CHAPTER 6

Financial Statement Analysis

Our financial century began with the bursting of the dot-com bubble1 after incredible hype and a belief that spectacular revenue growth would continue, with profits to follow at some point. After the dot-com bubble, the next seminal corporate event of the century was probably the collapse of Enron from number eight on the Fortune 500 list to bankruptcy and oblivion. Enron came to symbolize corporate greed and accounting chicanery. In the wake of Enron, the U.S. Congress passed the Sarbanes-Oxley (SOX) law with a rarely seen overwhelming vote of 522 in favor, 3 opposed, and 9 not voting.2 The new law was designed to enhance audit committees and financial disclosures, to provide for additional possible actions ...

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