dinsdag 7 december 2010

Enron, a numbers game

While most of the previous blogs focused on how Enron executives had hidden their debts through various methods, especially paying attention to the balance sheet, Enron’s main goal actually was to keep their share prices rising. Although the world believed their 57% five-year sales growth rate and their revenue rise from $13.3 billion to $100.8 billion between 1996 and 2000, Enron executives knew that those numbers weren’t exactly truthful.

Because the FASB, also known as the Financial Accounting Standards Board couldn’t agree on how energy contracts should be booked, they left companies such as Enron the choice whether to book the revenues at their gross or at their net value. Enron used this accounting loophole to its advantage and booked the energy contracts at their full value instead of the commission or profit they got, which explains how their revenue per employee can be at least three times higher when being compared to companies with similar sales or at least eight times higher if you look at companies with a similar number of employees. Sometimes people need to be reminded that there’s a good reason why people say “If it’s too good to be true, then it probably is!”

source: http://www.forbes.com/2002/01/15/0115enron.html

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