Master budgeting techniques, ratio analysis and NPV/IRR through Excelerate Energy case study to excel in HX4204 coursework and financial performance evaluation skills.
This HX4204 assignment sample examines budgeting's critical role in driving organizational performance through Excelerate Energy's financial analysis, covering ratio comparisons with Octopus Energy, traditional vs. alternative budgeting techniques like ZBB and rolling forecasts, and investment appraisal methods including NPV and IRR for LNG infrastructure projects. It highlights how strategic financial planning, smart technologies such as AI-driven forecasting and cloud-based solutions, and real-time analytics enhance decision-making and operational efficiency in volatile energy markets. Assignment Help in UK students can reference this comprehensive analysis to master financial management principles and excel in their coursework evaluations.
“Excelerate Energy” is a leading global integrated “liquefied natural gas (LNG)” solutions provider, Excelerate Energy is the leading global provider of floating storage and regasification units (FSRUs) to provide reliable gas access all around the globe (Oxford Analytica, 2022). The company has been committed to flexibility and innovation, thus, laying its operations on several continents to meet expanding demand for LNG globally.
The global energy market in 2022 and 2023 experienced geopolitical tensions and changes in oil and gas prices as well as changing supply chains affected the global energy market significantly. Furthermore, the preference for renewable energy and the increased regulatory scrutiny of fossil fuel companies has led to market conditions.
Excelerate Energy’s vision is to be the most trusted provider of integrated LNG solutions on a global basis. These goals include providing safe, reliable, and sustainable energy solutions through innovation and strategic partnerships (Raihan et al., 2024). The strategic plan of the company includes the addition of more FSRU.
Excelerate Energy’s 2022 financial and operational performance was strong, generating a net income of $89 million and adjusted “EBITDA” of $297 million (Excelerate Energy, 2022). By the end of the year, Excelerate succeeded in delivering over 6,000 billion cubic feet of natural gas, reaffirming its leadership among the LNG regasification companies.
In 2023, Excelerate had a net income of $127 million and adjusted EBITDA of $347 million, on the heels of increased growth (Excelerate Energy, 2023). More than $4.2 billion in the future contracted cash flows were secured by the company, and FSRU's contract length was extended by more than 15 years across its portfolio. In particular, 40% of its FSRU fleet was re-contracted at higher day rates, indicating that its market value has increased.
Excelerate Energy follows the “International Financial Reporting Standards (IFRS)” to allow transparency, consistency, and comparability of its reporting. IFRS compliance allows the company to provide stakeholders, such as investors, regulators and financial analysts, with truthful and pertinent financial data (François et al., 2022). This adherence not only plays a role in sharpening the decision-making process but also improves corporate governance and builds investor confidence.
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Among the major accounting policies practiced by Excelerate Energy is revenue recognition, and this is on line with IFRS 15: Revenue from Contracts with Customers. Here under this standard companies are supposed to recognize the revenue when the performance obligations are satisfied. As the company has operations in liquefied natural gas (LNG) solutions, the revenue is recognized when LNG is delivered to customers or when the regasification services are rendered. IFRS 15 includes a five-step model that the company will have to follow, and those steps are: to identify the contracts with the customers, particularize the performance obligations, identify the transaction prices, revenue allocation in terms of the obligations, and revenue recognition on the fulfillment of the performance obligations. The structured approach to revenue ensures accurate recording of the revenue and prevents revenue from being recorded prematurely or misleading before its substantial completion.
Neighboring critical accounting policy is regarding depreciation methods, which are prescribed by IAS 16: Property, plant and equipment. Regarding profit margin, our Floating Storage and Regasification Units (FSRUs), storage facilities, and other capital-intensive assets (Czajor, 2022) are depreciated on a straight-line basis. This approach then ensures that the costs on assets are allocated evenly over their useful lives systematically and rationally. The straight-line depreciation selection is in support of industry best practices based on predictability on financial reporting and better planning for replacement and maintenance of assets.
