Accounting Enron Case Analysis

ACTG 495

Case 3 - Enron

There are two parts to this case. Part I focuses on what information was in the public domain as

of the last audited financial statement for the year ended December 31, 2000. Part II focuses on

the information that was in the public domain as of November 19, 2001 when Enron filed its 10-Q

for the third quarter of 2001 and the events that led to Enron’s bankruptcy as of December 1,

2001. The most important thing about this case is that you must support your

conclusions with evidence from Enron’s public filings only. Feel free to read as many

articles as you would like to help with understanding Enron, but only use information from the

public filings (e.g. 10-Ks and 10-Qs, and the information related to the 10-Ks and 10-Qs from the

Enron Discussion Case) to prepare your responses.

Requirements

Part I: In late February of 2001, you have been chosen to write an article for Investors Monthly

to be published in the magazine in April 2001. The deadline for publication is March 10, 2001.

Investor’s Monthly regularly analyzes the financial statements of public companies. Enron has

just published its financial statements for the year ended December 31, 2000. At the time you

are given the assignment Enron’s share price is over $80 per share.

Investor’s Monthly wants you to tell investors what they need to know from the financial

statements. Your assessment needs to be a combination of both a fundamental financial analysis,

covering profitability, cash flow, liquidity and solvency risk and a view of the business model and

its risks and other insights gleaned from the documents filed with the SEC.

Your article must not be longer than 1,500 words or it cannot be published in the available space.

Any conclusions need to be supported by reference to the data presented in the financial

statements.

Part II: On December 2, 2001, Enron Corporation has filed for bankruptcy. On December 5,

2001 Investor’s Monthly approaches you again to ask you to describe the economic events that

led to Enron’s Bankruptcy. Investor’s Monthly wants you to make reference to your comments in

the first article while focusing primarily on what additional information was disclosed in Enron’s

first, second and third quarter 10-Qs.

In your article, address at least the following questions:

1. What were the facts behind Enron’s bankruptcy?

2. What were the economic events that led to Enron’s failure?

3. Should Investors have been able to see this coming, especially if they had read your April

2001 article?

4. What actions, in any, could management of the company have taken to hold off

bankruptcy?

For this second article, Investor’s Monthly has given you a 1,000 word limit.

Extra Credit (5%): Prepare one creative and descriptive PowerPoint slide summarizing each

article (total of two slides). For credit, the PowerPoint slides must be emailed to

[email protected] by Midnight on Sunday, February 23, 2020. I will choose a selection of

the slides to use in class discussion (on a no-name basis unless your name is on the slide).