Financial Crisis Impact on Businesses

This assignment delves into the profound impact of the global financial crisis on different business sectors. Students will examine specific case studies to understand how the crisis affected companies' operations, financial stability, and strategic decision-making. The analysis will encompass various aspects such as credit access, investment patterns, and consumer behavior. Moreover, the assignment will explore risk management strategies employed by businesses to navigate the turbulent economic environment.

FINANACE AND
FUNDING IN
TRAVEL AND
TOURISM
SECTOR

Table of Contents
INTRODUCTION ...............................................................................................................................3
TASK 1.................................................................................................................................................3
A Concept of CVP analysis and its importance in the financial management of CHTC.................3
B Analysis of pricing methods that are adopted by CHTC for determining the price to charge
from tourists ....................................................................................................................................3
C Analysis of factors that gives influence on the profit earned by CHTC .....................................4
TASK 2 ................................................................................................................................................4
A Different type of management accounting information that is used by CHTC ..........................4
B Use of investment appraisal techniques as a decision making tool ............................................5
TASK 3 ...............................................................................................................................................6
A Main financial investments of CHTC travel and tourism company ..........................................6
TASK 4.................................................................................................................................................7
A Analysis of source of funding both internally and externally that can be obtained for
developing new hotel ......................................................................................................................7
CONCLUSION ...................................................................................................................................8
REFERENCES.....................................................................................................................................9

INTRODUCTION
Travel and tourism sector is the largest growing industry which renders hospitality services
to people. Millions of people travel across globe to explore new places, for business purpose, study
trips and for the recreational purpose (Mitchell, Basch and Dusetzina, 2016). Lodging operations
are the significant part of travel sector and Hotels, Motels, Resorts, Conferences centres and Resorts
provide travel facilities and amenities to people. It is vital that appropriate strategies should be
formed for executing the functions in travel and tourism industry. Present report describes about the
concept of CVP analysis and its importance for financial management of travel and tourism
business is mentioned as well. In addition to this, analysis of pricing methods to determine charges
and cost for tourism activities is described in the report. Moreover, evaluation of factors that put an
influence on profit earned by enterprise is mentioned here.
TASK 1
A Concept of CVP analysis and its importance in the financial management of CHTC
Carib Happy Tours Company (CHTC) is a tour operating service provider that offers
summer holiday trips to consumers. CVP analysis method provides an effective medium for
financial management of travel and tourism sector (Pratt and Hutton, 2013). This technique
provides a medium for assessing the impact of changes in cost and volume on the operating
activities of enterprise. It is a management accounting tool that provides details about the impact of
sales volume and operational cost on final profit of business (CHTC. 2016). There are some basic
assumptions that are included under CVP analysis method. It is critical that all the costs will be
included in the category of variable or fixed.
Some price needs to be constant and it consists of variable cost per unit and sales price per
unit. A formula is used in CVP cost analysis method and it is as described:-
Price per unit * Total number of units that are sold = Variable cost per unit + Total fixed cost
+Profit
Management of CHTC can take long term and short term decisions for carrying out business
functions (Vandoros and Avendano, 2013). A critical point is determined under this method and at
this point, total cost becomes equal to the total revenue earned by the enterprise. For providing tour
services, it is vital that the cost of each package of travel firm should be determined.
Total revenue = Sales Price*Number of units
This equation is used for calculating total profit and losses that are earned by the enterprise.
It also provides a method for identifying break-even point. Effect of variables such as sales volume,
price and fixed and variable cost on overall profit is evaluated (Becker, Chen and Greenberg,
2013). Operating income that is earned by company is calculated by making use of this formula -
Operating income = Total sales- Total variable costs -Total fixed cost
B Analysis of pricing methods that are adopted by CHTC for determining the price to charge from
tourists
Pricing methods are used for setting a suitable price of the products and services that are
offered by CHTC limited. It is assertive that appropriate pricing methods should be used for setting
the prices of services that are offered by an enterprise (Bender, 2013). It is also needed that facts,
figures and data should be gathered from proper and reliable sources so that effective decisions
should be taken related to determine pricing methods for CHTC limited. Various types of pricing
methods that can be used in the business are as described:-
Market oriented pricing methods: - Analysis of market conditions is done under this
method as well as price is also determined. Various prices that have been set by the competitor firms
for selling their services are considered under this method. Data and facts are collected from market

