A ratio used to measure a company's ability to incur additional debt or its ability to pay off existing debt. The ratio is usually measured as EBITDA over fixed charges over a trailing four quarter period. In this ratio, fixed charges generally refers to interest expenses, but there are variations on this ratio. Compliance by debt holders to maintain a specific level of EBITDA to fixed charges is often required in debt agreements.
EBITDA to Fixed Charges is not defined under GAAP principles. It is an extra measure used to better inform investors as to the future growth possibilities for the future. As it is not GAAP, uniformity among companies can not be guaranteed.