The History of Enron and WorldCom Free Essay Example, 3750 words

Emshwiller and Smith report that ‘The events were followed by a series of scandals involving irregular accounting methods bordering on fraud which involved Enron and Arthur Andersen accounting firm and led Enron on the verge of undergoing the largest bankruptcy in economic history in November 2001’. 7 Since Enron was always considered a blue chip stock, the bankruptcy was a disastrous and unprecedented event in the global financial world. The story of WorldCom is not quite different – the company had a very good start and a wonderful growth rate but it finished poorly. The starting objective of the company in 1984 was to provide service as a long distance reseller company thus the name LDDS, which stands for Long Distance Discount Service. The company embarked on a lot of acquisitions in the 1990s and these acquisitions fuelled the company’s growth. The website, which reports mainly on WorldCom reports that ‘For 15 years it grew quickly through acquisitions and mergers. Its $40 billion merger with MCI in 1998 was the largest in history at the time. ’8 The table below shows major companies that were bought or merged with WorldCom Company Year bought or merged Advanced Communications Corporation Resurgens Communication Group Metromedia Communication Corporation IDB Communications Group, Inc Williams Technology Group, Inc MFS Communication Company Digex (DIGX) 1992 1993 1993 1994 1995 1996 2001 The year 2002 however became the crisis year for the telecommunication giant that was once the second-largest long distance phone company in the U. S.9 The cause of the crisis as reported by Simon R. We will write a custom essay sample on The History of Enron and WorldCom or any topic specifically for you Only $17.96 $11.86/pageorder now & Riva D. A, was because WorldCom was ‘plagued by the rapid erosion of its profits and an accounting scandal that created billions in illusory earnings’10. It was reported that WorldCom executives lied about the companys accounting numbers, blowing the companys assets up by around $12 billion dollars. The result of this was a swift bankruptcy that was followed by massive losses for investors of the company. 2.0 Potential Risks that all Companies are Likely to Face and how they may be Addressed One of the most prudent thoughts any investor or entrepreneur should have at the back of his mind is that the decision to start a company comes with a lot of risks. The word ‘risk’ sounds threatening but these company or business risks do not suggest that every business would fail at all cost. The truth rather is, when an investor or an entrepreneur is aware of these risks, he is put in a very good position to handle them when they begin merging their heads.