Sherron Watkins, the whistle-blower at Enron, made the following statement at a conference that one of the authors attended: "If anyone would have been watching the cash flows of Enron, they could have figured out that there were problems." While traditional ratios don't reveal the problems, the following ratio provides some interesting results when looked at on a quarterly basis:

Net income from operations – Cash flows from operations

Net income from operations

During the period from 1998 to 2001, this ratio revealed the following:

Does this ratio look normal or as expected for a non-fraud-committing company? What would you expect this ratio to look like? Why do the yearly results look so different than the quarterlyresults?

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3 O 1998 1999 2000 2001 12 Months "Nate: The Enron traud was discovered in the 4th quarter ot 2001. As a result, comparable 12-month numbers are not available. Ratio