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reduce the "sawtooth" pattern caused by using turnover ratio

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One problem caused by using turnover ratios to calculate asset balances is that it can lead to volatility in projected ending balances. What might an analyst do to reduce the "sawtooth" pattern caused by using turnover ratios?

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Explanation is in everyday language suitable for novices. Examples are given to illustrate.

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Turnover ratios, such as AR turnover and inventory turnover, rely on year end balances to compute their "number of turns." The ending balance represents the amount of receivables or inventory on one day of the year. If that day happens to be unusually ...

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Carol Sargent, PhD
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  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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