If you need a good example of how financial statements can be manipulated, I only need to give you one word: Enron.

*****On this anniversary of what’s regarded as the stock market bottom of 2009, I can’t think of a better time to tell this cautionary tale. 

Although Enron was not a small-cap stock when its troubles came to light, the problems disclosed are instructive and can serve as an objective lesson on why you need to be careful when relying on financial statements.

In hindsight, the name is synonymous with a vast array of unsavory doings. Once esteemed as a big player in the big business of energy, Enron was a disaster, and its management fooled many people. Those deceived include the Dow Jones Company, which added Enron to its prestigious Dow Jones Utility Average (and then quickly removed it once the real problems were disclosed). Enron, indeed, turned out to be a house of cards. Thousands of jobs lost, and billions of market capitalization evaporated in a short period of time, wiping out the investment accounts of employees and investors. Reputations, careers, and lives were devastated.

Find out what I am doing right now by following me on Twitter! If you like this post then please consider subscribing to my full feed RSS. You can also subscribe by Email and have new posts sent directly to your inbox.