At The Finance Academy, we are often asked what the Enron collapse was all about.
A U.S. company, Enron began by owning gas pipeline and storage facilities. Following the deregulation of energy prices in the U.S., Enron changed its main focus to buying and selling energy contracts.
In order to make its results look better, Enron found ways to disguise debt. The accountants hid debt in other organisations, pretending that it did not belong to Enron.
During 2001, journalists, and even Enron's own senior staff, began to challenge Enron's accounting methods. In October 2001, the Securities and Exchange Commission (SEC) announced an investigation. In November 2001, Enron announced that it had substantial hidden debts.
When the market found out, the value of Enron's shares plummeted. This fall in the company's value triggered repayment clauses in agreements with investors. Faced with a sudden need for cash, and nowhere to get it, Enron filed for protection.
These are the bare bones of Enron's demise, but if you need further information, do get in touch.
