[Valleygirl]

Greetings David!

I was doing research for Raytheon and came across your site! I am now a registered member and happy to lean a lot from this site!

My question for you is: "what is/are the biggest role entites play for investors in big corporations?"

I watched your "You Tube" segment about entites, and how Enron abused it, but I am still confused. Can you help?

Thanks.

[David Waring]

Hey Valleygirl,

Glad to hear from you I am glad you like the site and welcome to the community.

Off balance sheet entities are essentially used by corporations to remove a certain aspect of their business from the balance sheet of the main company thereby theoretically removing the risk of that aspect of the business from the parent company as well.

Legitimate uses of off balance sheet entities would be as a prelude to "spinning off" a division of a company that really had nothing to do with the parent companies business. An example would be a company that produced sugar but wanted to get in the oil business. They may do the oil part of their business using an off balance sheet entity.

Before Enron, and still to some extent today, the reporting requirements for these off balance sheet entities, were pretty much non existent, so it was fairly easy for companies to abuse them. In the case of Enron, this basically meant using them to hide certain aspects of their business that should have been disclosed in their financial statements and to inflate earnings so that people would think the company was worth more than it actually was.

Below is an article from Investopedia.com which gives a little more detail on this.

Look forward to seeing you around the site. Let me know if there are any other questions.

Best Regards,
Dave