Dissertation Report On A Case Analysis On Enron Failure
DISSERTATION REPORTONA CASE STUDY OF ENRON’S FAILURESUBMITTED BYARPAN GHOSHPGPM+MBABATCH (2011-2013)ROLL - A30401911004UNDER THE SUPERVISIONOFMiss. PURNIMA SARKAR(Faculty of Amity)AMITY GLOBAL BUSINESS SCHOOLBHUBANESWAR
A M I T Y G L O B A L B U S I N E S S S C H O O L B H U B A N E S W A R Page No: - 1 -ACKNOWLEDGEMENTThis project report bears the imprint of many people on it.I am very much thankful to of Amity Global Business School, BBSR for the successfulcompletion of my DISSERTATION report.I would like to thank my project supervisor and guide Miss Purnima Sarkar, the FacultyMember, AMITY Global Business School, Bhubaneswar, for his invaluable guidance andassistance in preparing the project report and also contributing a lot for accomplishment ofthis project.I am also expressing my indebtedness to my parents and my friends who gave their full-fledged co-operation for the successful completion of project.Arpan GhoshMBA 4thSemAMITY BUSINESS SCHOOL
A M I T Y G L O B A L B U S I N E S S S C H O O L B H U B A N E S W A R Page No: - 2 -DECLARATIONI, Arpan Ghosh, a bonafide student of AMITY Business School, BBSR, pursuing Master inbusiness Administration, do hereby declare that the study entitled “ A case study on Enronfailure”, is my authentic work, I have completed my study under the guidance of Miss.Purnima Sarkar, the Faculty Member, Amity Global Business school, Bhubaneswar All thedata furnished in this project report are authentic and genuine and this report neither full norin part has ever been submitted for award of any other degree to either this university or anyother university.Arpan GhoshMBA 4thSemAMITY BUSINESS SCHOOL
A M I T Y G L O B A L B U S I N E S S S C H O O L B H U B A N E S W A R Page No: - 3 -CERTIFICATEI ............................................................. hereby Certify that Arpan Ghosh, Student ofMaster of Business Administration at Amity Global Business School, Amity University UttarPradesh has completed dissertation on ― A Case Analysis On Enron Failure‖ on under myguidance.Date: Miss. Purnima SarkarPlace: Bhubaneswar Professor FinanceTABLE OF CONTENTS
A M I T Y G L O B A L B U S I N E S S S C H O O L B H U B A N E S W A R Page No: - 4 -CHAPTERS CONTENT PAGECHAPTER-1 INTRODUCTIONBackground of the study 5Problem statement 6Objectives of the study 7Outline of the study 7CHAPTER-2 Company profile 8 - 17CHAPTER-3 Literature review 18 - 20CHAPTER-4 Research methodology 21CHAPTER-5 Results and discussions 22 - 29CHAPTER-6 Conclusions and suggestions 30 - 31Limitations of the study 31BIBLIOGRAPHY
A M I T Y G L O B A L B U S I N E S S S C H O O L B H U B A N E S W A R Page No: - 5 -ABSRACTThe sudden and unexpected collapse of Enron Corp. was the first in a series of majorcorporate accounting scandals that has shaken confidence in corporate governance and thestock market. Only months before Enron‘s bankruptcy filing in December 2001, the firm waswidely regarded as one of the most innovative, fastest growing, and best managed businessesin the United States. With the swift collapse, shareholders, including thousands of Enronworkers who held company stock in their 401(k) retirement accounts, lost tens of billions ofdollars. It now appears that Enron was in terrible financial shape as early as 2000, burdenedwith debt and money-losing businesses, but manipulated its accounting statements to hidethese problems. Why didn‘t the watchdogs bark? This report briefly examines the accountingsystem that failed to provide a clear picture of the firm‘s true condition, the independentauditors and board members who were unwilling to challenge Enron‘s management, the WallStreet stock analysts and bond rates who failed to warn investors of the trouble ahead, therules governing employer stock in company pension plans, and the unregulated energyderivatives trading that was the core of Enron‘s business.As was later discovered, many of Enrons recorded assets and profits were inflated or evenwholly fraudulent and nonexistent. One example of fraudulent records was in 1999 whenEnron promised to pay back Merrill Lynch & Co investment with interest in order to showprofit on its books. Debts and losses were put into entities formed "offshore" that were notincluded in the firms financial statements and other sophisticated and arcane financialtransactions between Enron and related companies were used to take unprofitable entities offthe companys books.Enron grew wealthy due largely to marketing, promoting power, and its high stock price.Enron was named "Americas Most Innovative Company" by Fortune for six consecutiveyears, from 1996 to 2001. It was on the Fortunes "100 Best Companies to Work for inAmerica" list in 2000, and had offices that were stunning in their opulence. Enron was hailedby many, including labour and the workforce, as an overall great company, praised for itslarge long-term pensions, benefits for its workers and extremely effective management untilits exposure in corporate fraud. The first analyst to publicly disclose Enrons financial flawswas Daniel Scotto, who in August 2001 issued a report entitled "All Stressed-up… And NoPlace to Go", which encouraged investors to sell Enron stocks and bonds at any and all costs.
A M I T Y G L O B A L B U S I N E S S S C H O O L B H U B A N E S W A R Page No: - 6 -CHAPTER-1INTRODUCTIONBACKGROUND OF THE STUDY:-Once the seventh largest company in America, Enron was formed in 1985 when InterNorthacquired Houston Natural Gas. The company branched into many non-energy-related fieldsover the next several years, including such areas as Internet bandwidth, risk management, andweather derivatives (a type of weather insurance for seasonal businesses). Although their corebusiness remained in the transmission and distribution of power their phenomenal growthwas occurring through their other interests. Fortune Magazine selected Enron as "Americasmost innovative company" for six straight years from 1996 to 2001. Then came theinvestigations into their complex network of off-shore partnerships and accounting practicesThe saga of the ENRON Corporation has been unfolding in the media for well over a year. Inthe span of only three years, ENRON has gone from public and professional acclaim of thecompany and its senior executives to scorn, infamy and bankruptcy. Its public auditing firm,Arthur Andersen, has basically been destroyed, as well as publicly disgraced. Tens ofthousands of employees and investors have been emotionally and financially affected. Majorfinancial services firms in banking, securities brokerage and insurance have been, and mayyet be, drawn into the legal battles regarding who is to blame for the ENRON failure.Enron grew wealthy due largely to marketing, promoting power, and its high stock price.Enron was named "Americas Most Innovative Company" by Fortune for six consecutiveyears, from 1996 to 2001. It was on the Fortunes "100 Best Companies to Work for inAmerica" list in 2000, and had offices that were stunning in their opulence. Enron was hailedby many, including labour and the workforce, as an overall great company, praised for itslarge long-term pensions, benefits for its workers and extremely effective management untilits exposure in corporate fraud. The first analyst to publicly disclose Enrons financial flawswas Daniel Scotto, who in August 2001 issued a report entitled "All Stressed-up… And NoPlace To Go", which encouraged investors to sell Enron stocks and bonds at any and allcosts.
