What it is
The workbook tests the usual financial covenants on a trailing-four-quarter basis: total debt to EBITDA, fixed charge coverage, debt service coverage, interest coverage, current ratio, tangible net worth, total liabilities to tangible net worth, liquidity, unfinanced capital expenditures and minimum EBITDA. Mark each covenant the agreement contains, enter the required level and the workbook shows the actual, the headroom, how far EBITDA could fall before the test is breached, and a status of Pass or BREACH.
When a test fails, the Classification tab walks the question of whether the debt is callable and how it is classified. Debt callable because of a violation at the balance sheet date is current unless the creditor has waived or lost the right to demand repayment for more than one year from the balance sheet date, or a grace period applies and cure is probable (ASC 470-10-45-11). The tab records the facts, states the result, sizes the reclassification and lists the going-concern, cross-default, subsequent-event and disclosure points.
When to use it
- Quarterly or annual covenant certificates for a term loan or line of credit.
- Audit or review of debt classification and disclosure when a covenant is close or breached.
- Forecasting covenant headroom before an acquisition, distribution or capital project.
What’s inside
- Inputs: four quarters of flow items summed to trailing four quarters, latest-quarter balances, EBITDA and tangible net worth computed
- Ten covenant tests with active flag, required level, actual, headroom, percent cushion and EBITDA cushion
- Status logic for maximum and minimum tests, including zero and negative EBITDA
- Classification walk-through with waiver, grace period and recurrence questions
- Reclassification amount and a list of related considerations
Standard cited
This template follows ASC 470-10-45-11; ASC 205-40. It is written in our own words, except for phrases the standard requires the document to contain, with [bracketed placeholders] for client details, amounts in USD and dates as MM/DD/YYYY. Check it against the current standard and your firm’s methodology before use.
Questions
Does the workbook use the loan agreement’s definitions?
It uses common forms and gives you the add-back and other-adjustment rows to reproduce the agreement. Credit agreements define EBITDA, fixed charges, funded debt and net worth in their own terms, so keep the definitions page with the workpaper and adjust the inputs to match.
When can debt stay noncurrent after a violation?
If the creditor has waived or subsequently lost the right to demand repayment for more than one year from the reporting date, or if the agreement has a grace period and it is probable the violation will be cured within it. In the grace-period case, it must also not be probable that the entity will violate that or another covenant again within one year (ASC 470-10-45-11).
What does the EBITDA cushion mean?
The percentage EBITDA could fall, holding everything else constant, before that test is breached. It is a screening number for forecasting, not a forecast.
Does a breach affect going concern?
It can. A breach and the lender’s response feed the evaluation of whether substantial doubt exists under ASC 205-40, and cross-default clauses in other agreements can spread the effect. The Classification tab lists these points as prompts.
Related templates
- Debt and Interest Rollforward Schedule
- Disclosure Checklist: Debt (ASC 470)
- Audit Program: Debt and Equity
- Going Concern Evaluation Memo (AU-C 570 / ASC 205-40)
Last updated 11/05/2026. All free templates.