Final answer:
The Fixed Charge Coverage Ratio is a more comprehensive measure than the times interest earned ratio as it includes lease payments and other fixed charges in its calculation, giving a better picture of the company's ability to meet all of its fixed financial obligations.
Step-by-step explanation:
The coverage ratio that is a broader measure of coverage capability than the times interest earned ratio is the Fixed Charge Coverage Ratio. This ratio expands on the concept of the times interest earned ratio by including all fixed financing charges, not just interest. These charges often incorporate lease payments and other fixed obligations that a company must meet on a regular basis in addition to interest payments.
When calculating the Fixed Charge Coverage Ratio, a company's earnings before interest and taxes (EBIT) are adjusted to include lease payments and the total amount is then divided by total interest and other fixed charges. An example of the formula would be:
Fixed Charge Coverage Ratio = (EBIT + Fixed Charges Before Tax) / (Interest + Fixed Charges Before Tax)
By considering additional financial obligations like leases, this ratio provides a more comprehensive understanding of a company's ability to cover its fixed charges, thus giving a clearer picture of financial health and risk to lenders and investors.