area by making use of survey and online research and it provides a medium for setting prices of
holiday package services that are offered by a company (López-Espinosa and Valderrama, 2012).
Premium pricing strategy: - In this method, prices are set high as compared to the rival
firms. This technique provides a medium for gaining a premium positioning and competitive
advantage for the business. Attributes and features are described to consumers and unique
characteristics of packages offered by CHTC limited are also described.
Economy pricing method: - In this technique, a low cost approach is used and prices are
kept lower as compared to rival firms (Lu and Whidbee, 2013). It aids in rendering services to many
consumers and in earning more financial revenues and profitability of business.
Cost plus pricing method: - It is also a useful technique which can be used by CHTC for
setting prices of their tourism services. Cost of direct labour, material and various overheads that are
used for executing business functions are considered in this method.
C Analysis of factors that gives influence on the profit earned by CHTC
There are diverse range of factors that put an influence on profits earned by CHTC and it is
required that impact of these elements will be considered while making action plans for the
enterprise ( Haan, Oosterloo and Schoenmaker, 2012). Number of customers that are availing
services offered by enterprise is one of the significant elements that put an influence on financial
revenues earned by company. Cost beard by the enterprise for providing holiday packages to
consumers is an important element that impacts the overall profitability of firm. In addition to this,
strategies adopted by rival firms also affect the financial revenues that are earned by the
organisation (Dixon, 2016).
Overhead charges such as labour and material cost which occur while providing services are
also included in the list of elements due to which monetary revenues earned by company gets
affected. Some other factors such as policies, rules, regulations and norms formed by government of
nation are also mandatory to be followed by CHTC. If there are any changes in policies then it is
required that necessary changes will be made in the organization for implementing policies. Travel
and tourism industry also gets influenced by technical modifications and it is required that CHTC
should also implement new technology for gaining competitive advantage (Schularick and Taylor,
2012). There are some cost that is associated with implementing the new technology and due to the
same, overall profit earned by enterprise gets affected. Seasonal factors also put an impact on the
activities of travel and tourism sector (DRURY, 2013). In a particular season, number of tourists
visiting place get increased and because of the same, revenues earned by the enterprise also get
influenced. Moreover, changes in preferences and expectations of consumers also affect the profit
earned by company.
TASK 2
A Different type of management accounting information that is used by CHTC
Management accounting information provides medium for taking strategic and effective
decisions for the enterprise. It becomes easier for monitoring the performance of the company and
decisions can be taken for executing business functions in effective way (Malmi, 2016). Some
techniques from where management accounting information for CHTC can be collected are as
described :-
Budget reports :- In this method actual financial performance of the enterprise is compared
against the estimated. It supports in identifying weak performing areas and on the basis of that
effective measures can be taken for making improvements in weak performing areas (Fullerton,
Kennedy, and Widener, 2013). These reports can also be used for calculating actual expenses that
are incurred by the enterprise.
Profit and loss statements :- These statements provides medium for calculating profit and

loss incurred by enterprise over the expenditure. Effective decisions can be taken in CHTC on the
basis of profit and loss statements and financial strategies can also be formed for by evaluating
profit and losses that are incurred by the enterprise in a specific time period (Soin and Collier,
2013).
Tax accounting details :- Financial statements that are prepared under enterprise describes
about tax accounting details and it provides an effective medium for assessing tax liability of an
enterprise. Tax planning can be done in effective way and tax related decisions can be taken by the
enterprise.
B Use of investment appraisal techniques as a decision making tool
Investment appraisal technique provides an effective medium for providing data and facts
for taking effective decisions for the business. There are various techniques that are included under
investment appraisal techniques. Various methods of investment appraisal technique are as
described -
PAYBACK :- It defines about duration of time in which initial investment made in the
enterprise is recovered. Assessment of investment made is done over a specific time length and
major focus under this method is given on cash flow techniques (Ramanathan, 2014). Period of time
which is required to repay the initial investment made in the company is assessed and evaluated
under this method. Amount of time required by a project for recovering its initial investment is
explained as payback period.
NPV :- This are included under the category of discount appraisal methods. Cost and profits
are considered while calculating NPV and comparison is made about money invested in the projects
and expected value of money in future time period. For calculating NPV initially expected free cash
flow per year is calculated as a result of investment made (Pratt and Hutton, 2013). From the
calculated amount cost of capital is deducted. Projects having positive NPV are considered as
feasible and CHTC should reject projects that are showing negative NPV value.
ARR :- Under this method comparison is made of profits that are expected to earned in
CHTC and investment that is needed to be made for executing business functions. Moreover, for
calculating ARR average annual profit that is estimated over the total investment that has been
made in the entity. The comparison under ARR is made over average amount of capital invested in
the entity. Two main pieces of information are used under this technique and it includes average
investment made by the entity and annual average operating profit (Mitchell, Basch and Dusetzina,
2016). The equation which is used for calculating ARR is as follows :-
ARR = ANNUAL AVERAGE OPERAING PROFIT / AVERAGE INVESTMENT MADE BY THE
ENTERPRISE
It is needed that minimum target ARR should be set in CHTC and various decisions of
business should be taken on the basis of ARR achieved by the enterprise in a specific period of
time. Under this technique time factor is not included and this is the major drawback of this method.
This method is based on accounting profit principles and cash profits are not included under this.
IRR :- Internal rate of return is calculated under this method and discounting future rate of
return is calculated under this method from the initial investment made in the company. Trial and
error method is used for calculating IRR and by evaluating IRR rate of growth which a project
might get are assessed (Lu and Whidbee, 2013). Feasibility of a project is analysed by these projects
which are showing high rate of return are selected. If there will be increase in the investment than
possibilities gor getting high rate of return increases.
All the four methods that are described above are part of investment appraisal technique and by
making use of these 4 methods evaluation of investment can be made (Bender, 2013). When CHTC
will be in need to make investment than NPV, ARR, IRR and payback period method will be used.

