Early Warning Index

Covenant Horizon Calculator

Know when you lose leverage to your lender — not when you run out of cash.

When you borrow money, your lender sets rules called covenants — conditions you must meet at all times. The most common is a leverage ratio: your total debt divided by your annual earnings (EBITDA). If that ratio exceeds the agreed threshold, you are in breach, and your lender gains significant control over your business.

This tool calculates when that breach will happen based on your current trajectory. More importantly, it compares that date to when your next funding round is expected to close. If the breach comes first, your lender holds the cards before your new capital arrives — and that changes every negotiation.

The optional Cash Conversion Cycle section goes deeper. Your income statement may look healthy, but if cash is trapped in inventory, receivables, or slow payment cycles, your actual financial position is weaker than it appears. This tool quantifies that hidden drag and shows how it accelerates your breach timeline.

Your Numbers
?How many times your annual earnings your debt represents. Calculated as Total Debt / Annual EBITDA. A ratio of 2.8x means you owe 2.8 times what you earn per year. Used to validate consistency with your other inputs.
Debt / EBITDA (e.g. 2.8)
?The maximum leverage ratio your lender allows. Written into your loan agreement. Exceeding it means breach — your lender can charge penalties or call in the loan.
Max ratio before breach (e.g. 3.0)
?Earnings Before Interest, Taxes, Depreciation, and Amortization — your operating profit before non-cash charges. The standard measure lenders use to assess your debt capacity.
Current monthly figure
?How much your monthly EBITDA changes each month. Negative means decline (e.g. -25,000). Positive means growth. Leave at 0 for flat projections.
Change per month (negative = decline)
?Total outstanding interest-bearing debt: term loans, revolving credit, and borrowed capital. Do not include trade payables or equity.
Outstanding debt balance
?When your cash balance hits zero. If this arrives before a covenant breach, liquidity is your immediate crisis — not the covenant.
When cash runs out
?When you expect new capital to arrive. If the breach comes before this date, your lender gains leverage before your lifeline arrives.
When new funding lands
Fine-tune the model to match your actual covenant agreement: testing frequency, net debt definitions, and EBITDA adjustments.
?How often your lender tests the covenant. Quarterly is most common. A breach can only be triggered on a test date — not between tests.
Monthly or Quarterly
?The date of your next scheduled covenant test. Future test dates are calculated forward from this anchor. If left empty, the model tests every month from today.
Anchor for test schedule
Many covenants use net debt instead of gross debt
?Net Debt = Total Debt minus Cash on Hand. If your covenant uses a net leverage ratio, enable this and enter your current cash balance. This reduces the effective debt used in the leverage calculation.
?Some covenants allow adjustments (add-backs) to EBITDA — such as one-off restructuring costs, non-cash charges, or owner compensation. Enter the percentage uplift your covenant permits. E.g. 10 means your adjusted EBITDA = reported EBITDA x 1.10.
e.g. 10 for 10% add-back
The Cash Conversion Cycle measures how long cash is tied up in operations. Adding these figures shows the hidden drag on your effective headroom.
?Average days to sell inventory. Calculated as (Avg Inventory / COGS) x 365. Uses COGS, not revenue.
Days to sell inventory (e.g. 45)
?Average days for customers to pay you. Calculated as (Avg AR / Revenue) x 365. Based on revenue.
Days to collect payment (e.g. 38)
?Average days you take to pay suppliers. Calculated as (Avg AP / COGS) x 365. Uses COGS. Higher works in your favor.
Days to pay suppliers (e.g. 30)
?Annual revenue or run-rate. Used with gross margin to calculate the cash trapped in your operating cycle.
For working capital estimation
?Your gross margin as a percentage. Used to derive COGS from revenue for accurate DIO and DPO calculations. COGS = Revenue x (1 - Gross Margin). E.g. 65% margin means 35% of revenue is COGS.
e.g. 65 for 65% margin
Covenant Breach Analysis
Projected Breach Date—
Headroom Remaining—
Current Leverage (Implied)—
Funding Close Date—
Cash Zero Date—

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Early Warning Index ApS is committed to protecting your personal data in accordance with the EU General Data Protection Regulation (GDPR).

What We Collect

  • Your email address, name, and company name (provided by you)
  • Your covenant scenario data (breach date, headroom, leverage, etc.) — auto-captured from your calculation
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