Beyond earnings management: Using ratios to predict Enron's collapse

This paper proposes a revised analytical model for accounting professionals that can be used to evaluate the financial well being of innovative companies that rely on earnings management practices (EM) for their growth. Through an analysis of corporate governance, financial reporting standards, and...

Full description

Saved in:
Bibliographic Details
Published in:Managerial finance 2005-09, Vol.31 (9), p.35-51
Main Author: Kastantin, Joseph T
Format: Article
Language:English
Subjects:
Accounting
Analytical model
Audits
Balance sheets
Boards of directors
Capital expenditures
Consolidated financial statements
Corporate governance
Corporate profits
Earnings
Earnings management
Earnings per share
Economic development
Equity
Equity method
Executive compensation
Financial analysis
Financial reporting
Investments
Natural gas distribution
Professionals
Ratio analysis
Scandals
Special purpose entities
Studies
Unconsolidated subsidiaries
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:This paper proposes a revised analytical model for accounting professionals that can be used to evaluate the financial well being of innovative companies that rely on earnings management practices (EM) for their growth. Through an analysis of corporate governance, financial reporting standards, and ratio analysis this paper reaches the conclusion that Enron extended previously researched earnings management practices that could have been detected in early 2000. Results of the analysis indicate that by using price book, price earnings multiple, net margin percentage, and return on assets, and taking into consideration the so-called risk management activities which seemed to disguise highly volatile speculative derivative-based activities, Enron was headed for implosion at least one year before its collapse.
ISSN:0307-4358
1758-7743
DOI:10.1108/03074350510769857