The Enron Collapse By: Jeff Porter Kevin Clark ... - Franklin College

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S.W.O.T. Analysis Strengths • October 2001- Enron post its first quarterly loss in four years, $618 million and a reduction in shareholder equity by over $1 billion dollars. • December 2, 2001- Enron files for bankruptcy protection. Enron is the largest company-owned natural gas pipeline system in the United States and is ranked seventh on the Fortune 500 giving it an established name with credibility. Another strength of the company would be its reputation and public perception. Enron has a competitive and almost monopolistic advantage over its competitors because they are the largest energy provider. They also have market-making abilities that result in price and service advantages (26). Weaknesses It is easy to target Enron’s weaknesses in the company. They have a lack of ethical and moral behavior among employees and auditors by engaging in deceitful and wrongful acts. Management has a lack of control and conflicts of interest occur in numerous transactions. The culture of Enron was all about results therefore, expectations of financial statements were high and employees were told to make up for losses. Opportunities Name recognition is an opportunity for Enron. Society recognizes Enron as a high quality energy provider. There are many opportunities for Enron to expand or use to their advantage the many assets they have such as pipeline. Deregulation of the energy industry in the 1970s allowed Enron the opportunity to grow and begin trading.
Threats There are many threats Enron faces. Competitors could come in and steal some partners Enron does business with potentially taking away profits from Enron. Threats exist that newer technology will provide alternative energy sources to oil and gas, Enron’s two major sources of energy. A possible threat would also be if the energy market became regulated again and trading could not occur. Internal Flaws Accounting Another problem Enron faced was the aggressive accounting style used to inflate many figures on their financial statements. Many complicated partnerships with special purpose entities and other subsidiaries made the accounting even more confusing. These methods helped Enron manipulate their revenue and earnings. “Mark to Market” Accounting Enron used “mark to market” accounting, which allowed them to adjust the value of a security or asset to reflect the current market value (20). This procedure allows companies to book as current earnings their expected future revenue from certain assets (7). The introduction of volumetric production payments opened the door for this type of accounting. These payments were contracts that had a predictable future cash flow and could be treated as merchant assets meaning the assets held on Enron’s books could be traded at any time if they received a suitable offer (20). The SEC granted Enron permission to mark these assets to market in 1991 and was supposed to be on a temporary
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The Enron Collapse By: Jeff Porter Kevin Clark ... - Franklin College

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