Case study: does the business meet its loan covenants?
Who asked: Bellweather Fabrication owner.
Question: Is the current ratio covenant met after corrections?
Data: Current balances, note maturity, receivable write-off and omitted bill.
Done: A cumulative worksheet with the checked adjusted ratio and its comparison with 1.50.
Bellweather Fabrication must report a current ratio of at least 1.50 under its fictional loan agreement. The owner initially excludes the $2,000 current portion of a note from current liabilities. Correct that classification before testing the covenant. A $500 receivable write-off and a $1,000 unrecorded current bill must also be reflected in the closing figures.
Use the agreement's definition rather than selecting a more flattering denominator. This case defines current assets as cash, receivables, inventory and prepaids, and current liabilities as payables plus principal due within twelve months. Keep one growing worksheet so the initial ratio and adjustments remain visible. Round ratios only at the final reporting step. The last checked answer quantifies the adjusted ratio so you can compare it with 1.50.
Current ratio = current assets / (trade payables + current debt portion).
Test the covenant after required adjustments and debt classification.