A case study in 2014 titled “Covenant design in financial contracts” is
attached to help you understand the use of debt covenants in real
business world. You are required to:
1) Explain
the relationship between the business activities triangle and the
accounting records/reports triangle, and further explain the
structure of financial statements in the financial reports triangle:
Classified Balance Sheet, and Multiple Step Income Statement.
(5 points)
2) Explain the ratios as well as other debt covenants in the case
study (formulas for calculation along with their relationship to
items on which specific financial statement).
(4 points)
3) In your own words, explain the reasons, usage and benefits (or
consequences) of debt covenants as presented in the case study.
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