Financial ratio limitations - current ratio and debt to equity
Hi, I have a problem which is as follows;
Contracts with lenders, such as bonds typically place restrictions on the financial statement ratios. Two commonly used ratios are the current ratio and the debt-to-equity ratio. Why is it that these appear as restrictions, that is, do they protect the lenders?
I am unable to understand how financial ratios can "protect" the lenders. As far as my understanding goes, these ratios are supposed to indicate, comment on the performance of a company, how these affect the lenders to a business enterprise cannot be deciphered.
Please help.
Thanks