The particular causes of Enron's failure

Enron’s reported net income grew from $703 million in 1998 to $979 million in 2000, totaling 35.1% profit growth for the three-year period. Enron was among the leading of “high performing” companies by sustaining a high earnings growth insight. However, as Table 1 indicates, Enron’s reported profits were microscopic relation to revenues. Net income did not grow at anything near the same rate as revenues, which grew a remarkable rate of more than 3 times of the income from 1998 to 2000. As a result, there was a steady decline in net profit margin, from 2.2% in 1998 to a paltry 1% in 2001. Similarly, Enron’s gross profit margin

In 1985 after federal deregulation of natural gas pipelines Enron was formed through a merger of Houston Natural Gas, and Nebraska pipeline company Internorth. Enron went on to create energy derivatives and in 1990 formed Enron Finance Corp. By 1996 Enron had also formed Enron Capital and Trade Resources increasing their growth from $2 billion to $7 billion and increasing division employment from 200 to 2,000. In 1999 Enron entered the technology market by creating Enron Online (EOL). By August of 2000 Enron stock hit its zenith at $90.56/share and the firm was widely admired and emulated. Behind the scenes Enron faced increasing market competition and energy prices began to decline as the world economy entered into a recession. Enron began to use related party transactions and special purpose entities (SPEs) to obscure the firm’s leverage ratios in order to maintain their credit rating. It would be the use of the SPEs that eventually cause Enron to materially restate their financials resulting in their insolvency and demise in 2001 (Thomas, 2002).

Enron failed all governance system practices. They reported improper equity shares; they did not abide by the GAAP. Enron was a victim of profit and revenue at no cost. The Enron executives accounting staff, accounting firm and law firm made erroneous decisions just to keep their revenue incoming. They reported false financial reporting continuously, stockholders had great losses, employee retirement fund was depleted and they did not honor their code of ethics.

Enron Corporation began as a small natural gas distributor and, over the course of 15 years, grew to become the seventh largest company in the United States. Soon after the federal deregulation of natural gas pipelines in 1985, Enron was born by the merging of Houston Natural Gas and InterNorth, a Nebraska pipeline company. Initially, Enron was merely involved in the distribution of gas, but it later became a market maker in facilitating the buying and selling of futures of natural gas, electricity, broadband, and other products. However, Enron’s continuous growth eventually came to an end as a complicated financial statement, fraud, and multiple scandals sent Enron through a downward spiral to bankruptcy.

Besides hiding results, they also created affiliated companies (SPEs - special purpose entities) to transfer liabilities and expenses camouflage. On balance, not consolidated Enron statements together with the related companies SPE`s. They used improperly accounting technique mark-to-market. The main reasons for the financial and accounting transactions Enron seemed to increase revenue and cash flow reported at a high level, the amount of inflated assets and liabilities off the company's accounts. The combination of all these factors eventually lead to giant bankrupt.

Enron was an energy company based in Houston, Texas that dealt with the energy trade on an international and domestic basis. Enron formed in 1985 when Houston Natural Gas merged with InterNorth. After several years of international and domestic expansion involving complicated deals and contracts, Enron became billions of dollars in debt. All of this debt was concealed from shareholders through partnerships with other companies, fraudulent accounting, and illegal loans. By 1989 Enron diversified into trading energy-related commodities. In a few years, Enron had become the largest merchant of energy in the United States. By 1994 Enron had

The segment of Enron’s operations that got them into difficulties had several parts. They published misleading financial reports. They could not meet their bridge financing commitment with Barclay Bank because outside investors were not found. Because of this, they restated activities of JEDI and Chewco SPEs so they could be retroactively consolidated into Enron’s accounts. The SPEs helped to hide the inaccurate accounting records. Enron’s legal department wrote contracts that helped provide a cover for misuse of funds regarding the SPEs. Future revenue was reported as current revenue. Stocks were paid with promissory

Enron’s failure is not only because its executives’ unethical decision making, but also the problem of its organizational structure. Enron is a vertical structure dominated organization, they have specialized tasks for every employee and department, and their decision making is highly centralized. That leaves the potential opportunity for their executives to make wrongful decision without being found out.

The general guideline at the time of FASB was that only 3% of SPE 's could be owned by an outside investor. Enron used many SPE 's to increase capital and to park troubled assets, so they do not appear in the financial statement. This in turn increased the cash flow and profit on the financial statements, making it look like a low risk investment for investors.

Enron sold Wall Street and as a result the stock tripled in value from 1998 to 2000. This was not the only reason it tripled but a definite factor. Within this time Lay and Skilling cashed out around $475 million worth of stock.

From the 1980s until now, there have been a lot of accounting scandals which were widely announced on by media. The result of this situation is many companies were bankruptcy protection requests, and closing. One of the most widely reported emulation of accounting scandals is Enron Company. Enron Corporation is one of the largest energy companies in the world. Enron was founded in Houston, Texas, America in July 1985 by the consolidation between Houston Natural Gas and InterNorth of Omaha, Nebraska (“Enron and Enderson: The story”, n.d.). According to

Enron, was the world’s largest energy company in 2001. Enron forerunner, Northern Gas Company was incorporated in Delaware on April 25, 1930. From this date through July 1985, Enron had hundreds of purchases and new sub-entity constructions when they acquired Houston Natural Gas Inc. (Kastantin, 2005). On April 10, 1986, the company changed its name to Enron Corporation. Enron was an interstate and intrastate natural gas pipeline company, then later in 1989 Enron started trading natural gas commodities (Sridharan, 2002). Enron became the largest natural gas mogul in the United Kingdom and the United States. Enron an energy company later became a risk management firm that was looking to trade from commodities to derivations and to have a large firm with few assets on its financial statements. The term allowed Enron to avoid risky trading operations and not to show their debt on the financial statements this term is Special Purpose Entities (SPE). The root cause of Enron is ‘asset-light’ strategy, SPEs, and off-balance-sheet financial that was Enron’s eventual failure (Sridharan, 2002). Andersen, which was Enron’s external/internal auditor, a consultant in non-audit and tax matter, that was approved to use

Enron executives and accountants cooked the books and lied about the financial state of the company. They manipulated the earnings and booked revenue that never came in. This was encouraged by Ken Lay as long as the company was making money. Once word got out that they were disclosing this information, their stock plummeted from $90 to $0.26 causing the corporation to file for bankruptcy.

Enron Corporation used the symbol of ENE referring to an American energy, commodities, and services. The head office been established in Houston. Enron revenues of nearly $111 billion during 2000.Fortune named Enron "America's Innovative org" for six consecutive years up to Dec 2.2011 and they hired not less than 20,000 employees as it was one of the world's leader of electricity, natural gas, communications and paper companies.

Enron's stock price, which hit a high of United states $90 per share in mid 2000, caused shareholders to lose nearly $11 billion when it plummeted to less than $1 by the end of November 2001. Analysts were criticizing Enron for "swimming in debt," but the company continued to grow developing a large network of natural gas pipelines, and eventually moving into the pulp and paper and water