A M I T Y G L O B A L B U S I N E S S S C H O O L B H U B A N E S W A R Page No: - 7 -PROBLEM STATEMENT:-The firm projected itself as a highly profitable, growing company - an image which quicklyturned out to be an elaborate mistruth. Enrons statements about profits were shown to beuntrue, with massive debts concealed so that they didnt show up in the companys accountsNot only that, but the company was seen to have been extraordinarily active in politicallobbying - with large numbers of legislators close to the company in one way or another. Thisfact had not been enough to save it, but raised questions about how appropriate suchcloseness between a corporate and the political system actually is.Enron provided millions of dollars to finance Mr Bushs 2000 election campaign. Mr Bushwas a personal friend of Mr Lay, but has been quick to distance himself from anyinvolvement with the firm.The Enron fraud case is extremely complex. Some say Enrons demise is rooted in the factthat in 1992, Jeff Skilling, then president of Enrons trading operations, convinced federalregulators to permit Enron to use an accounting method known as "mark to marketENRON had excessive compensation plan which resulted in major cash drainsEnrons nontransparent financial statements did not clearly depict its operations and financeswith shareholders and analystsIts complex business model and unethical practices required that the company use accountinglimitations to misrepresent earnings and modify the balance sheet to portray a favorabledepiction of its performanceInvestment banks and commercial banks, for not identifying the pitfalls for Enron associatedwith complexity and large amounts of leverage.The CFO initiated many of the transactions that can be criticized.
A M I T Y G L O B A L B U S I N E S S S C H O O L B H U B A N E S W A R Page No: - 8 -OBJECTIVE OF THE STUDY:Everything in life holds some kinds of objectives to be fulfilled. This study is not anexception to it. The following are a few straight forward goals which I have tried to fulfil inthe project:1. To know the crises of Enron2. To know the accounting irregularity followed by Enron3. To highlight the failure of the regulatory authority and loopholes in corporate law.OUTLINE OF THE STUDY:The first chapter explains about the introduction to the research topic, problem statement,objectives, and limitations of the study. The profile of the company is presented in the secondchapter. The reviews of different literatures are presented in the third chapter. The fourthchapter explains the Research Methodology. The results and discussions of the study arepresented in the fifth chapter. The conclusions and suggestion of the study are presented thesixth chapter
A M I T Y G L O B A L B U S I N E S S S C H O O L B H U B A N E S W A R Page No: - 9 -CHAPTER-2COMPANY PROFILEEnron traces its roots to the Northern Natural Gas Company, which was formed in 1932, inOmaha, Nebraska It was reorganized in 1979 as the leading subsidiary of a holding company,InterNorth which was a highly diversified energy and energy related products company.Internorth was a leader in natural gas production, transmission and marketing as well asnatural gas liquids and an innovator in the plastics industry. It owned Peak Antifreeze anddeveloped EVAL resins for food packaging. In 1985, it bought the smaller and lessdiversified Houston Natural Gas.The separate company initially named itself "HNG/InterNorth Inc.", even though InterNorthwas the nominal survivor. It built a large and lavish headquarters complex with pink marblein Omaha (dubbed locally as the "Pink Palace"), that was later sold to Physicians MutualHowever, the departure of ex-InterNorth and first CEO of Enron Corp Samuel Segnar sixmonths after the merger allowed former HNG CEO Kenneth Lay to become the next CEO ofthe newly merged company. Lay soon moved the companys headquarters to Houston afterswearing to keep it in Omaha and began to thoroughly re-brand the business. Lay and hissecretary, Nancy McNeil, originally selected the name "Enteron" (possibly spelled in camelcase as "EnterOn"), but, when it was pointed out that the term approximated a Greek wordreferring to the intestines, it was quickly shortened to "Enron". The final name was decidedupon only after business cards, stationery, and other items had been printed reading Enteron.Enrons "crooked E" logo was designed in the mid-1990s by the late American graphicdesigner Paul Rand. Rands original design included one of the elements of the E in yellowwhich disappeared when copied or faxed. This was quickly replaced by a green element.Almost immediately after the move to Houston, Enron began selling off key assets such asNorthern Petrochemicals and took on silent partners in Enron Cogeneration, Northern BorderPipeline and Tran western Pipeline and became a less diversified company. Early financialanalysts said Enron was swimming in debt and the sale of key operations would not solve theproblems.Main Divisions of Work:Online Marketplace Services: EnronOnline.com commodity trading system - the largestweb based ecommerce site in the world and dwarfs all other energy marketing web sitescombined.This includes EnronCredit.com, ClickPaper.com (online pulp & paper information), onlineenergy risk management, Water2Water.com (online water marketplace), Waterdesk.com(water industry workspace, brings water industry buyers and sellers together).Enron Broadband Services: Internet Broadband - streaming media applications,customizable bandwidth solutions.
