Cheniere Energy Inc. based in Houston is choosen as the company for the required analysis. It is into the business of LNG. The financial statements of 2013 have been taken and studied for the flexible budget.
Flexible Budget showing three different growth rates
The growth rate of sales for the past three years is 2.73% . As seen from the financial statements of Cheniere the revenues and expenses are not growing at the same rate. In the past three years, there is a fall in revenue in 2012 which has slightly increased in 2013. There was also a fall in the revenue in 2011 as compared to its previous year. The expenses have been significantly increasing each year. It has reached the maximum in 2013. The general and administrative expenses have more than doubled. There is no constant rate at which the revenue and expenses are increasing. The expenses are increasing at a higher rate than the increase in revenue.
The current growth rate of the economy is 4.6% . The company does not face much competition due to the high growth and expansion of it. Its competitors are Energy Transfer Partners, Spectra Energy Corp., Enterprise Products Partners. It provides LNG to various projects. It might be affected with the falling demand of gas as well as the fluctuations in the prices of gas. The competitors are doing very well in the business. There is high demand and equal competition for all.
The current interest rate for the company is LIBOR plus the applicable margin ranging between 2.3% to 3%. Provisions for income tax have been maintained based on the business during the year. Deferred tax and liabilities have been adjusted as per the changes in the rates of tax.
The difference between a flexible budget and a static budget is that the flexible budget can be adjusted as and when the need arises. A static budget cannot be altered or adjusted in between a financial year. The budget can be used for future planning and control. A flexible budget changes according to the actual production while a static budget remains the same. A flexible budget is useful for a business because the planning may change and it would require adjustment for the same.
Any information derived from the budget can be used to determine the future plan of action as well as to make changes to the current allocation of expenses. A budget also provides an insight into the expenses which were already allocated but have crossed the margin and been overspent. Such expenses can be controlled to avoid a recurrence. Performance evaluation of the company as well as employees is possible from this information. It is possible to know about various departments which are over spending and the departments which are efficiently working.
A budget is useful for all kinds of organizations. There are always limited resources and the organization is required to allocate the expenses according to the budget. It helps determine any variations from the expected spending to the actual spending. Calculation of ratios can help determine the adverse or favorable effects of the variations in the budget. Budget helps evaluate the funding and performance of the employees. The employees can be reassigned the tasks according to the budget performances. Various kinds of budgets are possible for a business. Good budgeting shows a focused and well planned business organization which is capable to deal with any adverse situations. Budgeting helps prepare the organization for the high as well as lows in the industry. Control can also be affected efficiently if the budget is well planned and the organization is disciplined. Studying the budget can provide a lot of information to the company and the managers.
Bibliography
Begilow, L. (n.d.). Static vs Flexible Budgets for new businesses. Retrieved from Houston Chronicle: http://smallbusiness.chron.com/static-vs-flexible-budgets-new-businesses-20879.html
Cheniere Energy Inc. (n.d.). Retrieved from Morning Star: http://financials.morningstar.com/competitors/industry-peer.action?t=LNG
Planning a budget. (n.d.). Retrieved from Business Case Studies: http://businesscasestudies.co.uk/davis-service-group/planning-a-budget/the-benefits-and-drawbacks-of-budgeting.html#axzz3GndBUSEK
Planning and budgeting. (n.d.). Retrieved from Three Sigma Inc.: http://www.threesigma.com/planning_budgeting.htm
