Business Leadership in Enron Essay examples

4743 Words Jul 17th, 2011 19 Pages
EXECUTIVE SUMMARY

Enron stands out as one of the biggest failures in business history. It’s implosion in 2001 took the world capital markets and shook the investor confidence in accounting and financial reporting. It even caused the world’s renowned international accounting firm Arthur Andersen to collapse. The most important gatekeeper could not predict Enron’s collapse before it occurred. It was then discovered that Enrons’ senior management had employed complex creative accounting techniques to manipulate the company’s financial figures and hence boost up the financial performance. This paper in contrast explores the internal culture and leadership practices of its top management. It includes a particular emphasis on
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The core business of this “GasBank” entity was to create a market for the future of natural gas and eventually became the matchmaker in the power industry. (Baker, 2003) “GasBank has grown substantially and as a result Enron became the largest merchant for the natural gas in U.S. However this may have been the start of the end.

CHAPTER 2
2.0 ENRON’S FINANCIAL BACKGROUND
2.1 Liquidity
As Enron wash shifting its main activities into energy derivative it was important to ensure there was sufficient level of liquidity. (Enron, 1999) In year 2000 Enron’s liquidity improved compared to in 1999. It grew from $288 million in 1999 to $1374 million in 2000 showing an increase of 377% and at the same time the deposits in the bank grew from $81 million to $2433 million in this year. However the current ratio did not improve. This showed a five times increase in revenues in a mere three years (Lee, 2001). It is argued that the current ratio for larger companies should be less than one as this shows efficient use of capital. And the increase in the level of liquidity is taken into account as a decrease in level of profitability.
2.2 Debt (Leverage)
The change in Enron’s business style was reflected in its ratios. A total of 44.1% of assets were invested in property, plant and equipment (P.P.E) while in 2000 it was 17.9% only (Enron, 2003). Due to

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