A M I T Y G L O B A L B U S I N E S S S C H O O L B H U B A N E S W A R Page No: - 10 -Enron Transportation Services: The Gas Pipeline Group, which formally changed itsname in September 2000 to Enron Transportation Services.Enron Energy Services: The retail arm of Enron, serving business users of energy incommercial and industrial sectors.Enron Wholesale Services: Project Development and Management - Enron delivers morethan two times the natural gas and power volumes as does its nearest energy marketingcompetitor.Wholesale Services includes: Azurix Global Water; energy infrastructure development,engineering, procurement, and construction services; global exploration and production; andwind power services.Former management and corporate governanceCentral ManagementKenneth Lay: Chairman, and Chief executive officerJeffrey Skilling: President, Chief operating officer, and CEO (February–August 2001)Andrew Fastow: Chief financial officerRick Causey: Chief accounting officerRebecca Mark-Jusbasche: CEO of Enron International and AzurixLou Pai: CEO of Enron Energy ServicesForrest Hoglund: CEO of Enron Oil and GasRichard Gallagher: Head of Enron Wholesale Global International GroupKenneth "Ken" Rice: CEO of Enron Wholesale and Enron Broadband ServicesJ. Clifford Baxter: CEO of Enron North AmericaSherron Watkins: Head of Enron Global FinanceJim Derrick: Enron General CounselMark Koenig: Head of Enron Investor RelationsJoan Foley: Head of Enron Human ResourcesGreg Whally: President and COO of Enron (August 2001– Bankruptcy)Jeff McMahon: CFO of Enron (October 2001-Bankruptcy)
A M I T Y G L O B A L B U S I N E S S S C H O O L B H U B A N E S W A R Page No: - 11 -Board Of directorsRobert A. Belfer: Chairman, Belco Oil and Gas CorpNorman P. Blake Jr.: Chairman, President and CEO, Comdisco, Inc.Ronnie C. Chan: Chairman, Hang Lung GroupJohn H. Duncan: Former Chairman of The Executive Gulf and Western Industries Inc.Wendy L. Gramm: Former Chairman of US Commodity Futures Trading CommissionKen L. Harrison: Former Chairman and CEO of Portland General ElectricRobert K. Jaedicke: Professor Emeritus of Accounting at Stanford UniversityCharles A. LeMaistre: President Emeritus, University of Texas M.D. AndersonCancer CenterJohn Mendelsohn: President, University of Texas M.D. Anderson Cancer CenterJerome J. Meyer: Chairman, TektronixPaulo V. Ferraz Pereira: Executive Vice President if Group BozanoFrank Savage: Chairman: Alliance Capital ManagementJohn A. Urquhart: Senior Advisor to the Chairman of EnronJohn Wakeham: Former U.K. Secretary of state for EnergyHerbert S. Winokur Jr.: President of Winokur Holdings Inc.ProductsEnron traded in more than 30 different products, including the following:Products traded on Enron Onlineo Petrochemicalso Plasticso Powero Pulp and papero Steelo Weather Risk ManagementOil and LNG transportationBroadbandPrincipal investmentsRisk management for commoditiesShipping / freightStreaming mediaWater and wastewater
A M I T Y G L O B A L B U S I N E S S S C H O O L B H U B A N E S W A R Page No: - 12 -Online marketplace servicesEnronOnline (commodity trading platform)ClickPaper (transaction platform for pulp, paper, and wood products)EnronCredit (the first global online credit department to provide live credit prices andenable business-to-business customers to hedge credit exposure instantly via theInternet.)ePowerOnline (customer interface for Enron Broadband Services)Enron Direct (sales of fixed-price contracts for gas and electricity; Europe only)EnergyDesk (energy-related derivatives trading; Europe only)NewPowerCompany (online energy trading, joint venture with IBM and AOL)Enron Weather (weather derivatives)DealBench (online business services)Water2Water (water storage, supply, and quality credits trading)HotTap (customer interface for Enrons U.S. gas pipeline businesses)Enromarkt (business to business pricing and information platform; Germany only)Broadband servicesEnron Intelligent Network (broadband content delivery)Enron Media Services (risk management services for media content companies)Customizable Bandwidth Solutions (bandwidth and fiber products trading)Streaming Media Applications (live or on-demand Internet broadcasting applications)Energy and commodities servicesEnron Power (electricity wholesaling)Enron Natural Gas (natural gas wholesaling)Enron Clean Fuels (biofuel wholesaling)Enron Pulp and Paper, Packaging, and Lumber (risk management derivatives forforest products industry)Enron Coal and Emissions (coal wholesaling and CO2 offsets trading)Enron Plastics and Petrochemicals (price risk management for polymers, olefins,methanol, aromatics, and natural gas liquids)Enron Weather Risk Management (Weather Derivatives)Enron Steel (financial swap contracts and spot pricing for the steel industry)Enron Crude Oil and Oil Products (petroleum hedging)Enron Wind Power Services (wind turbine manufacturing and wind farm operation)MG Plc. (U.K. metals merchant)Enron Energy Services (Selling services to industrial end users)Enron International (operation of all overseas assets)
A M I T Y G L O B A L B U S I N E S S S C H O O L B H U B A N E S W A R Page No: - 13 -Capital and risk management servicesCommercial and industrial outsourcing servicesCommodity ManagementEnergy Asset ManagementEnergy Information ManagementbbFacility ManagementCapital ManagementAzurix Inc. (water utilities and infrastructure)Project development and management servicesEnergy Infrastructure Development (developing, financing, and operation of powerplants and related projects)Enron Global Exploration & Production Inc. (oil and natural gas field services)Elektro Electricidade e Servicos SA (Brazilian electric utility)Energy transportation and upstream servicesNatural Gas TransportationNorthern Border PipelineHouston PipelineTranswestern PipelineFlorida Gas TransmissionNorthern Natural Gas CompanyNatural Gas StorageCompression ServicesGas Processing and TreatmentEngineering, Procurement, and Construction ServicesEOTT Energy Inc. (oil transportation)Enron manufactured gas valves, circuit breakers, thermostats, and electrical equipment inVenezuela through INSELA SA, a 50–50 joint venture with General Electric. Enron ownedthree paper and pulp products companies: Garden State Paper, a newsprint mill; as well asPapiers Stadacona and St. Aurelie Timberlands. Enron held a controlling stake in theLouisiana-based petroleum exploration and production company Mariner Energy.Enron InternationalEnron International (EI) was Enrons wholesale asset development and asset managementbusiness. Its primary focus was developing and building natural gas power plants outsideNorth America. Enron Engineering and Construction Company (EECC) was a wholly ownedsubsidiary of Enron International, and built almost all of Enron Internationals power plants.