Excelerate Energy follows IFRS 16: Leases, a new standard establishing new lease accounting requirements for all leases with an order date of more than 12 months. Moreover, the company enters into leasing agreements for many of the critical infrastructures with the capital-intensive nature of its operations. According to IFRS 16, the company also records leased assets undertaking as right-of-use assets on the “balance sheet” and lease liabilities as the present value of future lease payments (Nair, 2024). The objective of this standard is to get rid of the balance sheet financing and to increase the financial transparency of the company to show a more accurate description of its financial burdens. Excelerate Energy complies with these accounting standards, thereby facilitating compliant reporting to regulatory requirements, financial clarity, and the investor’s confidence. In applying IFRS standards, the company gains further strengths in attracting the company’s funds, managing financial risks and supporting long-term strategic growth.
Financial data is a major factor in Excelerate Energy’s strategic decision-making. Financial information can be used properly to allocate capital efficiently, evaluate the performance of capital, and manage the risk. Financial data also can be misused through practices such as earnings management and aggressive revenue recognition.
The most common misuse is the usage of earnings management where a company will adjust its finances to get what it wants. This can be illustrated with, for instance, changing depreciation rates or early recognition of revenue which would lead to artificially inflated profitability and deceptive stakeholders about the firm’s real financial standing (Okezie and Ekwe, 2024). To minimize this risk, Excelerate Energy maintains strict internal controls and conforms to IFRS rules that allow financial reporting to mirror the true economic performance.
Another possible use of financial data is to aggressively recognize revenue before actually completing performance obligations. Due to the volatility in the energy sector, indeed some companies may accelerate the recognition of revenue to portray a stronger financial position. To fulfill this risk, Excelerate Energy strictly follows IFRS15, which is a principle that revenue is only recognized when it is earned and realizable. Excelerate Energy utilizes variance analysis in the management accounting practice for transparency (Williamson et al., 2023). This approach helps to highlight deviations and thus management can correct things at the earliest. Cost allocation methods, such as activity-based costing (ABC) are also used to accurately allocate costs among different operations to promote efficiency.
The long-term sustainability and growth of Excelerate Energy is intensely strategic in its financial planning. It provides a bailout in the form of advanced financial models that allow the use of the best capital structure, taking care of financial risks, and maximizing return on investment (ROI).
Excelerate Energy’s financial and management accounting principles are driven in accordance to global standards.
Financial ratios are very important indicator tools for measuring a company’s overall financial health and operational performance. These ratios show how profitable, liquid, and efficient, capital structure and the degree of growth are. Businesses can identify their strengths, weaknesses, and areas of improvement by analyzing financial ratios in different periods or comparing with their industry peers. In this analysis, the key financial ratios of Excelerate Energy are used to evaluate the financial performance of the firm for 2023 as well as 2022. These profit ratios are net profit margin and “return on equity (ROE)”, which tell you how much the company can earn as a proportion of revenue and shareholder equity (Mareta et al., 2022).
A liquidity ratio assesses a company’s ability to pay off its short-term financial obligations (Hasanuddin et al., 2021). This means these ratios, whether a business can cover liabilities that are due in exactly one year or less.
“Current Ratio”: This “current ratio” is calculated as the current assets divided by current liabilities (Excelerate Energy, 2022). Excelerate Energy’s current ratio increased from 2.103 in 2022 to 3.434 in 2023. It has been suggested that improved liquidity has a stronger ability to meet short-term obligations.
“Quick Ratio”: This ratio is similar to the current ratio but excludes inventory which assesses a company's ability. This ability has paid off its liabilities using its most liquid assets. The company's quick ratio also improved from 2.10 in 2022 to 3.42 in 2023. It has reinforced the firm with a strong liquidity position.
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Analysis: The increasing liquidity ratios means Excelerate Energy has increased its capability of paying short-term obligations without relying heavily on its “inventory sales” (Excelerate Energy, 2023). This improvement could be the outcome of more efficient working capital management, high cash reserves or other increasing liquid assets.
