Lucky the Banker mascotLTB
← Series 79: Collection, Analysis & Evaluation of Data
Series 79 practice questionhardCoverage Ratios & Covenants

A credit agreement requires a minimum EBITDA/interest coverage ratio of 3.5x. In the most recent fiscal year, the company reported EBITDA of $21 million and interest expense of $6 million. Which statement is accurate?

  1. AThe company is not in compliance with the covenant
  2. BThe company is in compliance with the covenant✓ Correct answer
  3. CThe company is compliant only if interest expense is reduced
  4. DCovenant compliance cannot be determined without more information
Explanation

Why B — The company is in compliance with the covenant

EBITDA/interest = $21M/$6M = 3.5x, which exactly meets the covenant. B is incorrect since there is no violation. C and D ignore the direct calculation.

Turn it into reps

Reading one answer is not the same as being ready

Lucky the Banker is a free practice app with 995+ Series 79 questions, weak-area tracking, and timed mock exams. No credit card, no paywall.

Spot an error in this question or explanation? Tell us — we fix these fast.

Related Collection, Analysis & Evaluation of Data questions