Enron Case Study

Topics: Enron, Enron scandal, Balance sheet Pages: 22 (7712 words) Published: August 29, 2009
The Enron Collapse

By: Jeff Porter Kevin Clark Jared Sabelhaus

February 18, 2005

Introduction Companies have mission statements that often read like inspirational leaflets. Enron’s mission was at first to be the world’s greatest energy company then later revised in early 2001 to be the “world’s greatest company”. In the late 1990’s, Enron seemed to have accomplished their mission accumulating vast amounts of assets, had the intellectually elite at the helm, a political climate in their favor and numerous opportunities to expand. Enron gave all appearances of a vastly superior company that could do no wrong. The thing about king of the mountain is that the ones on top never seem to stay there for very long and in Enron’s case the fall from corporate mountain was spectacular and felt all over the world. Over the course of three short years Enron went from the seventh largest company in the U.S. to financial ruin. However deep and impressive their intelligent managerial pool was; internal flaws led to a slide of epic standards. In our report, we will analyze these internal flaws that include inadequate control measures, a hostile environment and flawed accounting and financing methods. Because of the financial severity which the company was in we concluded that Filing Chapter 11 bankruptcy was the only option for Enron and therefore will be assumed in our report. When we asked Rich Kidwell if there was anything Enron could have done to keep from filing Chapter 11 he said “I don’t know if there was anything that they could do. Enron was like a house of cards and it was only a matter of time before they were blown down.” We examined different ideas on how to transform these flaws and then suggest which idea we feel is best suited to the needs of this company.

Assumptions While writing this paper we assumed the following points: • • Enron has already filed for Chapter 11 bankruptcy. Enron is unique in regards to size and operations (accounting methods and actions) compared to other regulated commodity companies. • Due to Enron’s aggressive accounting we understand the financial ratios that are computed using Enron’s financial statements are more than likely not going to give an accurate or clear picture of the company’s current status.

Brief History • 1985- Enron is formed by merger of Houston Natural Gas and InterNorth creating the largest company owned natural gas pipeline. • 1989- Enron opens its Gas Bank, where consumers can buy long-term supplies of natural gas at a fixed price, setting the stage to become a commodity trading company. • 1990-1998- Enron expands its holdings in the U.K., Europe, South America, and India. Enron in this time moved away from natural gas and pipeline operations instead focusing more on marketing other energyrelated commodities. • • 1999- Enron launches its broadband services and Enron Online. August 2000- Enron’s share price reaches an all time high of $90, ranking it the seventh largest energy company in the world.

October 2001- Enron post its first quarterly loss in four years, $618 million and a reduction in shareholder equity by over $1 billion dollars.

December 2, 2001- Enron files for bankruptcy protection.

S.W.O.T. Analysis Strengths Enron is the largest company-owned natural gas pipeline system in the United States and is ranked seventh on the Fortune 500 giving it an established name with credibility. Another strength of the company would be its reputation and public perception. Enron has a competitive and almost monopolistic advantage over its competitors because they are the largest energy provider. They also have market-making abilities that result in price and service advantages (26). Weaknesses It is easy to target Enron’s weaknesses in the company. They have a lack of ethical and moral behavior among employees and auditors by engaging in deceitful and wrongful acts. Management has a lack of control and conflicts of interest occur in numerous...

Cited: 1. “A chronology of Enron Corp.”. CNNMoney.com. January 21, 2002. 2. Byrne, John A., France, Mike, Zellner, Wendy. “At Enron, ‘The environment was Ripe for Abuse’”. Business Week Online. 2/15/2002. 3. Byrne, John A., Lavelle, Louis, Byrnes, Nanette, Vickers, Marcia, Borrus, Amy. “How to Fix Corporate Governance”. Business Week. 5/6/2002, Issue 3781. 4. “Enron chief scorned asset division”. Ft.com. http://specials.ft.com/enron/FT3AB0FQKXC.html 5. Flora- Telephone interview on February 16, 2005 at 3:00pm with Ken Flora-Team Leader of Accounting Operations. IPL, PO BOX 1595, Indianapolis, IN 46221 6. Hill, Andrew, Fidler, Stephen. “Enron ties itself up in knots, then falls over”. Ft.com. http://specials.ft.com/enron/FT3A5RP52XC.html 7. Lawrence, Anne T., Weber, James, Post, James E., Business and Society. 11th ed. New York, NY, McGraw-Hill Irwin 2005. 8. Kidwell- Telephone interview on February 15, 2005 at 4:30 pm with Rich Kidwell Financial Advisor. Merrill Lynch , 111 Monument Circle, Indianapolis, IN 46221. 9. McGee-Telephone interview on February 16,2005 at 5:30 pm with Joe McGee CLU, ChFC. AUL Tower Agency, 12800 North Meridian St., Suite 490, Carmel, IN 46032 10. Pellegrini, Frank. “Andersen: The Whistle Not Blown”. Time.com. www.time.com/time/nation/printout/0,8816,194573,00.html 11. Preston, Robert, Koller, Mike. “Enron Feels the Power”. InternetWeek. 10/30/2000, Issue 835. 12. Robbins, Stephen P., Coulter, Mary, Management. 7th ed. Upper Saddle River, New Jersey, Prentice Hall 2002. 13. Wong, Paul T.P., “Lessons from the Enron Debacle: Corporate Culture Matters”. Psychjourney.com. 2004 http://psychjourney.com/Corporate%20Culture%20Matters.htm 14. Ross, Stephen, Westerfield, Randolph, Jordan, Bradford. Fundamentals of Corporate Finance. 6th ed. New York, NY. McGraw-Hill Irwin 2003.
15.http://www.rsmenergy.com/newsletters/newsletter.pdf#search= 'mark%20to%20marke t%20accounting%20enron ' 16. http://specials.ft.com/enron/FT3648VA9XC.html 17. http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2002/03/29/BU190229.DTL&nl=biz 18. http://www.fenews.com/fen26/enron2.html 19. http://energycommerce.house.gov/107/hearings/02052002Hearing481/report.pdf 20. International Institute for Management Development. The Collapse of Enron. March 5, 2003. 21.http://accounting.cba.uic.edu/Enron/Original%20Documents/Powers%203%20LJM% 20and%204%20Rhythms.pdf#search= 'ljm%20partnerships ' 22. http://www.nysscpa.org/cpajournal/2003/0403/features/f042403.htm 23. http://www.investopedia.com/terms/d/debtequityratio.asp
24. http://www.senate.gov/~gov_affairs/072302roach_a.pdf#search= 'enron 's%20total%20debt '
25. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=417840 26. http://www.enron.com
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