Enron Corporation Position Essay Example | Topics and Well Written Essays - 1250 words

Enron Corporation Position - Essay Example The paper starts by giving a brief synapse of what Enron was and what the Enron Scandal was and why it caused the downfall of Enron. The paper will also discuss the ethical considerations of what Enron did to its investors and take a position on whether it was okay to sell stocks on what you believe will be the expected dividends. Enron was a company based in Houston and it specialised in commodities, energy and service corporation. The company was rocked by a scandal in 2001 and this was recorded as one of the biggest scandals of the century as a result of the fact that shareholders lost $74 billion and thousands of employees and investors lost their retirement accounts, and many employees lost their jobs (The ten worst corporate financial scandals of all time, nd). The main players in this particular scandal included the CEO Jeff Skilling and former CEO Ken Lay who kept huge debts off the balance sheet. In other words, the figure presented on the balance sheet revealed normal operations of the company which did not raise any suspicion among the investors. They also hoodwinked the investors by overstating their profits so as to attract many investors to pour in money into the company. However, things turned nasty when Sherron Watkins the internal whistle blower exposed them after witnessing high stock prices that fuelled external suspicions. Upon full investigation of the case, the main culprits were convicted of a criminal offence and the CEO was sentenced for 24 years and his partner in crime Lay died before his serving time. Andersen was also found guilty of fudging the company’s accounts. After the company was rocked by this scandal, it filed for bankruptcy. From an ethical perspective, it can be noted that what Enron did to its investors was not good especially to sell stocks on what you believe will be the expected dividends. The investors were not fully aware of the underhand dealings taking place behind

Financial pros and cons Essay Example | Topics and Well Written Essays - 1000 words

Financial pros and cons - Essay Example Capital Budgeting decisions of Debt Financing vis-a-vis Equity Financing and Capital Expenditure The essay analyses the financial viability of setting up a new production plant including the financing decisions and whether Superior Living Inc. should go for an IPO. Financial Analysis of Superior Living Inc. Profitability and solvency position of a company is a direct way to understand how well a company is performing. For the purpose of analyzing let us look at the following ratios and how the company has fared: Net profit margin: The Company has been earning a healthy net profit margin which has been constantly increasing from 10.66% in the year to 11.77% in the year 2003. Operating margin: The Company has a better operating margin in 2003 of 19.60% over the previous years. This indicates the company is very efficient in managing its operating expenses to generate revenue. Return on Capital Employed: The Company have earned handsomely for its investors as return so far on its capita l employed stands at approximately 25% which is far more than the cost of capital, assuming it to be at 10%. Debt Equity ratio: This ratio identifies the solvency of the firm by measuring the leverage position of a company. Higher the ratio the more leverage a company is and vice versa and hence higher financial risk. Superior Living Inc. has a very low debt equity ratio i.e. ... Pros and cons of going public Raising money by going public indicates accepting money from investors in exchange of ownership and control of the company without the obligation of paying back the money. The company as per its convenience benefits the investors by paying dividend from time to time. This sounds like easy money for the company but the flip side is that the ownership and control over the company would be foregone for the amount invested via equity financing. In the case of Superior Inc. the company is comfortably placed in terms of book debts. The debt equity ratio very low which means the company has not used debt to the extent it should have used. Generally the ideal debt equity ratio should be 1:2 but for Superior it’s around 1:40. Therefore, the prudent course of action for Superior Inc. is too raise capital by debt financing route which also brings in tax advantage as interest paid on debts is deductible from profits and dividend paid on equity cannot be deduc ted from profits. Debt financing does not affect the ownership structure of the company; hence the control remains with the owners of the company. Pros and cons of a capital expenditure Superior Living Inc. plans to start a new production plant as part of their expansion plans. To determine the financial viability of the this capital expenditure, various capital budgeting decision tools were used which includes payback period, net present value, internal rate of return and modified internal rate of return. The cost of project is $5,000,000 over a year and cash flow would start flowing in the company only from the second year. The expected cash inflow as a result of new production plant is expected to