ENRON Case Study
While Enron is a case on its on by the sheer destruction of wealth for shareholders and the fraud involved, there are some companies, while doing it legally, work with accounting practices to try to keep EPS in line with estimates.
For example, a company might decide to sell future earning generating assets to meet current EPS analysts' expectations. This asset sales will generate earning in the current fiscal year, but will impact on future earnings.
In the following graph, you can see that EPS and earnings are growing, while at the same time, the Economic Value Added EVA sank. In this case, a StockPointer user would have seen a signal to sell long before it went bankrupt.
Business is primarily about economics, not about accounting.
Bob Shapiro, former Chairman and CEO, Monsanto Company
