Business readiness

Debt Covenant Report

What is a Debt Covenant Report?

A debt covenant report documents the performance of your company in relation to the targets specified by the lender as part of the debt agreement.

A debt covenant specifies the operational and financial targets that your company has to meet for a specified time period. It may also restrict or prohibit the business activities that may impact your company’s performance. A debt covenant report benchmarks the performance of your company against defined targets.

Your company’s management is required to provide a compliance certificate to the lenders, indicating that the targets for a particular tenure were met. A failure to meet such covenants may lead to penalties or even call for a full payment.

A debt covenant report typically measures your company’s performance on the following parameters:

  • Liquidity and solvency ratios that assess your company’s ability to meet short- and long-term financial commitments
  • Profitability ratios assessing your company’s ability to generate earnings compared to its expenses
  • Other financial indicators like revenue, capital expenditure and EBITDA
  • Operational indicators related like number of customers and number of sellers
ansarada

Why is Debt Covenant Reports important for business today?

A debt covenant report enables your company to:

  • Mitigate risks related to non-compliance
  • Avoid any default that may impact your company’s financial health
  • Assess the amount of additional debt that your company can raise
  • Establish financial credibility of your company as these reports are audited

Why is it important for an event tomorrow?

A debt covenant report is important for an event tomorrow, as it helps:

  • Ascertain the performance of your company by analyzing its liquidity, solvency, and profitability
  • Assess the covenants related to the funding, management control and ownership of your company
  • Determine the ideal mix of capital required and understand if additional capital can be raised using debt instruments
  • Forecast future earnings of your company by evaluating historical financial performance

Pros of addressing Debt Covenant Report

  • Ensured compliance with the covenants stipulated by the lenders
  • A strong financial background, as financial statements are certified by an accountant
  • Improvement in operational efficiency, as regular tracking of these metrics indicates areas that may require corrective action
  • Allows access to new funds by indicating financial performance
  • Validation of financial and management efficiency to the lenders

Cons of not addressing this topic

  • Impact on the financial health of your company as non-compliance may lead to a reduction in the tenure of repayment or additional penalties
  • Increased the risk of default as business performance is not tracked against stipulated covenants
  • Potential negative impact on the financial credibility of your company

Readiness isn’t optional - business leaders need to be ready for change

We've worked with companies like yours for more than a decade, and on over 30,000 deals. From these experiences, we’ve learned that for a business to succeed, it must know what it has and where it’s going. Download our readiness guide for total confidence in decision making when it comes to your company. Realize your value. Own your future.
Download the guide today