The now defunct Enron Corporation, headquartered in Houston, Texas, provided products and services for natural gas, electricity, and communications to wholesale and retail customers. Enron’s operations were conducted through a variety of subsidiaries and affiliates that involved transporting gas through pipelines, transmitting electricity, and managing energy commodities. The following data were taken from Enron’s December 31, 2000 financial statements.
In millions
Total revenues ................... $100,789
Total costs and expenses ............... 98,836
Operating income ................... 1,953
Net income ..................... 979
Total assets ..................... 65,503
Total liabilities ................... 54,033
Total stockholders’ equity ............... 11,470
Net cash flows from operating activities ......... 4,779
Net cash flows from investing activities ......... (4,264)
Net cash flows from financing activities ......... 571
Net increase in cash ................. 1,086
At the end of 2000, the market price of Enron’s stock was approximately $83 per share. By March 15, 2002, Enron’s stock was selling for $0.22 per share.
Review the preceding financial statement data and search the Internet for articles on Enron Corporation. Briefly explain why Enron’s stock dropped so dramatically in such a short time.