Question

What factors eventually caused the downfall of Enron?

Explain the five factors in a short essay: Beth Mclean, asked "how does Enron make its money", India's power plant, blockbuster, California power crisis, and the stock crisis?

Answer 1

We know that Enron is an American energy company based on Houston, Texas and the dissolution of Arthur Anderson, which was one of the largest audit and accountancy participants in the world. In October 2001 the company faces a bankruptcy; this is one of the largest bankruptcies in the history of United States. The audit failure is the one of the major reason for bankruptcy for the Enron Company. Enron is the famous company in the world also it was fallen down too fast.

When we search the history of Enron we can found it was one the best innovative company n the 1990s. The company was founded in 1985, and was one of the world’s leading electricity, natural gas, pulp and Paper Company till the end of early 2001. The revenue of the company increased substantially from $9 billion in 1995 to $100 billion in 2000. At the end of 2001, the company was reported financial condition was sustained by creatively planned accounting fraud. We can found an unbelievable reduction of share prices of the company from $90 per share in early2001to less than $1 per share at the end of 2001.

The major causes of bankruptcy

1. The lack of truthfulness
2. Lack of independent oversight of management and conflicts of management

3. The problem for accounting irregularities

4.Adverse changes in commodity and equity prices

The serous question of how does Enron makes its money, is hard to come out. The company keeps all these documents under secrecy for the comment of competition. By research we can found that 80% of the revenues are came from the regulated gas pipeline business. But in 2000, we found that 90% of the company’s profits are from whole energy operations and services. Based on the evidence of the company most part of revenue is from buying and selling of gas and electricity. According to Enron’s CEO Jeff Skilling this was a logistics company and they together with demand and supply of goods and services. The company also uses derivatives, swaps, options to create contract of third parties.