Financial Statement Analysis : Enron Corp

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Enron Corp. (Enron), headquartered in Houston, Texas, is the subject of an equity report published on January 26, 2001 by two Bear Stearns’ equity analysts, Robert K. Winters, and Robert D. Franson. Enron is comprised of four major business segments: wholesale energy operations and services; retail energy services; broadband services; and transportation and distribution services. This paper examines the approach of the analysts, the components used to value the company, and finally, the conclusion of value. The main topics covered in this paper are as follows: • Financial statement analysis • Company analysis • Industry analysis • Valuation method Financial Statement Analysis According to Hitchner, “the most reliable information for estimating future performance and risk assessment” is a company’s historical financial statements, and five years of history is generally sufficient for a good analysis (2011, p. 85). Exhibits to the analysts’ report contain only two years of historical financial data, and three years of projections. Thus, only two full years of actual performance, without corresponding notes of financial statements. Also, comparative data of the industry or peers is limited. Benchmarking financial performance against industry peers provides better insight into the management and performance of a company. Further, normalizing financial data means presenting without anomalies, or non-recurring items, or items (Hitchner, 2011, p. 96). Enron and several of its

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