The Fixed Charge Coverage Ratio Indicates the Ability of a Firm

question 40

True/False

The fixed charge coverage ratio indicates the ability of a firm to meet its contractual obligations for interest, leases, and debt principal repayments out of its operating income.

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Definitions:

Sales Mix

The combination of products or services that a company sells, which significantly impacts its profitability.

Fixed Costs

Costs that do not change with the level of goods or services produced by the business.

Break-even Sales

The amount of revenue from sales required to cover all fixed and variable costs of operating a business, resulting in no net profit or loss.

Variable Costs

Costs that change in proportion to the activity of a business.