Prepare common-sized financial statements for Leslie Fay for the period 1987-1991. For that same period, compute for Leslie Fay the ratios shown in Exhibit 2. Given these data, which financial statement items do you believe should ahve been of particular interst to BDO Seidman during that firm's 1991 audit of Leslie Fay? Explain.

Exhibit 2:

Liquidity:

Current ratio 1.8

quick ratio: .9

Solvency:

Debt to assets: .53

times interest earned: 4.2

long-term debt to equity: .14

Activity:

inventory turnover: 6.7

age of inventory: 53.7 days

accounts receivable turnover : 8.0

age of accounts receivable: 45.5 days

total assets turnover: 3.1

Profitability:

gross margin: 31.5%

profit margin on sales: 2.2%

return on total assets: 6.0%

return on equity: 14.0%