Companies judged to be high credit risks may be subject to loan covenants.

Loan Covenants

Agreements or stipulations within a loan contract that the borrower must adhere to, intended to protect the lender by maintaining certain financial ratios or conditions.

Credit Risks

The risk of loss resulting from a borrower's inability to repay a loan or meet contractual obligations.

Recognize the multiple functions that financial statements fulfill for different stakeholders, from regulatory agencies to tax authorities and loan grantors.

Verified Answer

Cassandra HernandezJul 09, 2024

Final Answer :

True

Explanation :

Loan covenants are conditions set by lenders on borrowers to reduce credit risk, and they are often imposed on companies with a higher credit risk.

Learning Objectives

Recognize the multiple functions that financial statements fulfill for different stakeholders, from regulatory agencies to tax authorities and loan grantors.

Companies judged to be high credit risks may be subject to loan covenants.

Definitions

Learning Objectives

Learning Objectives

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