Managing Cash Flow By John Olson

When the President of Enron, Kenneth Lay, hires new CEO Jeffrey Skilling, a very energetic and a “dreamer” who joins Enron on the condition that they utilize mark-to-market accounting, allowing the company to book potential profits on certain projects immediately after the deals are signed. To keep its stock price going up par example Enron began a venture that might make $50 million 10 years from now, it could claim the $50 million as current income. However, this projects turn out to be successful. This gives Enron the ability to subjectively give the appearance of being a profitable company even if it isn't.

Enron was an energy trading and communications company located in Houston, Texas. During 1996-2001 Enron was given the name of America’s Most Innovative Company by Fortune magazine as it was the seventh-largest corporation in the US. The problem that led this company to bankruptcy was due to the fact that fraudulent accounting practices took place allowing Enron to overstate their earnings and tuck away their high debt liabilities in order to have a more appealing balance sheet (Forbes.com, 2002). Enron’s accounting team “cooked” the books to every meaning of the word so that their investors would not see anything wrong with the failing organization. This poorly structured company led people to jail time, unemployment, and caused retirement stocks to be dried up. Enron had a social responsibility to its stockholders and rather than being up front and honest about the failing company they hid every financial flaw in order to keep receiving money from its investors. By Enron not keeping a social

DQ 1:   What are the differences between the direct and indirect presentation of cash flows?  What are the advantages and disadvantages of the direct and indirect methods and which does the Financial Accounting Standards Board (FASB) favor and why?

This now bankrupt company, misappropriated investments, pension funds, stock options and saving plans after deregulation and little oversight by the federal government. However, with deregulation an increasing competitive culture emerged as the CEO Jeffry Skilling motto to his organization was to “do it right, do it now, and do it better” this was the rally cried that pushed ambitious employees to engage in unethical behavior as Enron use deceptive “accounting methods to maintain its investment grade status” (Sims, & Brinkmann, 2003, pp.244-245). As Enron continued to flourish and received accolades from the business community this recognition drove executives to continue the façade of bending ethical guidelines before their public fall from

Jumping right into the summary then. Enron was one of the most successful corporations in America during its prime. Marketing electricity and other commodities, as well as, providing financial and risk management services to other companies were the main types of business that Enron conducted. However, Enron’s successful appearance was found out to be a façade, when it came out that the corporation was making a plethora of unethical business moves. Once the corporation’s actions became public, Enron’s fall from grace quickly followed. (Johnson, 2003)

The lecture addresses a federal trial of Ken Lay and Jeff Skilling the two men who use to run the American energy, commodities and services company, Enron. Major corporate fraud targeted small investors that inevitably lead to their savings being wiped out.

“Enron: The Smartest Guys in the Room” shows us how basic human nature does not change, whether it is firing as a means to resolve disputes, or in the

Enron was named the most admired company for six years in a row, and it was widely considered one of the best companies to work for by Fortune magazine. Enron shocked the world, and it's stockholders when it was revealed at the end of 2001 that the company’s “reported financial condition was sustained substantially by institutionalized, systematic, and creatively planned accounting fraud”. (Enron, 2011, para. 1) Enron maximized it’s long-run profits for itself, but not within the limits of the law. Enron disregarded it’s social responsibility to it’s stackholders when the company only strive for it’s maximized profits, and didn’t strive

Saying things you know are not true: Goldman’s analysts said many things that were not true to investors including saying that a security was a good investment when indeed it was not.

Even the small profits reported by Enron in 2000 were eventually determined to be only a illusion by court-appointed bankruptcy examiner Neal Batson. Batson’s report reveals that over 95% of the reported profits in these two years were attributed to Enron’s misuse of MTM and other accounting techniques. But while financial analysts could not be expected to know that the company illegally manipulated the earnings, the reported profit margins in 2000 were so low and were declining so steadily that they should have merited ample skepticism from analysts about the company’s profits.

Question 1 Summarize 1 one page how you would explain Enron’s ethical meltdown: Enron was an energy company founded by Kenneth Lay in 1985 through a merger of vast networks of natural gas lines. Enron specialized in wholesale, natural gas, and electricity, and made its money as a wholesaler between suppliers and customers rather than actually owning any. Enron in fact didn’t own any assets, which made their accounting procedures very unusual. The lack of accounting transparency at Enron allowed the company’s managers to make Enron’s financial performance better than it actually was. The organizational culture at Enron was to blame for it’s ethical meltdown. Enron’s accounting scheme slowly began to erode its ethical practices, which soon led the culture of Enron to become a more aggressive and misleading business practice. Enron reported profits from joint partnerships that were not yet attained in order to keep stock prices up (or make wall street happy). As this was happening employees began to notice the ethics in senior management (leadership) deteriorating, and soon after they to would follow in their footsteps. Senior management thought they were saving their company from financial ruin and though lying was ok if it meant saving the company. Investors would surely sell their stocks if they really knew the situation the

One Merrill Lynch analyst began to question the numbers and profits that were being produced by Enron and eventually he was fired. Enron invested a lot of money with Merrill Lynch and they didn’t want Enron to stop investing so Merrill Lynch got rid of the employee who question Enron, when in reality they should have listened to him. Merrill Lynch’s decision not to listen to him showed other employees that they better keep quiet with their opinions or their jobs would be on the line. If they listened to him they might have lost the deal with Enron, but in the end they lost it anyway and lost millions along with it. Merrill Lynch’s main focus should have been their employees and their investors, not solely Enron. They should have stuck to their code of conduct and followed their values.

Enron Corporation was an energy company founded in Omaha, Nebraska. The corporation chose Houston, Texas to home its headquarters and staffed about 20,000 people. It was one of the largest natural gas and electricity providers in the United States, and even the world. In the 1990’s, Enron was widely considered a highly innovative, financially booming company, with shares trading at about $90 at their highest points. Little did the public know, the success of the company was a gigantic lie, and possibly the largest example of white-collar crime in the history of business.

The story of Enron begins in 1985, with the merger of two pipeline companies, orchestrated by a man named Kenneth L. Lay (1). In its 15 years of existence, Enron expanded its operations to provide products and services in the areas of electricity, natural gas as well as communications (9). Through its diversification, Enron would become known as a corporate America darling (9) and Fortune Magazine’s most innovative company for 5 years in a row (10). They reported extraordinary profits in a short amount of time. For example, in 1998 Enron shares were valued at a little over $20, while in mid-2000, those same shares were valued at just over $90 (10), the all-time high during the company’s existence (9).

The project proposal will be critical analysed before it will established in South Korea. In the first assignment will looked in depth in political, country risk, FDI theories and motive for the project. In the second assignment, the cost of capital for the project was calculated, stating the risk for both the parent and subsidiaries.