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Financial & Managerial Accounting

13th Edition
Carl Warren + 2 others
ISBN: 9781285866307

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BuyFindarrow_forward

Financial & Managerial Accounting

13th Edition
Carl Warren + 2 others
ISBN: 9781285866307
Textbook Problem

Financial analysis

The now defunct Enron Corporation, once headquartered in Houston, Texas, provided products and services for natural gas, electricity, and communications to wholesale and retail customers. Enron's operations were conducted through a variety of subsidiaries and affiliates that involved transporting gas through pipelines, transmitting electricity, and managing energy commodities. The following data were taken from Enron's financial statements:

  In millions
Total revenues $100,789
Total costs and expenses 98,836
Operating income 1,953
Net income 979
Total assets 65,503
Total liabilities 54,033
Total stockholders’ equity 11,470
Net cash flows from operating activities 4,779
Net cash flows from investing activities (4,264)
Net cash flows from financing activities 571
Net increase in cash 1,086

The market price of Enron s stock was approximately $85 per share when the prior financial statement data were taken. Before it went bankrupt, Enron's stock sold for $0.22 per share.

Review the preceding financial statement data and search the Internet for articles on Enron Corporation. Briefly explain why Enron's stock dropped so dramatically.

To determine

Financial accounting: Financial accounting is the process of recording, summarizing, and reporting all the transactions in the financial statement of the business over a period of time. The financial statement consists of the balance sheet, income statement, statement of retained earnings, and the cash flow statement.

To Explain: The reason for sudden drastic fall in the price of shares of E Corporation.

Explanation

Financial statements: Financial statements refer to those statements, which are prepared by the Company according to particular formats in accounting to show its financial position. Financial statements include the following statements:

·         Cash flow statement

·         Income statement

·         Balance sheet

·         Statement of Owner's Equity

The elements of financial statement of E Corporation show the share value to be $83 per share. But a detailed analysis of the financial statement provides the following data.

  • Capital to assets ratio:

The Capital of E Corporation is $11,470 million.

The total asset of E Corporation is $65,503 million...

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