The Debt to Assets ratio is a key ratio that is looked at by lenders and potential partners alike and hence it is very important to a small business owner like Jack Gordon. Just like the Debt to Equity ratio, it measures how much leverage a small business has employed to deploy the assets it currently has. Unlike the Debt to Equity ratio which measures the amount of debt to the shareholders equity, the Debt to Assets ratio looks at the leverage that is employed on the Assets of the small business.
As we can see from our analysis, the debt to asset ratio for A Taste of Tuscany is projected to be 0.34, 0.26 and 0.19 for 2009, 2010 and 2011respectively. The total debt is expected to be $165k, 142k and 118k for the years ahead and the total assets are projected to be $488k, 541kand $612k respectively.
We anticipate that with the largest debt load when we get going, the debt to asset ratio will be the highest upfront and then will start improvingas we begin paying the debt down and also as the amount of our cash reserves which are part of the total assets, start getting healthier duringour second and third years of operations.
In the event we have to take on more debt, or if we are not able to generate the kind of cash we are projecting, this key ratio will be negativelyimpacted.
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