Profitability ratios are measures that relate a company’s earnings to the amount of revenue, assets or equity (Rashid, 2021). The ratios shown will aid in determining financial performance, efficiency and profitability in general. Strong earnings potential, effective cost management and competitive advantage are displayed by the higher profitability ratios.
“Operating Profit Margin”: This ratio is a percentage of revenue remaining after operating expenses are covered (Excelerate Energy, 2022). This has achieved an operating profit margin of 16.1%, Excelerate Energy's operating profit margin stood at only 8.5% in 2022, a sign of lower operational efficiency in 2023.
“Gross Profit Margin”: This ratio measures the percentage of revenue remaining after deducting the cost of goods sold. The company has a gross profit margin which has felt significantly dropped. This indicates 25.72% in 2022 to 10.5% in 2023 which has been suggesting a decline in cost control.
Analysis: The sharp decline in both profit margins confirms that Excelerate Energy’s operating or production costs rose or that sales prices fell (Excelerate Energy, 2023). Possible reasons for the drop in profitability could be increased cost of LNG supply, geopolitical uncertainties or inflationary pressure on input costs.
The activity ratios measure the degree of effectiveness with which a company uses its assets in generating revenue (Sari et al., 2022). These are the ratios used to measure operational effectiveness by looking at the inventory turnover rate, accounts receivable collection, and use of the asset. The higher activity ratios lead to better asset management and operational efficiency and consequently, businesses can optimize resources and save costs while improving overall financial results in this competitive market.
Inventory Turnover Ratio: This ratio shows how often inventory is sold and replaced during a particular period. The inventory turnover of Excelerate Energy decreased significantly from 1218.9 in 2022 to 253.4 in 2023, implying that the movement of its inventory was slower or stockpiling was higher.
“Asset Turnover Ratio”: This ratio is defined as the Asset Turnover Ratio, which is used to find out how effectively a company is using its assets to generate revenue (Excelerate Energy, 2023). Turning the company’s assets increased from 0.40 in 2022 to 0.86 in 2023, meaning the company was using its assets well.
Analysis: Decline in inventory turnover could mean either a loss in sales or a strategic accumulation of inventory caused by uncertainties in the supply chain. On the other hand, the higher asset turnover implies that Excelerate Energy has sharpened its utilization of assets to generate revenue, probably due to enhanced operational strategies or capital deployment.
The capital structure ratios assess the financial leverage of a company by comparing its reliance on debt and equity (Nurwulandari, 2021). These ratios help you determine the bank’s financial stability as well as risk.
“Debt-to-Equity Ratio”: Debt to Equity Ratio is the proportion of debt financing compared to shareholder equity (Excelerate Energy, 2022). The values indicate 0.76 in 2023 and 0.46 in 2022.
Inventory turnover: The decrease in inventory turnover from 1218.9 in 2023 to 253.4 in 2022 implies either slower inventory movement, overstocking, or a decrease in sales efficiency.
Analysis: The increasing debt-to-equity ratio implies that to finance its operations or to expand, Excelerate Energy has increased its debt burden (Excelerate Energy, 2023). Although debt can be used to promote growth, this financing is of course also risky. For the debt to be taken on, the company must then ensure that the use of the debt capital is such that returns achieve at least the cost of borrowing.
Growth ratios a company can increase revenue, earnings and market share over time. These help determine the extent to which a financial challenge can be expanded and long-term sustainability (Kumar et al., 2024). A superior company with strong growth ratios demonstrates a competitive advantage in the market as well as a successful strategy; weak growth may mean operations and market constraints.
Revenue Growth: This is a ratio that indicates the portion by which the revenue has been changed over some period. There was a significant revenue contraction, which caused a massive decline in revenues from 178.3% in 2022 to as low as -53.1% in 2023.
EPS Growth: EPS Growth is the measure of change in profitability per share. EPS growth declined from 0.133 in 2022 to 0.045 in 2023, indicating that the earnings per share have diminished (Excelerate Energy, 2022).
