The more variable a borrower's cash flows are,the lower the fixed charge coverage ratio should be to limit risk.

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The fixed charge coverage ratio measures a company's ability to cover its fixed charges (such as interest and lease expenses) with its earnings. A higher ratio indicates a better ability to cover these charges, thus reducing risk. If a borrower's cash flows are more variable, a higher fixed charge coverage ratio would be preferable to provide a larger buffer and limit risk.

The More Variable a Borrower's Cash Flows Are,the Lower the Fixed