A M I T Y G L O B A L B U S I N E S S S C H O O L B H U B A N E S W A R Page No: - 14 -Unlike other business units of Enron, Enron International had a strong cash flow onbankruptcy filing Enron International consisted of all of Enrons foreign power projects,including ones in Europe.LeadershipRebecca Mark was the CEO of Enron International until she moved over to lead Enronsnewly acquired water business, Azurix, in 1997. Mark played a major role in thedevelopment of the Dabhol project in India, Enrons largest international endeavour.ProjectsEnron International constructed power plants and pipelines across the globe. Some today arestill up and running, including the massive Teeside plant in England. Others, like a bargemounted plant off Puerto Plata in the Dominican Republic, cost Enron money through lawsuits and investment losses. Puerto Plata was a barge mounted power plant next to the hotelHotelero del Atlantico. When the plant was fired up, winds blew soot from the plant onto thehotel guests meals, blackening their food. The winds also blew garbage from nearby slumsinto the plants water-intake system. For some time the only solution was to hire men whowould row out and push the garbage away with their paddles. Through mid-2000 thecompany collected a paltry $3.5 million from a $95 million investment. Enron also had otherinvestment projects in Europe, South America, Argentina, Brazil, Bolivia, Colombia,Mexico, Jamaica, Venezuela, and across the Caribbean.IndiaAround 1992 India came to the United States to find energy investors to help with Indiasenergy shortage problems. In December 1993, Enron inked a 20-year power-purchasecontract with the Maharashtra State Electricity Board. The contract allowed Enron toconstruct a massive 2,015 megawatt power plant. Construction would be completed in twophases, and Enron would form the Dabhol Power Company to help manage the plant. Thepower project was the first step in a $20 billion scheme to help rebuild and stabilize Indiaspower grid. Enron, GE (who was selling turbines to the project), and Bechtel (who wasactually constructing the plant), each put up 10% equity.In 1996, when Indias Congress Party was no longer in power, the Indian governmentassessed the project as being excessively expensive and refused to pay for the plant andstopped construction. The Maharashtra State Electricity Board (MSEB), the local state runutility, was required by contract to continue to pay Enron plant maintenance charges, even ifno power was purchased from the plant. The MSEB determined that it could not afford topurchase the power (at Rs. 8 per unit kWh) charged by Enron. The plant operator was unable
A M I T Y G L O B A L B U S I N E S S S C H O O L B H U B A N E S W A R Page No: - 15 -to find alternate customers for Dabhol power due to the absence of an open free market in theregulated structure of utilities in India. From 1996 until Enrons bankruptcy in 2001 thecompany tried to revive the project and spark interest in Indias need for the power plantwithout success.Overview of ENRON:The following timeline for ENRON is presented to set the major milestones for the company:July 1985- Houston Natural Gas merges with InterNorth to form ENRON, as an interstatenatural gas pipeline company. Kenneth Lay is CEO.1989- ENRON starts trading natural gas commodities and commodity derivative financialcontracts.1994- ENRON begins trading electricity as a commodity and related financial derivativecontracts. Jeffrey Skilling is executive in charge of this new business venture.Nov. 1999- Enron Online is launched as a web site for the global trading of energycommodities and derivative contracts. Jeffrey Skilling leads this continued transformationfrom a natural gas pipeline company to a global marketer and trader of oil, gas and electricenergy. Stock price trades at $45 per share.2000- Stock price trades at high during year of $91 per share.Feb. 2001- Jeffrey Skilling takes position as CEO, and Ken Lay remains as Chairman of theBoard. Stock price is trading at high range of $84 per share.Aug. 2001- Jeffrey Skilling resigns as CEO, and Ken Lay returns to position as CEO andChairman. ENRON vice president, Sherron Watkins, writes anonymous letter to Ken Layabout severe problems with partnerships known as LJM and Raptor, the accounting for thosepartnerships, the role of the ENRON CFO in the partnerships, and the possible adverse effectof these partnerships and their accounting if the information were ever revealed to theinvestment markets.Jan.-Aug. 2001- Lay and Skilling sell $41 million of ENRON stock. Other corporate insiderssell $71 million of stock. Employees are restricted from selling stock from 401(k) retirementaccounts unless retiring or leaving employment.Sep. 2001- Stock price trades around $28 per share, after 9/11 terrorist attacks.Oct. 2001- ENRON reports a $618 million loss for the third quarter, and restates pastfinancial statements that results in $1.2 billion write down of ENRONs stockholder equity.Loss and write downs result from Special Purpose Entities (partnerships) created under the
A M I T Y G L O B A L B U S I N E S S S C H O O L B H U B A N E S W A R Page No: - 16 -direction of Chief Financial Officer (CFO) Andrew Fastow. The Securities and ExchangeCommission (SEC), requests further explanation and information on the reported losses andfinancial restatements. CFO Andrew Fastow is relieved of his position. ENRONs problemslargely related to "aggressive" accounting related to reporting of indebtedness on balancesheet, reporting of profits from asset sales and reporting of earnings and cash flow from on-going operations.Nov. 2001- SEC upgrades inquiry into ENRON to a "formal investigation". ENRON statesthat its profits over last five years have been "overstated" by $586 million. Public auditingfirm, Arthur Andersen, receives request from SEC for its records on the ENRON audits.ENRON attempts to raise cash by delaying loan repayments and seeking new sources of shortterm capital. Merger attempt with Dynegy Corp. is cancelled.Dec. 2001- ENRON files for Chapter 11 bankruptcy protection. CEO of Arthur Andersentells Congress that ENRON might have violated securities laws.Jan. 2002- Justice Department begins criminal investigation of ENRONs failure. Reports arereceived about document destruction at ENRON and Arthur Andersen after SECinvestigation was announced. ENRON stock trades at prices between $0.20 and $0.50 pershare.Feb.-Aug. 2002- Ongoing investigations by SEC, U.S. Justice Department, U.S. House ofRepresentatives, U.S. Senate, et al. Companies such as Merrill Lynch, Citicorp and J.P.Morgan Chase are called to testify about their dealings with ENRON. Role of ENRON in theCalifornia energy crisis is investigated. ENRON employees sustain massive losses in 401(k)retirement accounts and employee layoffs continue. Federal government evaluates need fornew laws related to employee pension accounts, regulation and oversight of public auditingfirms, and corporate fraud and governance issues.In 1984, Kenneth L. Lay became the Chief Executive Officer of Houston Natural GasCorporation, a pipeline operator. Soon after he took position, his firm merged with Internorth,another pipeline company. Lay became the CEO of the merged firm, and the name of the firmwas changed to Enron. As deregulation of energy became more widespread (Lay influencedthe rate of change) the mission of Enron widened to include the trading of energy contracts.Shortly after the merger with Internorth, Lay hired the consulting firm, McKinsey & Co., tohelp develop a business strategy for Enron. One of the consultants assigned to the Enronstudy was Jeffrey Skilling. Lay subsequently hired Skilling to develop new business activitiesfor Enron. Skilling successfully launched Enron‘s highly profitable business of tradingenergy derivatives. Andrew Fastow was hired by Enron in 1990 from Continental IllinoisBank in Chicago and was appointed Chief Financial Officer (CFO) of Enron in 1998. Fastowwas thought to complement Skilling‘s interests and abilities. Appointing Fastow as CFO wasEnron‘s second biggest mistake (it probably would not have been made if the first mistake ofallowing the departure of Rich Kinder had not been made).