Analysis: Excelerate Energy’s revenue and EPS growth in 2023 significantly dropped. Factors like macroeconomic, market demand fluctuations, or higher competition in the LNG market may have contributed to its declining performance. The slowing down of growth raises concern particularly about the company's long-term profitability and sustainability unless it develops strategic initiatives to stave off growth.
“Profitability Ratios”
“Operating Profit Margin”: The operating profit margin was 64.29% in 2022 and 71.28% in 2023, which was an improvement indicating stronger operational performance and efficiency in 2023 (Octopus Energy, 2022).
“Gross Profit Margin”: The gross profit margin increased from 58.57% in 2022 to 65.96% in 2023, indicating efficiency in cost management (Octopus Energy, 2023).
Comparison: The profitability ratios of Octopus Energy are in exceptional order, although the question about its long-term sustainability is still open. Such high margins may be due to favorable market conditions, government incentives, or temporary cost advantages (Octopus Energy, 2023). However, Excelerate Energy’s lower margins indicate that their business is taking a more traditional energy business model where operational costs and fuel price fluctuations affect profitability directly.
Capital Structure Ratios
“Debt-to-Equity Ratio”: Octopus Energy’s debt-to-equity ratio increased from 0.14 to 1.88 from 2022 to 2023, which means that they have been accumulating a huge amount of debt..
Inventory turnover: The inventory turnover ratio was lower with 0.4 in 2022 and 0.2 in 2023 indicating a slower rate of inventory intake (Octopus Energy, 2023).
Comparison: Octopus Energy's rapid rise in debt levels seems to be from an aggressive growth strategy, potentially with investments in renewable energy and digital transformation. This increased leverage however introduces financial risk, for example, interest cost higher and liquidity risk. Conversely, Excelerate Energy has a more conservative debt position and a lower risk profile (Octopus Energy, 2023).
Liquidity Ratios
Current Ratio: Octopus Energy’s current ratio fell from 0.793 in 2022 to 0.921 in 2023, which signifies a decrease in liquidity (Octopus Energy, 2022). This indicates that the firm’s ability to deal with short-term obligations has diminished, basically because of higher short-term obligations or lower current assets.
Quick Ratio: In 2023, the quick ratio of Octopus Energy declined swiftly from 0.90 in 2023 and 0.79 in 2022. This sharp drop in the stock price can imply severe liquidity distress or financial reporting anomalies, implying that the company has limited ability to satisfy its short-term financial obligation without the help of inventory sales.
Comparison: Excelerate Energy has a solid liquidity position, which enables the company to pay its short-term liabilities without problem. On the other side, Octopus Energy’s declining liquidity metrics imply its short-term liquidity deficiencies (Octopus Energy, 2023). The negative quick ratio is a screener for the company that handles its assets to manage the financial status of the company without incurring debts or asset liquidation.
Activity Ratios
Inventory Turnover Ratio: In 2022, Octopus Energy’s inventory turnover ratio was 0.4 and decreased to 0.2 in 2023, which indicates inefficiency in inventory management (Octopus Energy, 2022). Lower inventory movement may mean an absence of sales activity or excess stock, either of which could hurt cash flow and profitability.
Asset Turnover Ratio: Octopus Energy’s asset turnover increased sharply from 2.80 in 2022 to 4.09 in 2023 indicating a significantly higher level of efficiency of utilizing assets (Octopus Energy, 2023). This is an increase that says the company is now producing more money from each unit of its assets which implies improved operational efficiency and appropriate use of its assets.
Comparison: Octopus Energy excelled in the utilization of assets, being able to collect more revenue out of its investments. This lower inventory turnover might be an indication that inventory management for the company is inefficient, affecting the company’s overall operational performance (Octopus Energy, 2022). For Excelerate Energy, on the other hand, a more balanced balance for inventory and asset management might permit a smooth approach to this process while minimizing loss of efficiency.
Growth Ratios
Revenue Growth: Octopus Energy saw its revenue growth increase from 110.0% in 2022 to 141.0% in 2023 which is a truly significant growth (Octopus Energy, 2022). This significant growth is indicative of the company’s respectable revenue earnings.
