Crazy Eddie Case Analysis

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Register to read the introduction… 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 generating very much profit from its assets. Finally, return on equity has also declined. This ratio indicates that the company is generating very little revenue from the money invested by shareholders. (Dictionary, …show more content…
It is often argued that this practice impairs an accountant/auditor’s independence. For this reason, the Sarbanes-Oxley Act of 2002 imposed a one year cooling-off period before publicly held companies may hire former auditors as employees of key positions. (Wright & Booker, 2005) The purpose of the cooling off period is to ensure the former auditor can maintain his or her independence. Public companies try to hire their former auditors in hopes of increasing investors’ confidence. By having a former auditor work for a public company, investors tend to assume that the financial statements will be free of misstatements and can be relied on. Companies also like to hire former auditors because they have already developed an accountant-client relationship. The auditor probably has a good idea about how the business operates, so it makes it easier for training purposes. On the flip side, hiring a former auditor can have negative implications too. It is easier for a former auditor to conceal fraudulent activities because he or she knows what the independent auditors will be looking for. The cooling-off period also can make it difficult for former auditors to find new jobs. Generally, people try to find a job in close proximity to them or in a business that is familiar to them. Not being allowed to work for a former client for a year limits the opportunities after leaving an

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