A M I T Y G L O B A L B U S I N E S S S C H O O L B H U B A N E S W A R Page No: - 17 -Rich KinderIn November 1996, Enron announced that Rich Kinder was leaving Enron. Shortly beforethat announcement the Enron Board of Directors (and Ken Lay) had failed to appoint Kinderas the CEO. The decision not to appoint Kinder as the President of Enron had very little to dowith Kinder‘s acknowledged managerial abilities. Kinder was (and is) a world-class manager,one of the few effective hands-on managers at Enron. The departure of Kinder was the mostsignificant negative event for Enron during the 1990s. It would likely have been a differentfirm in 2001 if he had stayed. When he left, Kinder bought from Enron the Liquids PipelineDivision for $40 million. With Bill Morgan and the $40 million pipeline he formed KinderMorgan Corporation. Kinder Morgan went public, but in 2006 Kinder and Morgan took thefirm private (the corporation had a market cap of $14 billion). In 2006, Rich Kinder was oneof the world‘s richest persons and will be even richer when Kinder Morgan goes public again.The $14 billion of Kinder Morgan value could possibly have been value-added to Enron ifKinder had not been rejected as CEO. Enron needed effective managers of real assets, andKinder was among the best.John WingJohn Wing was another great manager (of power plants) who was shown the door by Enronin July 1991. He helped execute the original deal that created Enron and was in and out ofEnron from the early- 1980s to 1991. He made money for Enron with hard assets. His biggestmoneymaker for Enron was a power plant in England called Teesside. He also did manyother profitable deals for Enron. John Wing did not fit easily into the Enron managementstructure. He was not the type of person with whom Ken Lay felt comfortable. When Wingwanted to separate his power group from Enron and form a separate publicly ownedcorporation, Lay facilitated his departure from Enron.It is interesting to conject what would have happened if Enron had financed Rich Kinder‘sgas pipeline company and John Wing‘s power company. These two entities certainly wouldhave developed into two very interesting merchant assets.The Year 2001In the year 2001, Enron was the seventh largest US Corporation (based on revenues) andpossibly would have been ranked larger if the revenues of all the subsidiaries and special-purpose entities (SPEs) were factored into the calculation. It would have been ranked muchlower if trading transactions were not treated as revenue. Interestingly, Enron was rankednumber five in the Fortune 500 listing for 2001, published in March 2002. But no matterwhere we exactly rank it, Enron was a large profitable corporation before October 2001. Ifwe consider only the available public information as of August 2001, it was a very profitablecorporation. On 17 December 2001, the Enron Corporation filed an 8-K report with theSecurities and Exchange Commission (SEC). It stated that on “December 2, 2001, EnronCorp. (the “Company”) and certain other subsidiaries of the Company (collectively, the“Debtors”) each filed voluntary petitions for relief under chapter 11 of title 11 of theUnited States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the
A M I T Y G L O B A L B U S I N E S S S C H O O L B H U B A N E S W A R Page No: - 18 -Southern District of New York…” Thus, in December 2001, Enron filed for bankruptcy. Howdid a seemingly healthy, profitable corporation transform itself into the biggest corporatescandal of the new millennium? The newspapers have reported extensively on the clientelesthat have been harmed by the Enron collapse. These include: Employees with 401-K plansheavily (or exclusively) invested in Enron stock; Employees who have lost their jobs atEnron; Employees and investors who held worthless Enron stock; Debtholders who owneddebt that had lost most of its value (including bank debt). But, the list of those affectedgreatly is much longer, including: Top management with reputations in shatters andsignificant reductions in wealth. Arthur Anderson — A once highly respected publicaccounting firm was struggling to stay afloat and subsequently was forced to shut downoperations. Security analysts who recommended Enron stock. Bond rating agencies who hadimperfect crystal balls. Politicians who accepted donations from Enron. At the beginning of2001, Enron‘s common stock was high compared to its earnings. How does a CEO manage acompany whose stock is overvalued? Enron management chose to take actions that presenteda sunny smile to the public while painful events occurred. There were some executives who,fooled by the firm‘s own accounting and financial tricks, actually thought things were bright.