EPS Growth: The EPS Growth of Octopus Energy increased by 1.162 from 0.294 in 2022 to 1.619 in 2023. Improvement in profitability and operational efficiency is indicated by a substantial increase in EPS owing to good financial management and effective cost-control measures.
Comparison: Octopus Energy’s higher revenue and EPS growth imply superior financial expansion on the back of its machine of innovation and renewable energy. On the contrary, Excelerate Energy’s rapid decline of the growth line reveals that the company may be experiencing heavy-handed business challenges (Octopus Energy, 2023). The difference in these contrasting growth trends, however, shows the strategic differences between these two companies and their markets.
Regulatory policies, fluctuating fuel prices, and the shift of energy to renewable centers of gravity have reshaped the global energy landscape (Mudany et al., 2021). Companies that think through digital transformation and renewable energy sources have greater profits and higher revenue growth. As an expert in LNG infrastructure, Excelerate Energy will be under pressure to succumb to the hits of volatile fuel prices and regulatory challenges. Octopus Energy is one such company that has obtained profitability margins at such a high level, due to government incentives for green energy and carbon reduction initiatives. On the other hand, Excelerate Energy operates in a traditional energy sector in which operating costs are determined by the global LNG prices and supply chain complexities. For these efforts to be sustainable, diversification to renewables should be way forward and digital technologies leveraged to improve operational efficiencies.
Budgeting is a powerful financial management technique used by many organizations to plan, manage, and evaluate the use of their financial resources. Budgeting is therefore an effective process when it aligns the financial strategies of a business with its corporate objectives, facilitating resource allocation, cost control, and overall business financial stability (Klopp, 2023). Incremental budgeting, which models on experience and has been used in traditional ways, has been widely used because they are simple and consistent, while ZBB and rolling forecasts are more flexible and adjust to the latest conditions.
Budgeting has a high impact on the way it improves financial planning, management of cost, evaluation of performance, and strategic decision-making.
Organizations employ various budgeting techniques, each with its advantages and limitations. Incremental budgeting provides benefits of stability and predictability while modern techniques such as zero-based budgeting and rolling forecast improve flexibility and responsiveness to market dynamics.
Incremental budgeting is widely used to adjust the previous year’s budget by incremental changes with percentage increases or decreases.
Advantages of Incremental Budgeting:
Limitations of Incremental Budgeting:
With increasing complexity and volatility in the running of businesses, there are alternative budgeting methods including zero-based budgeting and rolling forecasts. These techniques offer a greater degree of agility, cost control, and strategic goal alignment.
In the zero-based budgeting approach, departments present justification for all expenses from zero for each budget cycle, as opposed to basing new budgets on previous allocations.
Advantages of Zero-Based Budgeting:
Limitations of Zero-Based Budgeting:
It refers to rolling the forecast i.e. updating the budget periodically as per real-time financial and operational data. Organizations set dynamic annual budgets, dynamically changing their forecasts based on the recent trends in the market and market conditions.
Advantages of Rolling Forecasts:
Limitations of Rolling Forecasts:
Organizations can continue to use budgeting as an important tool for driving organizational performance which ensures financial stability, enhances cost efficiency, and supports strategic decision-making.
Advancements in smart technologies have had a significant influence to the evolution of budgeting practices. Incremental and static budgeting are commonplace traditional methods that can take time, and demand manual processes that are prone to errors and inefficiencies.
AI-Driven Forecasting
Machine learning algorithms played a vital role in making the process of the financial forecasting revolution with artificial intelligence. Some of the advantages of AI-Driven Forecasting are:
Traditional forecasting models have usually relied on only historical data trends and then they assume that the same patterns will continue (Faheem et al., 2024). While economic indicators, industry trends, consumer behavior, and geopolitical factors are delighted, AI-driven models handle more variables.
