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Enron
Acquired
Analyzing Enron's Financial Metrics
Enron's financial metrics, particularly its 55x trailing earnings in March of 2000, raised concerns as it was significantly higher than its industry competitors like Duke Energy or Goldman Sachs. Further scrutiny revealed Enron's poor return on invested capital and free cash flow dynamics, indicating potential fraud. High revenue growth and profits on the income statement, coupled with low return on invested capital and poor free cash flow, are red flags for fraud. Short sellers closely monitor companies exhibiting these metrics for potential accounting issues. The discrepancy between reported profits and cash flow, similar to startups investing in growth versus fraudulent companies, was a cause for concern. Ultimately, analysts and journalists began questioning Enron's financial stability, leading to uncovering the underlying issues during earnings calls.
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