A M I T Y G L O B A L B U S I N E S S S C H O O L B H U B A N E S W A R Page No: - 19 -CHAPTER-3LITERATURE REVIEWBaker (2003)1has analyzed the fall of Enron from different perspectives he discussed thebusiness model of Enron and external factors such as deregulation of industry in that era. Hehas examined the growth of Enron which transformed itself from regulated gas distributionCompany into an international trading company and through all the stages of its collapse heinvestigated Enron as American public private partnershipThen David Baker (2005)2views Enron‘s bankruptcy as an accounting failure in which theinvestors and creditors of the company were misled and presented with false financialinformation .In his view the bankruptcy losses of the investors could have been reduced tosome extent if they had been provided with the transparent financial information and itsresult.Joanne and john (2006)3discussed the some issue and use the term ‗HypermodernOrganization‘ they argued that the continuous growth of Enron as an organization was basedon hyper flexibility in terms of size and survival of its business units. In reaction to themarket opportunities Enron acquired and disposed off businesses. It acquired PortlandGeneral Corporation to enter to the market of utility electricity.Konstantin (2005)4, showed that during the period1996-2001 there was increase in therevenue of the company while the net income decreased from 5.66% to 0 .97%. In thisresearch different ratios were used like price to earnings, Price to book value, ratio Return onasset, and use of Net margin and use of risk management.1James Baker , “the fall of ENRON” (2003)2David baker, “ENRONS accounting violation” (2005)3Joanne and john, “hypermodern organization” (2006)4Konastantin, “ accounting analysis of ENRON” (2005)
A M I T Y G L O B A L B U S I N E S S S C H O O L B H U B A N E S W A R Page No: - 20 -Coffee (2003)5has discussed the same issue in his working paper ―what caused Enron―states: as in late as October 2001 sixteen or seventeen security analysts recommended buy orstrong buy for Enron‘s stock however the stock price of Enron already in 2000was six timesof its book value and 70 times earnings, however the first brokerage firm whichrecommended ―sell‖ recommendation for Enron was prudential securities which at that timewas not engaged in the investment banking business.Giovanni and Andrew (20026) discussed the institutional activism in Europe they argued thatcrisis in public model security and reforms in stock market exchanges and birth of the singlemarket in Europe has changed the domestic institutional investors.Levi (2001)7statement: ―difference in outcome is derived from DNA of companies i.e.which is the organizational infrastructure, its capabilities, culture and leadership…these arethe elements that create the working context for operating and managing intangiblesEnrique (2003)8have studied the reaction of Enron and discussed its aftermath. He found thatthe reaction on collapse of the Enron on Europe and UK has been Different than USA. In hisview Block holders of European Companies must have been working more effectively thanthe institutional investors and monitors in USA. After Enron in USA there are quite a fewcompanies who faced serious problems in Europe5Coffee “What caused Enron?” A Capsule social and Economic History of the 1990’s: (2003)6Giovanni and Andrew, “ Enron in Europe” (2002)7Levi , “ organizational structure of Enron” (2001)8Enrique “Bad Apples, Bad Oranges: A comment from old Europe on post Enron corporate governancereforms” (2003)
A M I T Y G L O B A L B U S I N E S S S C H O O L B H U B A N E S W A R Page No: - 21 -Higgs (2003)9recommended that half of the board members should be non executivedirectors and the role of CEO and the chairman should be separate. In his view independenceof auditors and directors is very important. Luca Enrique 2003discussed the developments inEU countries in the post Enron era. On May 25, 2003,the European commission issued tocouncil and European parliament setting out its agenda to modernize European CorporateLaw and to enhance corporate governance in E.U. With respect to U.K post Enron corporateGovernance reform there has been study on non executive directors commissioned bygovernment funded organization sand also some initiatives on audit and accounting issues.Chatzekal(2002)10view that the changing nature of finance enterprise and accountingcapability should be in parallel and the one way to achieve is through reviewing theaccounting for intangibles and he raises the important question of how to reduce theopportunity for new Enron in future.9Higgs “ CEO role in Enron” (2003)10Chatzekal “ Enron failure” (2002)
A M I T Y G L O B A L B U S I N E S S S C H O O L B H U B A N E S W A R Page No: - 22 -CHAPTER-4RESEARCH METHODOLOGYResearch methodology is a systematic approach in management research to achieve pre-defined objectives. It helps a researcher to guide during the course of research work. Rulesand techniques stated in research methodology save time and labour of the researcher asresearcher know how to proceed to conduct the study as per the objective.SELECTION OF TOPIC: The selection of topic is a crucial factor in any research study.There should be newness and it should give maximum scope to explore the ideas fromdifferent angles.After consultation with the internal guide, the topic was finalized and titled as-―ENRON‘SFAILURE”RESEARCH DESIGN: “A Research design is the arrangement of conditions for collectionand analysis of data in a manner that aims to combine relevance to the research purpose witheconomy in procedure‖ The research design followed to study ENRON‘S FAILURE isDescriptive and Analytical Research Design.SOURCES OF DATA COLLECTION:1. Secondary data collectionThe secondary data are those which have already collected and stored. Secondary data easilyget those data from records, journals, annual reports of the company etc. It will save the time,money and efforts to collect the data. Secondary data also made available through trademagazines, annual reports, books etc.
A M I T Y G L O B A L B U S I N E S S S C H O O L B H U B A N E S W A R Page No: - 23 -CHAPTER-5RESULTS AND DISCUSSIONSGains and Losses from Stock Investment:Assume an independent entity buys 1,000,000 shares of Enron stock at a price of $50 pershare and the price increases to $80. The independent entity has made an unrealized gain of$30 per share or $30,000,000 in total. Following mark-to-market accounting this gain willaffect the independent entity‘s income. Enron‘s income will not be affected. Now assume anentity, completely owned and controlled by Enron, buys 1,000,000 shares of Enron at a priceof $50. When Enron did this sort of transaction, it would sometimes accept a notes receivablein exchange for the stock. Good accounting would require that there be no increase in stockequity or assets of Enron when the asset received is a note receivable. For this example,assume the entity paid $50,000,000 cash to Enron for the stock. Now assume the stock pricegoes up to $80 per share. When the entity buying the stock was independent of Enron, therewas a $30,000,000 gain. Now generally accepted accounting requires that there be no gain orloss for Enron associated with transactions involving Enron stock.: Consider the following table:Enron an owned and controlled subsidiaryAssets 50,000,000 50,000,000 (Enron stock)Stock equity 50,000,000 50,000,000If we consolidate the financial affairs of the two entities we have:ConsolidatedAssets 50,000,000Stock equity 50,000,000Now assume time passes and the controlled entity (and Enron) earns $20,000,000 and thevalue per share increases. The controlled entity is not marked-to-market. We now have:Enron An owned and controlled subsidiaryAssets 70,000,000 70,000,000Stock equity 70,000,000 70,000,000
