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Unformatted text preview: more recent years, however, when there was lots of cash available, lenders began reducing or completely eliminating covenants from loan agreements in order to be more competitive with other lenders. In a weaker economy these lenders will be more likely to lose big money when companies default. How can financial ratios such as those covered in this chapter provide protection for creditors? Answer: Financial ratios such as the current ratio, debt to total assets ratio, and the times interest earned ratio provide indications of a company's liquidity and solvency. By specifying minimum levels of liquidity and solvency, as measured by these ratios, a creditor creates triggers that enable it to step in before a company's financial situation becomes too dire....
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This note was uploaded on 11/08/2011 for the course ACCOUNTING ac 201 taught by Professor - during the Spring '11 term at Montgomery.
- Spring '11