Sunday, May 06, 2007

Enron's Scandal

[ The conclusion part in our group report for module N1B307: Financial Reporting ]

"Based on the above analysis, it is very obvious in terms of profitability measured by ROCE that BT has the largest chunk of profits that can be invested back into the company for the benefit of shareholders. In a glance, it is the most successful growth company compared as descended by Cable & Wireless, Vodafone, and Kingston. Similarly, BT is also the most efficient company in controlling its production costs followed by Cable & Wireless, Kingston and Vodafone is the most inefficient company based on the profit margin. The positive relationship between a high ROCE and a high profit margin is resembled by BT and Cable & Wireless but one may argue this when we look upon the case of Vodafone and Kingston. Obviously, these two companies share the same negative relationship of the two profitability measurements. However, when it comes to how efficient a company is in utilising its resources invested in fixed assets and working capital we may conclude Kingston. Even though BT is the most successful company it falls behind Kingston in employing its assets but still ahead Cable & Wireless and Vodafone. In a nutshell, in this period of our analysis we may say BT is the most growing company so far and the least performed company is Vodafone. Nonetheless, our analysis involves only the element of profitability and excludes short-term liquidity and long-term liquidity. Since the difficulties of the recession in the late 1980s liquidity, both short term and long term, has increased in importance. One has to bear in mind, companies which are profitable but have poor short term or long liquidity measures, will not survive the troughs of the trade cycle. In contrast, companies which are not profitable but are cash rich, do not survive in the long term either. Such companies are taken over for their cash flow or by others who believe that they can improve the profitability of the business. Financial reporting shall also be reported within the context the political, business, and economic environment in which the business operates, as figures cannot do the transparent justice to the corporate world like what Enron did. All in all, any of these four companies which do succeed and survive over the long term (which is beyond our period of analysis), is the one who has a well-rounded financial profile, and the best performer in all aspects of financial analysis"

Enron's corporate scandal in relation to Arthur Andersen should not be repeated again. It was a blindly excessive pursue of short-term shareholders' value that ignored the long-run shareholders' value. This case stressed upon the importance of transparency in corporate governance.

Nottingham University Business School

Undergraduate Programmes


Ratio Analysis in the UK Telecommunications Industry


Mohd Sharazad SAIFUL BAHRI

Bilal Qamar SANDHU




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