The Rise and Fall of Enron
The objective of every company is to maximize profit, become a big player and remain viable. Enron was no exception the key players at the time were Kenneth Lay CEO, Jeffery Skilling who was hired by Lay in 1990 to head the Enron Finance Corporation and by 1997 Skilling was made President and Chief Operating Officer. Andrew Fastow, CFO who was the chief financial officer of Enron.
Enron merged Houston Natural Gas in 1985 with another natural gas pipeline to create Enron. The intent from the beginning was to expand beyond just selling and transporting gas. The company was moving toward the newly deregulated markets. The deregulated markets were not governmental control. The company moved toward every deregulated energy market they could find. For example, the same way that the farmers market works is the same way that Enron bought and sold electricity and gas.
When the oil prices began to fall like dew in the 80’s the buyers switched from natural gas to fuel oil, the vision was set for the deregulated markets, and they refused to let anything obstruct their vision. Enron was expanding in the trade and service market. The lobbyist fought for the deregulated markets of gas and electricity, on the behalf of Enron. Enron prospective contracts ensured payment in the future for the delivery of gas and this strategy resulted in irregular prices of gas.
Enron began to invest into industrial commodities, for example, steel and wood fiber. The company further expanded trade to broadcasting time for advertisement and also entered into trading markets for internet bandwidth. By the late 90’s the company had invested about several billion dollars into the trading side of the business. The company was not earning anything on those investments and this went unreported until December 2001 when Enron announced its Chapter 11 Bankruptcy.
New partnerships were created for Enron in order to separate Enron’s debts from their assets. In the simplicity of the accounting equation, assets equal liabilities plus owner equity, the company could show assets almost totally free of liability. This made Enron one of the most prominent companies to work for. Enron was listed in the fortune 500 club and was in the top 100. Its shares listed as blue chip stock. In 2001, Arthur Anderson the big accounting firm announced that some of these partnership debts should have been disclosed in the financial statements of Enron. This forced Enron to report losses above $1 billion. The SEC investigated Enron and Fastow was replaced.
Enron drew a $3 billion dollar line of credit and began to pay off its outstanding debt, but...