When a company issues long-term debt, creditors often require the company to agree to certain restrictions on

Question:

When a company issues long-term debt, creditors often require the company to agree to certain restrictions on future activities. For example, a restriction may limit a company’s debt to assets ratio and its payout ratio. What is the purpose of these restrictions? How do they benefit creditors?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...