A M I T Y G L O B A L B U S I N E S S S C H O O L B H U B A N E S W A R Page No: - 24 -If we consolidate the financial affairs we haveConsolidatedAssets 70,000,000Stock equity 70,000,000But assume the controlled entity uses mark-to-market accounting and the value of its asset(Enron stock) increase to $80,000,000. The parent (Enron) should not record the $10,000,000of market appreciation (above the $20,000,000 of earnings) as income. It results from thestock price change of Enron stock and this should not affect Enron‘s income. The$30,000,000 increase in the Enron stock price does not give rise to Enron income or anincrease in Enron assets. The $20,000,000 of Enron earnings are recorded.Reported net income Decrease in income1997 $105 million $28 million1998 703 million 133 million1999 893 million 153 million2000 979 million 91 millionTotal 2680 million 405 millionEnron‘s reported debt would be increased by $628 million in 2000 as a result of theconsolidations
A M I T Y G L O B A L B U S I N E S S S C H O O L B H U B A N E S W A R Page No: - 25 -In this analysis they used the following valuation model:They found that the Enron stock price which was $90 in 2000 at the time was consistent withthe ROE and its revenues but the important point here is that theses earnings and returns werebased on the information which was fraudulent therefore any assumption that stock price ofEnron in (2000) created value to its shareholders would be wrong. This is the reason the fundmanagers were led to wrong decision. Palepu (2003) states that:―Several reasons have been proposed that why the leading managers were so slowing torecognize the problem to Enron, they were misled by the accounting statements or by sellside annalists or the incentives of fund managers to seek out high quality information werepoor.‖
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A M I T Y G L O B A L B U S I N E S S S C H O O L B H U B A N E S W A R Page No: - 28 -Evaluating Arthur Andersen:Let us consider the performance of the accounting firm Arthur Andersen. It destroyeddocuments related to the Enron collapse. Early in 2002, it was revealed that documents weredestroyed in October 2001 after the world was aware that Enron‘s accounting was faulty andwould be investigated. The author of this book cannot judge the legality of the documentshredding, but he does know that at a minimum it was bad public relations. It would besurprising if there were revelations on the shredded documents that were as bad as interestedparties thought they were after the shredding. Arthur‘s second error was in not keepingEnron‘s Board aware of its concerns early in 2001 or before. Duncan and others at ArthurAndersen were aware in February 2001 that Enron had significant risks that were not ofpublic knowledge. Why not inform the Enron Board? Let us assume that Arthur Andersen didnot know in 1997 that Chewco did not have 3% independent equity. Thinking Chewcoqualified for non consolidation it was reasonable not to consolidate Chewco until 2001 whenArthur Andersen found out that Chewco and JEDI should have been consolidated since 1997.Did Arthur Andersen truly find out in 2001 or did it know previously that there was not a 3%independent equity? There is also the issue of the $1.2 billion entry (debit) to notes receivableand entry to stock equity (credit). Accounting principles do not allow one to record anincrease in stock equity balanced by a promise to pay in the future. Recording the increase instock equity is not acceptable accounting, but it is not a high crime. Why was ArthurAndersen fooled? It is possible that the complex array of SPEs hid the true nature of thetransaction until 17 October 2001. Or it could be that Arthur Andersen allowed an incorrectaccounting entry. It is very difficult to see why Arthur Andersen would knowingly allow anincorrect accounting entry. It is more likely that the complex manner of structuring thetransaction hid the transaction‘s basic nature.At what stage should Arthur Andersen have demanded that the curtain be drawn on theRaptors? Before the assets held by Enron decreased in value there was no importantaccounting issue concerning the Raptors. At some stage the Raptors could no longer honortheir put liabilities to Enron. We do not know when this happened, but it was somewhatbefore October 2001. The Enron Board should have been informed that the puts held byEnron were not fully effective.There are many issues regarding the recording of debt, the timing of revenues, the timing ofexpenses, and the recognition of gains on sales of assets, where it is possible that the assetswere not actually sold (the buyer had puts to sell back to Enron). We need more informationbefore determining guilt.Arthur Andersen was tried in the court of public opinion and found guilty before its legaltrial. The fact that the US Government indicted the firm did not help Arthur Andersen‘scustomer relations. It became very difficult for a public corporation to hire Arthur Andersenas its auditor. CFOs did not want to defend the choice of Arthur Andersen as the firm‘s
A M I T Y G L O B A L B U S I N E S S S C H O O L B H U B A N E S W A R Page No: - 29 -auditor. The fact that Arthur was later found not to be guilty did not help the alreadydissolved firm.There is some significant probability that the accounting errors that were made by Enronwere not Arthur Andersen‘s responsibility and that, aside from shredding, no crimes werecommitted by Arthur Andersen prior to 2001 (whether the shredding was a crime is forhistory to decide; Andersen was not convicted of that crime). Arthur Andersen, as of May2002, seems to have gotten a raw deal from the press and the US Justice Department.Arthur Andersen had a group of outstanding accounting experts available in its Chicagooffice to answer questions as to the appropriate accounting for difficult issues. This servicewas available at no cost to any operating office. However, the operating office havingreceived the expert opinion did not have to follow the advice, though it normally did. It islikely that the Chicago experts offered the Houston office advice that could have avoided theissues that ultimately trapped the firm.Kenneth L LayBy one definition Lay is responsible for any mistake that was made by an Enron employee.This follows the US Navy tradition that a ship‘s captain is responsible for anything thathappens on the ship. This rule is great in theory because it causes the captain to take a deepinterest in all activities that could lead to trouble. Captains of US Navy ships at sea do not getto sleep through the night very often. Ultimately, a captain is a single person of limited scope.He or she cannot be everywhere. Informed of all possible dangers the captain will soon beexhausted and will become a walking zombie. There are things that happen for which itwould not be sensible to hold the captain responsible. Similarly, Lay delegatedresponsibilities to Enron‘s senior officers. Lay retired as the CEO in February 2001 andSkilling was named as the CEO. On 14 August 2001 Skilling resigned for personal reasons.Lay resumed the job of CEO. But Lay was more interested in big issues and the politicalscene than the details of accounting and finance as they applied to Enron. Lay hired Skillingand Fastow to take care of the accounting and finance. The accounting problems thatultimately led to the need to revise the operating results for 1997–2001 (first half) were verytechnical. Now, the world is aware of the nature of Enron‘s accounting problems, there willbe differences of opinion as to whether or not Enron should have been allowed to record theentries that they did. Even though, when Enron was in error as with Chewco, it was an errorbecause of a technicality. Chewco failed to have a 3% independent equity, that should havebeen consolidated. But why 3%? Also, how is the 3% to be measured and what should beincluded as equity? The rules should have been followed, but these rules were not carrieddown by Moses from the Mount.