Forecasts are adjusted dynamically based on the new data inputs and the AI systems learn from new data inputs. Organizations have this real-time adaptability which allows them to base financial decisions on the most recent market conditions instead of guessing. When used by finance teams.
Through the use of AI-driven forecasting, businesses can guess different financial scenarios based on how variables are modified like pricing strategy, production cost and market demand (Elufioye et al., 2024). Simulation of these helps organizations prepare for such various economic conditions and creates contingency plans for such a variety of economic conditions.
Cloud-Based Budgeting Solutions
Cloud computing has become a game changer in the area of the method of financial management with its flexibility, scalability, and collaboration in budgeting. Cloud budgeting platforms are subscription-based hence cheaper and easier to use financial planning tools.
Cloud-based budgeting offers the utmost benefit of having the ability to have instant access to financial data from anywhere at any given moment. Additionally, finance teams, executives, and department managers can work together effortlessly on budget planning and editing without constrained by geographical barriers (Sonjaya, 2024).
Streamlined budgeting solutions offered in the cloud reduce upfront costs, as they do not require large capital expenditures in IT infrastructure. Since the platforms are hosted in external servers, companies can save on expenses of hardware maintenance and software updates.
Automated software updates are provided by cloud providers, so businesses always have their latest financial tools and compliance up to date (Aryal et al., 2023). Furthermore, top cloud service providers also have modern security practices in place such as data encryption, multi-factor authentication, and various disaster recovery techniques to protect sensitive financial information.
Leading cloud-based budgeting platforms like Oracle NetSuite, Adaptive Insights and SAP BPC deliver businesses automatic workflows, real-time consolidation of financial functionality, and advance forecasting.
Real-time data analytics in financial data integration helps organizations to make data-driven decisions with higher confidence. An example of these financial themes are real-time analytics platforms that have immediate insights into the performance of the financial budget and financial health of an organization.
Periodic financial reports are used by traditional budgeting, which has the unfortunate result of delaying decision-making. Real-time analytics platforms allow the finance team to watch the budget performance in real-time and adjust when necessary..
Real-time analytics tools continuously track key performance indicators like revenue growth, expense variances, and cash flow trends which helps in improving the transparency of the budget (Daniel and Oye, 2024).
Anomaly detection algorithms are used by them in advanced analytics tools to detect odd financial transactions and possible fraud episodes (Bansal et al., 2024). These tools will enable us to analyze historic spending patterns to flag some suspicious activities and to reduce the risk of financial mismanagement.
The combination of real-time analytics platforms like Tableau, Microsoft Power BI, and Google Data Studio enables businesses to visualize financial trends, automated reports, and budget allocation processes more efficiently.
Implementation Challenges and Considerations
Many benefits from smart technologies are available but however, implementation of these technologies poses many challenges that must be addressed by organizations to ensure successful adoption and generate noteworthy sustainable value creation.
To make the transition from traditional to technology-based, the best practice is when these do not isolate themselves from the rest of the enterprise resource planning (ERP) and financial systems they are already in use with (Agung and Zuhri, 2023).
With financial data being digitized, organizations must also adopt robust cybersecurity measures to safeguard sensitive information. This prevented unauthorized access and data breaches (Malsin and Malsin, 2023) due to compliance with the General Data Protection Regulation (GDPR) and Sarbanes-Oxley Act (SOX).
It involves introducing AI-driven forecasting, cloud-based budgeting, and real-time analytics which the employees have to adapt to with new financial management tools. Finance teams need to be trained on things to ensure they are financially literate and proficient in financial matters.
Investment appraisal is very crucial in the decision-making of businesses and other organizations especially when deciding on potential investment opportunities. Now these techniques help a business to determine the financial attractiveness and viability of an investment by looking at its expected future cash flows, future return and associated risks. Investment appraisal is done using two of the most widely used investment appraisal methods Net Present Value (NPV) and Internal Rate of Return (IRR) (Shou, 2022). The two methods give you some insight into whether or not a project or investment is worthwhile. Two techniques in this essay will be discussed, the significance of the same techniques in decision making and how the same techniques can be used to evaluate the investment on an LNG (Liquefied Natural Gas) Infrastructure Investment, the case being that of Excelerate Energy.
