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Basic Question 0 of 12
Which of the following would be classified as a financial covenant?
B. Provide audited financial statements on a timely basis.
C. Use the loan for the agreed-upon purpose.
D. Maintain a satisfactory working capital ratio (or current ratio).
A. Do not violate the lender's restriction on dividend payments.
B. Provide audited financial statements on a timely basis.
C. Use the loan for the agreed-upon purpose.
D. Maintain a satisfactory working capital ratio (or current ratio).
User Contributed Comments 4
| User | Comment |
|---|---|
| uberstyle | all of these are convenants - what are they if not financial? Thanks! |
| dravinskis | "Financial" covenants refer to the financial statements, usually referring to a minimum or maximum ratio, ie. current ratio or debt-to-equity ratio. |
| robertucla | No mention of Financial Covenant in Text |
| ascruggs92 | Financial covenants refer to a financial metric of some sort being maintain (such as a ratio). Non-financial covenants are rules that do not pertain to a financial metric (paying interest on time, using the loan for agreed reason, providing financials on a timely basis). A. is not a covenant, but would be if it were stated "Dividend payments cannot exceed 30% of N.I." or something of that nature |
I am happy to say that I passed! Your study notes certainly helped prepare me for what was the most difficult exam I had ever taken.
Andrea Schildbach
Learning Outcome Statements
describe the role of debt covenants in protecting creditors;
CFA® 2024 Level I Curriculum, Volume 3, Module 25.