Enron - the Smartest Guys in the Room

Enron Case Analysis

(The Smartest Guys in the Room)

Company’s Profile

Enron Corporation was established in 1985, was an American company concentrated in energy, commodities, and service businesses which headquartered in Houston, Texas. It was formed by merger between Houston Natural Gas and InterNorth of Omaha, Nebraska. The company was initially a natural gas pipeline which operated in the distribution of power, but as the markets of energy were deregulated, the business was grown rapidly into brokering energy. It was transformed into financial instruments that can be traded like stock and bonds. The company started to market electricity in 1994 and entered European Energy market in 1995. The company also expanded the business to non energy related fields such as internet bandwidth, risk management, and weather derivatives. The internet bandwidth business was started in 1999, and the company launched EnronOnline. It is a web based commodity trading site, making Enron become an e-commerce company. Although its core business were still in the distribution of energy, but the significant growth that the company made were from the other businesses. The company reported of 101 billion revenue in 2000, employed approximately 21,000 employees in 2001 and become the 7th largest U.S. company. The Fortune magazine also appointed Enron as “America’s Most Innovative Company” for six consecutive years in the row.

What happened in Enron?

In a very short amount of time, the company which still stated to have US$ 101 billion earnings in 2001, suddenly shocked the world financial economy by declared its bankruptcy. This tragedy was known to be the biggest corporate collapse in the U.S. history. There was an extremely complex accounting scandal in the company that involved the top executives and several big entities. Before the bankruptcy, Enron businesses were seemed so successful and the stock prices were jumping so high. The number of written revenue they made on the books was very good for some conservative years showing its significant growths made the company regarded as the 7th largest U.S. company, and the most innovative company in America. The progresses they showed to the public were so good that made people amaze in admiration. But in fact, the company actually did not have the earnings that they told the investors they have. The company manipulated, provide fake information about its financial statements by creating the number of earnings which actually did not exist in order to improve their stock prices. However, the investors started to smell something wrong related to the company financial account. The case was shown up to public in 2001, revealing a debt the company had amounted U.S. $ 31.2 billion. At last, the company could no longer handle the situation and announced