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Enron Case Study_So What is It Worth

Enron Case Study_So What is It Worth

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Published by John Aldridge Chew

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Published by: John Aldridge Chew on Sep 28, 2011
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Enron Case Study CommentaryEmail:aldridge56@aol.com www.csinvesting.wordpress.comteaching/studying/investing
Page 1
Ask WHY?Instructions: So What is this Company Worth
 — 
ballpark, estimate?See Financial Statements. Take all numbers as fair and accurate.Take no more than 20 minutes:Determine whether this business is worth investing in. What is it worth? Why? Is this a good business? Why orwhy not?What critical information do you need to get or look at if you wanted to fully analyze this company?To get to the essence of the company I go right to the financial statement or summary of the financial data. Asports writer goes to the video tape; the analyst looks at the numbers first. I read that Warren Buffett prefersnot to even know the price of the company before he looks at the financial statements. You have an advantageif you go to the numbers first before even knowing what the company does or the price of its stock. Keep yourmind clear of prejudice, noise and stories.Ask: Is this a good business. What is it?
 
Enron Case Study CommentaryEmail:aldridge56@aol.com www.csinvesting.wordpress.comteaching/studying/investing
Page 2
ITEM 6. SELECTED FINANCIAL DATA (UNAUDITED)
2000 1999 1998 1997 1996
Operating Revenues (millions)
$100,78
9 $40,112 $31,260 $20,273 $13,289Total Assets (millions
)
$ 65,503
$33,381
$29,350 $22,552 $16,137
 Big jump of almost 100% in assets! Financed by debt or stock?
Common Stock Statistics(a)Income before cumulative effectof accounting changesTotal (millions) 979 1,024 703 105 584Per share - basic $1.22 $1.36 $1.07 $0.16 $1.16Per share - diluted $1.12 $1.27 $1.01 $0.16 $1.08Earnings on common stock Total (millions) $896 $827 $686 $ 88 $568Per share - basic $1.22 $1.17 $1.07 $0.16 $1.16Per share - diluted $1.12 $1.10 $1.01 $0.16 $1.08
Dividends on common stock
Why?
 
Total (millions) $368 $355 $312 $243 $212Per share $0.50 $0.50 $0.48 $0.46 $0.43Shares outstanding (millions)Actual at year-end 752 716 662 622 510Average for the year - basic 736 705 642 544 492Average for the year - diluted
814 769
695 555 540
 About a 5% increase in shares so debt financing for the increase in assets.
Capitalization (millions)Short-term and long-term debt $10,229 $ 8,152 $ 7,357 $ 6,254 $3,349Minority interests 2,414 2,430 2,143 1,147 755Company-obligated preferredsecurities of subsidiaries 904 1,000 1,001 993 592Shareholders' equity 11,470 9,570 7,048 5,618 3,723Total capitalization $25,017 $21,152 $17,549 $14,012 $8,419
Why no mention of LT Debt? Red flags should be flying.
The dog that doesn’t bark. Look at what they don’t 
 tell you. View terms of debt.
(a) Share and per share amounts have been restated to reflect the two-for-one stock split effective August 13,1999.
ITEM 6. SELECTED FINANCIAL DATA (UNAUDITED)2000 1999 1998 1997 1996
Operating Revenues (millions) $100,789 $40,112 $31,260 $20,273 $13,289
Total Assets (millions) $ 65,503
$33,381 $29,350 $22,552 $16,137Common Stock Statistics (a)Income before cumulative effectof accounting changes
 
Enron Case Study CommentaryEmail:aldridge56@aol.com www.csinvesting.wordpress.comteaching/studying/investing
Page 3
Total (millions) 979 1,024 703 105 584Per share - basic $1.22 $1.36 $1.07 $0.16 $1.16Per share - diluted $1.12 $1.27 $1.01 $0.16 $1.08Earnings on common stock Total (millions) $896 $827 $686 $ 88 $568Per share - basic $1.22 $1.17 $1.07 $0.16 $1.16Per share - diluted $1.12 $1.10 $1.01 $0.16 $1.08Dividends on common stock Total (millions) $368 $355 $312 $243 $212Per share $0.50 $0.50 $0.48 $0.46 $0.43Shares outstanding (millions)Actual at year-end 752 716 662 622 510Average for the year - basic 736 705 642 544 492Average for the year - diluted
814
769 695 555 540Capitalization (millions)Short-term and long-term debt $10,229 $ 8,152 $ 7,357 $ 6,254 $3,349Minority interests 2,414 2,430 2,143 1,147 755Company-obligated preferredsecurities of subsidiaries 904 1,000 1,001 993 592Shareholders'
equity 11,470
9,570 7,048 5,618 3,723Total capitalization $25,017 $21,152 $17,549 $14,012 $8,419(a) Share and per share amounts have been restated to reflect the two-for-one stock split effective August 13, 1999.
Net income includes the following:(In millions) 2000 1999 1998After-tax results before items impactingcomparability $1,266 $ 957 $ 698 1.9 ROA, 5
% ROE
Items impacting comparability: (a)Charge to reflect impairment by xxxxxx (326) - -Gain on XXCX, Inc. (The zzzzzzzCompany), net 39 - -Gains on sales of subsidiary stock - 345 45VBCX-related charges - (278) (40)Cumulative effect of accountingchanges - (131) -Net income $ 979 $ 893 $ 703(a) Tax affected at 35%, except where a specific tax rateapplied.Diluted earnings per share of common stock were as follows:2000 1999 1998Diluted earnings per share(a):After-tax results before itemsimpacting comparability $1.47 $1.18 $1.00Items impacting comparability:Charge to reflect impairment by (0.40) - -Gain on cccc zzz fffff cc, net 0.05 - -Gains on sales of subsidiary stock - 0.45 0.07MTBE-related charges - (0.36) (0.06)Cum. effect of accting chgs - (0.17) -Diluted earnings per share $1.12 $1.10 $1.01REPORT OF INDEPENDENT PUBLIC ACCOUNTANTSIn our opinion, the financial statements referred to above

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