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In: Finance

"It’s only when the tide goes out that you learn who has been swimming naked." ---Warren...

"It’s only when the tide goes out that you learn who has been swimming naked." ---Warren Buffett

Please comment on this statement and give examples from previous accounting scandals and financial crises.

Initial Post Length: minimum of 350 words.

Using APA format, cite your sources.

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Expert Solution

Answer: Warren Buffet is a great American investor and business tycoon. He is a chairman of Berkshire Hathaway.

He said, ""It’s only when the tide goes out that you learn who has been swimming naked".

It means too much debt is not good for any company, company may look good from outside but may be worst from inside. When a company is too much leveraged, it will be exposed early.

This saying was based on Enron Scandal. Enron got bankrupt in December 2001. Its share price touched new high before the bankruptcy. It reached at dramatic heights. Before bankruptcy, its share was trading at 490 and just after bankruptcy, it was at $.26.

Enron was formed in 1985. People could not believe that one of the largest companies in USA, can fall like this. Enron was swimming naked and that too in public area. Enron management fooled the investors, public and regulators with fake holdings and fake accounting records. Enron used special purpose entities to hide the heavy amount of debts and toxic assets from creditors and shareholders. Enron's CEO Jeffery hid the financial losses of trading business and operations. Enron's management did not show the actual and fair picture of its financial statements, they did window dressing and hit many loopholes that later came in picture and bubble burst.

jeff jeffy answered 1 year ago
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