A M I T Y G L O B A L B U S I N E S S S C H O O L B H U B A N E S W A R Page No: - 30 -The Extent of CorruptionWas Enron corrupt? How evil was the Enron management? Let us leave out fromconsideration the shredding of documents by both Arthur Andersen and Enron when theyknew investigations were pending. Also, leave out the amounts taken by Fastow and otheremployees from the several related entities. While upsetting, these actions were not the coreelements of Enron‘s bankruptcy. Consider the SPEs that were established or utilized forhedging purposes and the accounting for these entities (for example, Chewco and theRaptors). To a minor extent these were actually hedges (for small price changes of the hedgedasset). The accounting and economic problems came into being when the losses becamelarge. It is interesting that the accounting for Chewco would have been technically acceptable(if not admirable) if an additional $7 million of independent equity had been raised. Thefailure to raise the $7 million is stupidity or carelessness, not corruption. There were severalother (maybe ―many other‖) departures from good accounting. These were not consistentwith the traditional objectives of financial accounting, but they did not necessarily indicatethe existence of corruption. It was desirable for Lay and Skilling to pay more attention to theaccounting and financial details, but one can conject that they did not. Fastow was both tooclever and not knowledgeable enough. He failed to consider the consequences of a severe fallin the value of the merchant assets and the value of the SPEs‘ assets. Fastow established ahouse of cards that could not withstand a slight breeze. The auditors and the CFO of Enrondid not keep the Board adequately informed. The investment banks and commercial bankshelped to raise the capital necessary for Fastow to play his games.Analysts recommended Enron stock after the investment banks knew that there weredifficulties. This could be an illustration of the analysts bailing out the investment banks or itcould be that the wall between investment banking and security analyses actually worked.Sharing the Blame:Identifying the entities that can share in the blame for the Enron collapse results in a long listthat includes:1. Enron‘s top management and Board did not stop transactions that they did not understand(and maybe did not know about).2. Investment banks and commercial banks, for not identifying the pitfalls for Enronassociated with complexity and large amounts of leverage.3. A law firm that seemed not to keep the Enron Board informed of all conflict of interestsituations.4. Rating agencies and security analysts that did not insist on better information.5. The auditors seemed to be too permissive.6. The CFO initiated many of the transactions that can be criticized.7. Investors who paid too much for the stock (hindsight helps us with this one).8. The designers of the accounting rules that facilitate the hiding of debt.
A M I T Y G L O B A L B U S I N E S S S C H O O L B H U B A N E S W A R Page No: - 31 -CHAPTER-6CONCLUSIONThe aim of this thesis is to examine and discuss the major scandal of Enron in relation qualityfinancial reporting and corporate objective of shareholder wealth maximization. Through theanalysis of Enron case I have tried to show that how the directors of the Enron used financialreporting to mask the real financial position of the company. Discussion and analysis alsoshowed that financial reporting was not the only factor for demise of Enron there were otherfactors such as business model of Enron, Auditors independence, deregulation energyindustry in USA, flaws in US Generally Accepted Accounting Principles (GAAP),Accounting Standards and corporate Governance. But there is consensus that Enronexecutives used financial reporting as a tool to mask the real financial position of thecompany and also all these factors are linked directly or indirectly with financial reporting.This thesis evidences of the corrupt practices of the Enron executives and their contributionin reporting the fraudulent financial statements. In essence the lack of presentation of highquality information, poor corporate governance and environment of corruption lead todownfall of Enron. The discussion and analysis of this thesis suggest that Financial Reportingof a company can be key factor in disclosing or hiding financial health. In this whole paper Ihave emphasized on quest of transparent financial statements which can not only be achievedthrough enforcing quality Accounting Standards but it is influenced by a number of otherinstitutional factors which I have discussed throughout in the discussion part of this paperusing the Enron case.‗Transparency‘ and ‗Accountability‘ are the two key words and lack of both in the financialsystems result in scandals like the Enron. It is a basic conception in finance that ‗increaseddebts can increase the financial risk‘ of an entity but how the investors of a company wouldknow if debts do not appear on the financial statements of the company? Therefore it can beargued that if Enron had presented their financial reports with transparency and had showntheir assets and liabilities accordingly, the financial losses to the investors would have beenminimized. Financial analysts use financial information for valuations purposes and forecastthe earnings of the company which has impact on the security prices. The Enron‘s earningswere inflated fraudulently and debts were shown as profits. Which in turn inflated the stockprices but it did not create value to the shareholders as these prices were based on falseinformation. Therefore it can be argued that quality reporting can lead to quality forecast andestimates, which will be based on true and fair view and can help investors in qualitydecisions and it can create value to shareholders and value to corporate in the long run.
A M I T Y G L O B A L B U S I N E S S S C H O O L B H U B A N E S W A R Page No: - 32 -SUGGESTIONSThere are several lessons to be learned from the Enron:First and most importantly, a finance officer can be ―too smart‖. Using clever financial andaccounting devices that confuse analysts and investors might work for a short while, butwhen the system collapses the consequences are magnified. If Enron had reported itsmerchant investment losses to go with the firm‘s trading and operating profits, the marketwould have digested this information and Enron would have survived.Any firm that is heavily dependent on short-term credit is vulnerable to bad news reports thatshake the market‘s faith in its reports. The media can bring down a firm that needs short-termcredit.Enron did many transactions whose primary objective seemed to be to mislead the personevaluating its financial performance. All the accounting hedges were of this nature as well asmany of the put purchase transactions with the SPEs. Unfortunately, these transactions thenled to a faulty accounting (failure to consolidate three entities) and a loss of faith by themarket in Enron‘s top managementThere are many reasons why a firm‘s management should ―do right‖. First, it is thehonourable and correct thing to do. Second, it is likely to maximize shareholder value. Enron,when it found it could not buy an economic hedge for its merchant assets, should havereported the gains and losses as they occurred. If it had done this simple and the correct thingthe Enron Corporation would still be operating and growing.Enron‘s stock price implicitly promised large and continuous profitable growth. Enron‘sactual business activities were not always profitable and they did not promise continuousgrowth. What do managers do when their stock is greatly overvalued? In the Enron case someof the managers tried to sustain the illusion of continuous profitable growth. Unfortunately, itwas an illusion. The Enron stock price as of 1 January 2001 could not be justified by therevised accounting numbers.
A M I T Y G L O B A L B U S I N E S S S C H O O L B H U B A N E S W A R Page No: - 33 -BIBLIOGRAPHYAllen, C. E. (2002) ―Building mountains in a flat landscape: Investor relation in post EnronEra‖ An International Journal. pp. 206-211Barnes, P. (1987) ―The Analysis and use of Financial Ratios‖ Journal of Business Financeand Accounting 14 (4) pp. 449-461Chandra, prashana (2007) ―financial management‖Bhattacharya, U., Daouk, H., Jorgenson, B. and Kehr, C. (2000) ―When and Event is not anEvent: The Curious Case of an Emerging Market‖ Journal of Financial EconomicsWebsites:www. Wikipedia.comwww. Enron.comwww. Scribd.comwww. slideshare.comwww. Authorstream.comLIMITATIONS OF THE STUDY:-1. Due to time restraints it was not possible to study in depth.2. Many facts and data are such that they are not to be disclosed because of the confidentialnature of the same3. Since the financial matters are sensitive in nature the same could not acquired easily