certain Level of Fixed Charge