Class 3 Accounting Analysis 6slides

Class 3 Accounting Analysis 6slides - Todays Plan Whats...

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1 Financial Statement Analysis Class 3: Accounting Analysis 1 What’s accounting analysis? Why do managers manipulate earnings? How do managers manipulate earnings? Additional reading: Healy and Palepu (2003): The fall of Enron Graham, Harvey and Rajgopal (2005): The economic implications of corporate financial reporting Dechow, Ge, Larson and Sloan (2007): Predicting material accounting manipulations Today’s Plan A. Accounting Analysis To evaluate the degree to which a firm’s accounting captures its underlying business reality. “Integrity of accounting” Why is accounting analysis important? A1. Case Study: Enron Kenneth Lay founded Enron in 1985 A conglomerate in 2001 Gas pipelines Energy trading Electricity plants Pulp and paper plants Broadband, water plants, etc Extraordinary growth in both domestic and international markets A1. Enron’s Growth A1: Enron in 2001 Enron restated its financials for the prior four years. Earnings from 1997 to 2000 declined by $591 million, and debt for 2000 increased by $658 million. November 8 Enron’s debt rating was downgraded to junk bond. November 28 Enron filed for bankruptcy. December 2 The Securities and Exchange Commission opened inquiries into a potential conflict of interest between Enron, its directors and its
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This note was uploaded on 01/27/2012 for the course FINS 5511 taught by Professor Mike during the Three '11 term at South Australia.

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Class 3 Accounting Analysis 6slides - Todays Plan Whats...

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