Restrictive Covenants Are Designed to Protect Both the Bondholder and the Issuer

question 9

True/False

Restrictive covenants are designed to protect both the bondholder and the issuer even though they might constrain the actions of the firm's managers. Such covenants are contained in the bond's indenture. 

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Definitions:

DSO

Days Sales Outstanding, a measure of the average number of days it takes a company to collect payment after a sale has been made.

Credit Department

A division within a financial institution or company responsible for assessing credit risk and approving credit to customers.

Aging Schedule

An aging schedule is a table that shows the breakdown of accounts receivable into categories by length of time outstanding, often used to assess the collectibility of receivables.

Inventory Turnover Ratio

A metric indicating how many times a company's inventory is sold and replaced over a given period.