Chapter 4 Summary

Chapter 4 Summary - Chapter 4 Summary 1/21/08 MGMT 3125...

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Chapter 4 Summary 1/21/08 MGMT 3125 Chapter 4 Summary Analysis of Financial Statements Lessons Learned From Enron and WorldCom The financial statements of a company show all of the assets, liabilities, and equity of a company and can show either the growth or the failure of a company financially. Financial statements are the way that auditors and accountants can determine or detect fraud from a company like the well-known, former energy giant of the turn of the century, Enron. In just a year Enron lost over 638 million dollars and had a 1.2 billion write down in its book value equity. Enron fooled the people with its financial statements by covering up the losses that it had accrued over the recent years. The senior executives of the company had gotten over 750 million dollars in bonuses during the same year that the company went bankrupt. The auditor for Enron, Arthur Andersen was covering up the corruption and was pushing the purchase of Enron stock so that the stock would keep rising although the business was still failing and losing money. In the next year, another titan fell know as WorldCom. Apparently WorldCom had inflated its reported cash flows by more than 11 billion. It turns out that both WorldCom and Enron used Arthur Andersen accounting firm and went out of business along with the firm. In the last few years, due partially to the fall of WorldCom and Enron, the financial statements of companies are now more closely regulated. After the fall of the two moguls, the stock market drastically fell because people began to lose faith in the integrity of companies. In the Sarbanes-Oxley Act of 2002, congress requires the CEO and CFO of a company to sign off on the financial statements so that all of the information is represented truthfully. Ratio Analysis
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Between the balance sheet and the income statement, the financial statements show the company’s financial position at both a certain period of time and also over a certain period of time. From the objective of the investor the financial statement is to predict, while from
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This test prep was uploaded on 04/05/2008 for the course MGNT 3125 taught by Professor Warsi during the Spring '08 term at SPSU.

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Chapter 4 Summary - Chapter 4 Summary 1/21/08 MGMT 3125...

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