Net present value (NPV) is one of the important techniques to appraise investment, in which the present value of expected cash inflows, and the present value of cash outflows for the lifetime of the project is calculated and the difference is determined (Shou, 2022). Investment with positive NPV indicates that the project will generate more value than its cost and thus it is worth pursuing. On the other hand, a negative NPV indicates that the project is anticipated to have an unfavorable development i.e. it may not be financially attractive. In the example of an LNG infrastructure investment, that of Excelerate Energy, the NPV is discounted using the rate of return that is chosen to reflect (Pani et al., 2021). Cash inflows are calculated and the present value of them is subtracted from the initial investment.
Internal Rate of Return (IRR) is another investment appraisal tool that is used to determine whether a project is good or not. IRR is the discount rate at which the Net Present Value (NPV) of a project is equal to zero or is the rate of return expected from the project. The more attractive the investment, the higher the IRR, as it communicates that the project’s returns exceed the cost of capital. IRR is essentially the break-even rate of return and is compared to the company's cost of capital in determining if the project is worth pursuing (Ira and Setiawan, 2023). If the calculated IRRs for Excelerate Energy are higher than the standard cost of capital of most businesses, the investment for these businesses is highly attractive as is also the case in Excelerate Energy's case. A 105% IRR indicates that the project is expected to provide more than twice as much return to its initial investment, and that’s a very promising figure for the guarantee of profitability of LNG infrastructure.
For instance, imagine one of the hypothetical investments that Excelerate Energy would make as a company in energy infrastructure (Erhueh et al., 2024). The company is currently investing in an LNG infrastructure project and the return from the investment is expected to produce future cash flows over the next two years. Using the NPV formula, Excelerate calculates that the investment has a positive NPV and resulting value greater than what it would initially cost. It is furthermore interesting to note that the IRR of 105% means that the project is expected to have exceptionally high returns compared to the cost of capital. Nevertheless, the risk factors affecting the future cash flows of the project should be considered. Two major risks to the investment in the LNG infrastructure are market volatility and regulatory changes (Johnson, 2023). The cash flows generated from the project could be subject to changes in natural gas prices, changes in government regulations and changes in global energy demand — these could all affect the final NPV and the IRR.
Conclusion
In developing the strategic recommendations that the report provides for Excelerate Energy, it is important to ensure that these are coherent and meaningful in the context of advancing its efforts and changing its practices related to financial optimization and operational efficiency as well as sustainability.
Excelerate Energy should pay attention to enhancing financial performance by using the most advanced investment appraisal techniques, e.g. Net Present Value (NPV) and Internal Rate of Return (IRR), to make future projects' financial returns large. The positive NPV and high IRR from the LNG infrastructure investment indicate company’s position. This also good enough to generate high financial results. Excelerate should attempt to minimize exposures to market volatility. It also has regulatory changes which may affect cash flows and profitability.
Second, Excelerate should emphasize operational efficiency by focusing on the use of advanced technologies that increase productivity and decrease operational costs. Digital transformation, automation, and data analytics are vital to improving processes, finding ways to eliminate inefficiencies, and making better decisions. Utilizing these tools could help Excelerate to run more smoothly and advance its competitive edge in the global energy market.
Finally, Excelerate Energy must quicken its efforts to become more sustainable in line with the world’s move towards renewable energy. Apart from enhancing the company’s reputation, it will provide the company a better chance to benefit from government incentives and the regulatory changes that support green energy, as it will be doing a commitment to reduce carbon emissions, get into green engineering, and diversify its power portfolio using renewables. Integrating sustainability into the core criterion of the company will minimize fluctuations of risks referred to as future climate change and governance. If Excelerate Energy adheres to these recommendations, the company can have a promising future in the evolving energy market and will be growing continuously and financially stable which will contribute to a global transition to sustainable energy solutions.
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