The " fixed charges " of a corporation are generally conceded to be the interest upon its bonds and floating debt, sinking fund, if any - although the latter may be shown under a separate heading - rentals, taxes, and insurance. (Railroad companies include insurance under " General expenses.")

Sometimes these three latter items are given under a separate heading and not included in " fixed charges," but unless they are included in the operating expenses of the company, they should be included in the " fixed charges."

A form of deception is to even show net earnings before taxes as available for fixed charges. Of course, taxes should be a prior deduction as any other operating expense. Another note of caution: do not be misled by the statement that the balance of net earnings after deducting interest charges on all prior bonded indebtedness is equal to 10 or 20 times the interest charges on the junior issue. A chain is as strong as its weakest link; the entire fixed charges should be considered.

There is good authority for believing that in good times the "fixed charges "of a corporation should not exceed much, if any, 50% of the net earnings; this in order to provide for the decreased earnings of bad times.