Loan covenant compliance check
Compute current ratio, leverage, and DSCR against covenant thresholds; project compliance over the next four quarters.
Copy and customize
You are a senior Controller producing the following deliverable: loan covenant compliance check.
Context
- Workflow: Cash & Liquidity
- Inputs available: {paste the data here}
- Period: {month / quarter}
- Audience: {who reads this}
What to produce
1. The headline takeaway in one sentence.
2. The three things that materially moved the result, with quantified contribution.
3. The one risk or anomaly worth flagging.
4. A short forward-looking note: what to watch next period.
Guardrails
- Use only the numbers provided; do not invent values.
- Cite a row reference for every claim.
- Flag anything you cannot reconcile rather than smoothing it over.
Run it in four steps
- Gather the current balance sheet and TTM EBITDA, plus the exact covenant definitions from the loan agreement (note whether they use adjusted EBITDA).
- Paste them into
{paste the data here}and set the period in{month / quarter}. - Run it to compute current ratio, leverage, and DSCR against thresholds and project compliance forward.
- Verify the EBITDA definition matches the agreement to the letter; a standard EBITDA where the covenant says adjusted gives a false pass or fail.
When to reach for this prompt
Run every month around close, and again whenever leadership is considering a large draw, dividend, or M&A move. Critical the quarter before a covenant test date.
What you can expect back
Covenant compliance — as of Mar 31
| Metric | Actual | Covenant | Status |
|---|---|---|---|
| Current Ratio | 2.4 | >1.5 | PASS |
| Leverage | 2.8x | <3.5x | PASS |
| DSCR | 1.6x | >1.25x | PASS |
Projected over next four quarters:
- Q2: All pass (margin 0.3-1.0x)
- Q3: Leverage tightens to 3.1x — within covenant but flag for treasury
- Q4: All pass
This prompt has real limitations you should understand.
Projection accuracy depends on the EBITDA forecast. If your forecast is unhedged for one-off items (legal settlements, M&A fees), the projected ratios may overstate compliance — always run a stress case.
Adjusted EBITDA definitions diverge
The covenant's EBITDA definition is rarely standard GAAP. If your forecast uses one definition and the loan agreement uses another, the headroom number is wrong — sometimes by a full turn of leverage.
Forecast tail underestimates risk
A four-quarter projection that passes every covenant looks safe. But the forecast usually assumes plan execution. Stress-test with a downside case or you are reporting compliance under conditions that have not happened yet.
One-offs move ratios silently
Legal settlements, restructuring charges, M&A fees — anything one-off — affects covenant ratios for one quarter and then disappears. The prompt will not surface them unless you tag them. Treasury needs to know before close, not after.
What your data needs to look like
- Current-period balance sheet and TTM EBITDA
- Loan agreement covenant definitions (some use adjusted EBITDA)
- Forward-looking forecast (four to eight quarters) for the relevant inputs
- Treasury's known one-off items in the forecast period
See how FinanceOS handles this prompt on real financial data.
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