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The requirement that a corporation must maintain a current ratio of 2.5 is an example of a(n) ______ covenant.

a) Financial
b) Negative
c) Positive
d) Restrictive

User Ben Lin
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Final answer:

The requirement is an example of a financial covenant, which are conditions set by creditors on borrowers to ensure financial stability and ability to repay debts.

Step-by-step explanation:

The requirement that a corporation must maintain a current ratio of 2.5 is an example of a(n) financial covenant. Financial covenants are conditions in debt agreements that the borrower must comply with, and they are related to the company's financial health or performance. In this case, the specific financial covenant requires the corporation to maintain a certain level of liquidity as indicated by the current ratio, which is a measure of a company's ability to pay off its short-term liabilities with its short-term assets.

This requirement is imposed by creditors to ensure that the company maintains a satisfactory level of liquidity and thus is able to service its debts. If the corporation fails to meet this financial covenant, it could face penalties or the loan could be called in by the creditors.

User Authchir
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