This paper aims to provide evidence of a missed opportunity to detect and halt financial fraud and bankruptcy of Enron Corporation early enough. The paper utilizes data from the financial statements of Enron Corporation 10K reports in the US SEC Edgar Data Base from 1997- 2001 to detect financial fraud and imminent bankruptcy of Enron Corporation. Financial fraud and bankruptcy were assessed in terms of Z-score and Days’ Sales Receivables, Gross Margin, Asset Quality, Sales Growth and Total Accruals to Total Assets indices. The modified Altman Z-Score Index and Beneish Models were used to determine the indices for Enron Corporation. The results revealed that the modified Altman Z-Score Model yielded score indexes which signified financial statement manipulation and bankruptcy. While the Beneish Model yielded indices were found to be higher than the non-manipulation means thresholds implying that, receivables and revenues were out of balance for some years. The analysis and results in this paper provide evidence that Enron Corporation engaged in financial fraud resulting into bankruptcy and there was a missed opportunity to detect and halt the financial fraud and bankruptcy as early as 1998 if an effective corporate governance system had been in place. Strengthening of corporate governance frameworks, adoption of proactive strategies to corporate failures and vigilance of the stakeholders in public firms are recommended as some of the ways of avoiding similar scandals in future.
AN EMPIRICAL ANALYSIS OF PRE AND POST MERGER OR ACQUISITION IMPACT ON FINANCIAL PERFORMANCE: A CASE STUDY OF PAKISTAN TELECOMMUNICATION LIMITED (Published)
The research of this study is to define the objectivity of merger and acquisition impact in pre and post scenario of the event. The study has played with two parts, the first part of the study implement regression model with the help of accounting ratios of profitability and long term financial position ratios with score of bankruptcy. The second part of the study just analyzes the pre and post financial ratios and its trend over the period of time. The time period taken for the selected company PTCL is from 2003 to 2009, which covers the event. The results of first part of the study has shown that profitability and long term financial position of the company is producing a strong positive impact on the firm score of bankruptcy. The second part of financial ratio has seen that after acquisition the profitability of has declined significantly and it has affected the score of the bankruptcy i.e. Z-Score. The overall long term financial position is neither improved nor declined. It has shown a constant trend over the period of time in which the data is taken. It has been conclude that performance of PTCL has not improved over the period of time
FINANCIAL RATIOS, ECONOMETRICS AND CORPORATE BANKRUPTCY – AN EMPIRICAL STUDY (Review Completed - Accepted)
The research study focuses on the application of discriminant model in detecting corporate bankruptcy much before the actual incidence of bankruptcy. The discriminant function developed is Z = -3.4532 + 0.03605Current ratio + 0.6589Asset turnover + 3.1129Proprietary ratio. This helps in assigning ‘Z’ score to a company, which is capable of assigning a company either belonging to the group of solvent companies or to the group of bankrupt companies. By applying the discriminant function to the financial ratios of three major failures of sub-prime crisis period, that is Lehman Brothers, Bear Sterns, and Freddie Mac we find that had this model been applied in the year 2006 to 2007 than it would have alarmed about the bankruptcy of these companies well in advance and acted as ‘Whistle Blower
Financial position of any company can be easily evaluated through its profitability, liquidity, solvency and activity ratios. Ratio analysis is one of the most easiest and competent tool to evaluate the financial soundness of a company. In this paper the financial health of MMTC has been evaluated by using ratio analysis and the chances of bankruptcy in the near future is evaluated with the help of Z score developed by Prof. Edward I. Altman (1968). From the study of five years (2007-08 to 2011-12), it is deduced from the analysis that profit earning capacity and short term investing capacity of MMTC is quite good, but its financing position of assets is comparatively poor. However the Z score value indicates that it is in a strong position, and it has no chances of being bankrupt in the next two years.