Enron case analysis
Enron debacle: Case Report
Table of Contents
I. Understanding the Entity: Business Risk Assessment
1. Nature of the entity
1.1. Brief introduction:
Enron Corporation, a Houston based giant company, conducted energy trading business and gas pipeline transportation and distribution business in the energy and industrial sectors. 1During the 1990s, Enron transferred from a natural gas supplier and to an intermediary midstream company facilitating distributions between the suppliers and downstream customers. The company also focused on finance derivatives.2
1.2. Entity business operations break down: Line of business
Table-1 Enron Line of Business Sector
Table-2 Enron Line of Business Sector EBIT (1999)
Table-3 Geographic dispersion of Enron Business Sector3
As we could see from table-1and table-24, Enron fractionized its business sector into four main subdivisions: energy wholesale services, traditional natural energy extrapolation, supply, marketing, and refinement business, transportation and distribution business, and broadband services business. The online trading platform is the subsidy from Energy wholesale services group. Furthermore, half of the revenue of Enron came from wholesale sector, which was highly volatile under the influence of financial market, geopolitical issues, macroeconomic.
Table-4 Enron Management team
Noted from above information, Skilling became Enron’s CEO and quickly resigned six months later, which might be a red flag for the external agencies.
1.3. Financing: Related parties to the entity
1.3.1. SPE: Special Purpose Entities, which are the source of funding as well as non-financing activities of Enron, are organized as partnerships. Enron utilize the SPE under the 3% rule5 to give rooms to transfer loss to SPE and spin off part of the corporate debt to those SPEs, which had to use Enron’s stocks as collaterals to the creditors of the company, thus possessing huge
Table of Contents
I. Understanding the Entity: Business Risk Assessment
1. Nature of the entity
1.1. Brief introduction:
Enron Corporation, a Houston based giant company, conducted energy trading business and gas pipeline transportation and distribution business in the energy and industrial sectors. 1During the 1990s, Enron transferred from a natural gas supplier and to an intermediary midstream company facilitating distributions between the suppliers and downstream customers. The company also focused on finance derivatives.2
1.2. Entity business operations break down: Line of business
Table-1 Enron Line of Business Sector
Table-2 Enron Line of Business Sector EBIT (1999)
Table-3 Geographic dispersion of Enron Business Sector3
As we could see from table-1and table-24, Enron fractionized its business sector into four main subdivisions: energy wholesale services, traditional natural energy extrapolation, supply, marketing, and refinement business, transportation and distribution business, and broadband services business. The online trading platform is the subsidy from Energy wholesale services group. Furthermore, half of the revenue of Enron came from wholesale sector, which was highly volatile under the influence of financial market, geopolitical issues, macroeconomic.
Table-4 Enron Management team
Noted from above information, Skilling became Enron’s CEO and quickly resigned six months later, which might be a red flag for the external agencies.
1.3. Financing: Related parties to the entity
1.3.1. SPE: Special Purpose Entities, which are the source of funding as well as non-financing activities of Enron, are organized as partnerships. Enron utilize the SPE under the 3% rule5 to give rooms to transfer loss to SPE and spin off part of the corporate debt to those SPEs, which had to use Enron’s stocks as collaterals to the creditors of the company, thus possessing huge
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