Meaning and contractual terms
A covenant is a condition in a financing agreement that may set a financial test, limit actions or require specified behavior. Its precise content is determined by the agreement; the same ratio name does not guarantee the same formula. Official overviews of IAS 1 and IAS 32 provide a framework for classifying financial statements and financial liabilities, but do not replace the text of a credit agreement. Sources: **curr-stat-ias1**, About; **curr-stat-ias32**, About. Related reading: [financial statements roadmap](/guides/financial-statements-roadmap/) and [balance sheet](/guides/balance-sheet/).
For example, a debt-to-result limit may include special definitions of debt, permitted adjustments and a specified test date. One cannot substitute public EBITDA and declare an exact headroom without those conditions.
Breach, default and headroom
Do not confuse a ratio breach in your own scenario with an established legal default. Consequences, cure possibilities and creditor rights require review. Headroom to a threshold is not automatically an available amount of new credit.