Enron Case Study

Enron was founded by Kenneth Lay in 1985 through a merger of Houston Natural Gas and Internonth. Enron's three main business units were the Wholesale Services, Energy Services, and Global Services. Enron was one of the world largestenergy-trading company and was ranked 22nd in the Fortune's 100 best companies list in America in 2000 (Fortune 500, 2001).

The company had operations such as constructing power plants, selling or buying commodities, develop and execute energy strategies for clients, and shipping and engineering businesses across Japan, Australia, Europe, and South America. Moreover, the most significant achievement by Enron was the creating of market for energies to be traded easily which was on par with other commodities such as natural gas and oil. Besides, Enron also realised there were chances of making profits in the overseas markets, hence the company begin to venture into water business in other countries and even try to hedge the weather of London. In 2000, Enron's global revenues hit $100 billion and its shares also hit all time high with a closing price of more than $90mainly due to the fast expansion rate of the company around the world (Fortune 500, 2001).

Over the years, numerous corporate scandals becomes the headlines of newspapers. For instant, the collapse of Enron Corporation in 2002 has become the words of mouth of everyone in the society.

Enron's collapse was mainly based on impractical and fraudulent accounting practices, unusual inflated profits, off balance sheet vehicles, and special purpose entities which are known as aggressive earning management techniques as to minimize losses and inflated profits in its financial statements in order to maintain good ratings and enhance its credibility in the market.