# Crazy Eddie Inc: Case Study

Crazy Edie highlights some of the common accounting fraud cases that are concealed by companies to deceive investors and the public by creating a good impression about a company’s performance. It is the responsibility of the auditors to uncover such cases of fraudulent financial reporting and misappropriation of assets. However, collusion between the
employees and the auditors hinder such financial irregularities committed by corporations go undetected. Several key financial ratios can uncover such financial risks when investing in such companies (Gadoiu, 2014).

Liquidity rations.
It includes current ratio and the quick ratios. These ratios indicate problems or significant risks with a company or corporation. (All values are in 000’s).

1. Current ratios= current assets/current liabilities
For March 31 1984
=27836/29972
=0.928
For March 1 1987
=261861/108827
=2.406
2. Quick ratios= current assets-inventory/current liabilities
For period ending March 31 1984
=261861-109072/108827
=1.403

For March 1 1987

=27836-23343/29972
=0.149
Comparing the two ratios between 1984 and 1987 count hint a concern on manipulation
of involved accounts on Crazy Eddie Inc (Brentani, 2004).
Activity ratios
They include the receivable turnover, which indicates the effectiveness of a corporation
in debts collection and extension. It also indicates how effective does a company utilize its
assets. Inventory turnover indicates times in which an inventory is sold or used in yearly basis
and asset turnover. These ratios are important in determining if an inventory is overstated like the
case of crazy Eddie Inc.

3. Inventory turnover=cost of goods sold/inventory
(On march 1, 1987)
==272225/109072
=2.495
(On march 1, 1984)
=106934/23343
=4.58

4.Assets turnover=sales/fixed assets
(On march 1, 1987)
352523/294858
=1.196
(On march 1, 1984)
137285/36569

=0.3769
Profitability ratios
They include the net profit margin. Gross margin, return on investment. These ratios are
useful in determining if the profits reported by the company are reasonable.

5. Gross profit margin- gross income/sales
(On march 1, 1987)
=21097/352523
=0.0599
(On march 1, 1984)
7975/137285
=0.0581

6. Net profit margin=net income/sales
(On march 1, 1987)
=10596/352523
=0.03
(On march 1, 1984)
=3773/137285
0.0275