Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Non-Tech : The ENRON Scandal -- Ignore unavailable to you. Want to Upgrade?

To: Baldur Fjvlnisson who wrote (2996)	3/6/2002 12:51:46 AM
From: Mephisto	Read Replies (1) \| Respond to of 5185

Can't say, don't pay - questions investors should ask Jill Treanor Wednesday March 6, 2002 The Guardian Signs of economic recovery may be helping to bolster confidence in stock markets, but the mood remains fragile. Financiers and investors alike know that many of the concerns raised by the collapse of Enron still hold worryingly true. For a start, nothing has been done to address the fact that so many big companies are still saddled with huge debts. Market participants on both side of the Atlantic are wising up in the post-Enron world, investigating areas of corporate accounting which should have been looked at years ago. This has prompted Barclays Capital, the investment banking arm of Barclays, to come up with tips for investors concerned about unclear accounting practices, which could also be used by companies trying to calm investor jitters. Designed with an eye to debt-laden and acquisition-hungry telecoms companies - where many of the post-Enron jitters have surfaced - the main points could transfer to any other sector. "At its simplest, you need to ask if you understand what a company does and do you understand how it makes it's money," said Laura Winchester, a telecoms analyst at Barclays Capital. She is at pains to avoid suggestions that the practices she outlines at companies such as France Télécom, Telecom Italia and Ericsson are dubious. But she points out that they have had an impact on the companies involved. She describes four broad forms of so-called financial engineering: things you can not see; things you can see but are not necessarily measured; things you can see but can be forgotten; and things that are visible on the balance sheet but open to interpretation. "The numbers are just part of the story. The balance sheet is just a snap shot. It captures some of the picture but not all of it so that's why the notes to the accounts are important." She admits: "If there is misrepresentation or poor disclosure, as in the case of Enron, no one will know until it's too late. "So the biggest question here is to ask how much confidence you have in management." The things you can see but are not necessarily measured are often found in notes to the accounts but left out of headline debt figures. Among events to watch for is France Télécom's well-known obliga tion to support MobilCom and its far-from-clear exposure as a result. Another warning from Ms Winchester is that accounting practices may be clear but investors' memories fail. She cites Ericsson's earnings from its handset joint venture with Sony. Only half of the losses from the alliance will be reported in the operating line. She asks whether investors will remember in coming months that the boost to Ericsson's numbers related to this transaction. Judgments used by companies in their accounting policies make up her fourth point. In telecoms, there is the question of whether revenues from deals should be booked as a one-off or during the lifetime of a deal. She says her watch points have not yet been put to the test since the collapse of Enron because most of the debt issues in the bond markets have come from the strongest companies. If investors are worried they should ultimately put their questions to the management, who will need to provide answers. "Full disclosure acts as a security blanket and we may well see investors less willing to part with their money without it." 1 The things you can't see No one will spot these until it's too late 2 The things you can see but aren't necessarily measured The contigent liabilities that should have been added back 3 The things you can see but can be forgotten as time goes on Accounting changes or adjustments made in previous years 4 The things you can see but are subject to different interpretations Is it debt or equity? should it be in the balance sheet or not? 5 If the company's management won't answer the key questions then _ Draw you own conclusions Source: Barclays Capital guardian.co.uk