1.8 Crazy Eddie, Inc.

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1) The following table provides key financial ratios for Crazy Eddie during the period 1984-1987:

| |1987 |1986 |1985 |1984 | |Current Ratio |2.41 |1.4 |1.56 |0.93 | |Quick Ratio |1.4 |0.6 |0.77 |0.15 | |Debt Ratio |0.68 |0.66 |0.64 |0.83 | |Debt-to-Equity |2.16 |1.98 |1.75 |4.88 | |Inventory Turnover |3.23 |4.38 |5.14 |5.88 | |Asset Turnover |1.2 |2.07 |2.08 |3.75 | |Return on Assets |0.04 |0.1 |0.09 |0.1 | |Return on Equity |0.11 |0.31 |0.25 |0.61 | |Gross Profit Margin |0.23 |0.26 |0.24 |0.22 | | | | | | | | | | | | |

By examining the ratios, I have determined that there were some items in Crazy Eddie’s financial statements that posed a higher-than-normal level of audit risk. Inventory turnover has steadily decreased over the reported four years. The inventory turnover ratio explains how many times a company’s inventory is sold and replaced over a period of time. A lower inventory turnover ratio indicates that Crazy Eddie is selling fewer inventories. Asset turnover also took a pretty big plunge. The asset turnover ratio is the amount of sales generated for every dollar in assets. A low asset turnover ratio indicates that the firm is struggling to use its assets to generate revenue. In relation to this is the return on assets ratio. This indicates how well a company is using its assets to generate earnings. Crazy Eddie is not...
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