Illustration of "saw-tooth" pattern when using

activity ratios to forecast balance sheet items

Panel A
Avg Total Ending Total
Year Sales TATR Assets Assets
0 100 40
1 100 2.0 50 60 TATR = Sales / Avg Total Assets
2 100 2.0 50 40 Ending Total Assets = 2*Avg Total Assets - Previous To
3 100 2.0 50 60
4 100 2.0 50 40
5 100 2.0 50 60

Panel B
Avg Total Ending Total
Year Sales TATR Assets Assets
0 100 40
1 120 2.0 60 80
2 144 2.0 72 64
3 173 2.0 86 109
4 207 2.0 104 99
5 249 2.0 124 150