enron scandal
The Enron scandal
A brief on Enron’s history
Enron was formed in 1985 by Kenneth Lay after merging
Houston Natural Gas and InterNorth.
In the early 1990s, he helped to initiate the selling of electricity at market prices, The resulting markets made it possible for traders such as Enron to sell energy at higher prices, thereby significantly increasing its revenue.
As Enron became the largest seller of natural gas in North America by 1992, Enron pursued a diversification strategy owning and operating a variety of assets including gas pipelines, electricity plants, pulp and paper plants, water plants, and broadband services across the globe.
(cont.) brief
Enron's stock increased from the start of the 1990s until year-end 1998 by 311% percent, only modestly higher than the average rate of growth in the Standard & Poor 500 index.
However, the stock increased by 56% in
1999 and a further 87%compared to a 20% increase and a 10% decrease for the index during the same years. By December 31,
2000, Enron’s stock was priced at $83.13 and its market capitalization exceeded $60 billion, 70 times earnings and six times book value, an indication of the stock market’s high expectations about its future prospects. In addition, Enron was rated the most innovative large company in America in Fortune's Most Admired Companies survey. Causes of downfall
• Enron's complex financial statements were confusing to shareholders and analysts by using accounting limitations to misrepresent earnings and modify the balance sheet to indicate favorable performance, According to McLean and Elkind in their book The Smartest Guys in the Room, "The Enron scandal grew out of a steady accumulation of habits and values and actions that began years before and finally spiraled out of control." the combination of these issues later resulted in the bankruptcy of the company.
• the majority of them were perpetuated by the indirect knowledge or direct actions of
A brief on Enron’s history
Enron was formed in 1985 by Kenneth Lay after merging
Houston Natural Gas and InterNorth.
In the early 1990s, he helped to initiate the selling of electricity at market prices, The resulting markets made it possible for traders such as Enron to sell energy at higher prices, thereby significantly increasing its revenue.
As Enron became the largest seller of natural gas in North America by 1992, Enron pursued a diversification strategy owning and operating a variety of assets including gas pipelines, electricity plants, pulp and paper plants, water plants, and broadband services across the globe.
(cont.) brief
Enron's stock increased from the start of the 1990s until year-end 1998 by 311% percent, only modestly higher than the average rate of growth in the Standard & Poor 500 index.
However, the stock increased by 56% in
1999 and a further 87%compared to a 20% increase and a 10% decrease for the index during the same years. By December 31,
2000, Enron’s stock was priced at $83.13 and its market capitalization exceeded $60 billion, 70 times earnings and six times book value, an indication of the stock market’s high expectations about its future prospects. In addition, Enron was rated the most innovative large company in America in Fortune's Most Admired Companies survey. Causes of downfall
• Enron's complex financial statements were confusing to shareholders and analysts by using accounting limitations to misrepresent earnings and modify the balance sheet to indicate favorable performance, According to McLean and Elkind in their book The Smartest Guys in the Room, "The Enron scandal grew out of a steady accumulation of habits and values and actions that began years before and finally spiraled out of control." the combination of these issues later resulted in the bankruptcy of the company.
• the majority of them were perpetuated by the indirect knowledge or direct actions of