TASK 3
A Main financial investments of CHTC travel and tourism company
Financial statements of CHTC limited for NPV calculation are as described :-
Project A Pv @10% Present value Project B PV @10% Present
value
Initial
investment 250000 250000
1 75000 0.909 68182 78000 0.909 70909
2 79000 0.826 65289 85000 0.826 70248
3 74000 0.751 55597 80000 0.751 60105
4 82000 0.683 56007 89000 0.683 60788
5 90000 0.621 55883 950000 0.621 589875
6 0 0 45000 0
Total 300958 851926
NPV 50958 601926
From the above data it has been observed that project A and project B both provides good
rate of return on the money invested. Project A is showing NPV as 50958. On the other hand Project
B is showing NPV as 601926. It is beneficial for CHTC to select project B over Project A for
gaining higher rate of return on money which is invested by them in the project. It is assertive that
NPV should be calculated for assessing feasibility of a project so that better options can be selected
for their investment purpose.
Calculation of IRR is as described :-
Project A Project B
Initial
investment -250000 -250000
1 75000 78000
2 79000 85000
3 74000 80000
4 82000 89000
5 90000 950000
6 0
IRR 17.48% 51.05%
From the data and facts it has been analysed that both the projects including project A and
project B are showing good IRR values. It can be observed from the above mentioned data that
project A is providing IRR of 17.48 % whereas Project B is providing IRR of 51.05 %. Project
which will be showing higher IRR will be selected so that better returns should be generated. It is
beneficial for CHTC to invest in project B so that more profitability and returns can be generated.

TASK 4
A Analysis of source of funding both internally and externally that can be obtained for developing
new hotel
It is assertive that finance should be collected for executing desired functions of travel and
tourism company and it is also required that proper evaluation should be made for selecting
appropriate source of finance for the enterprise (Schularick and Taylor, 2012). List of internal
sources of finance is as described :-
Profits earned by enterprise :- Profit earned by company is big source which provides
funds for carrying out business function.
Existing capital of entity :- Present revenues of the company are also a big source of
finance that provides option for making investment for developing new hotel.
Retained earning :- It is also a best source that can be utilized for starting a new hotel and it
is required that this should be properly utilized while starting activities of new hotel. Retained
earnings are liquid assets of the enterprise and it is net income earned by the enterprise that is
retained by them (Pratt and Hutton, 2013). It is a good option to invest retained earning for starting
a new hotel.
Fixes assets and current assets :- Assets that are not changed into monetary terms comes in
the category of fixed assets. Various elements that are included under fixed assets are land,
equipments, property. Under current assets shares hold by company are included than there are
options that these stock can be converted into liquid money (Dixon, 2016). Moreover, personal
savings of the entity can also be used for starting operations of a new hotel. Personal savings
provides medium for financing the project without involving external investors. Fewer liabilities
and obligations are faced by the company when personal savings are used by enterprise for
financing new business.
External sources of finance :-
Loan :- Loan Can be taken from external investors for carrying out business functions and
there is need to repay the loan by paying a specific rate of interest. There is need to complete some
documentation procedure while taking loan and it is also needed that proper procedures should be
adopted while taking loan (Malmi, 2016).
Bank :- Banks are the biggest sources of finance and funds can be taken from there so that
required business functions can be executed for starting a new hotel. Moreover, it is required that
some security should be provided to banks while taking loans. It is also needed that a legal
procedure should be adopted for taking loans from banks (Fullerton, Kennedy and Widener, 2013).
Equity shares :- It is common source of finance that can be used for starting operations of
new hotel. It is required that prior permissions should be taken from concerned authorities and it
provides medium for funding the business. In addition to that debentures also provide medium for
raising funds to start a new entrepreneurship business (Soin and Collier, 2013). Debt is cheaper
source of finance as compared to equity and debentures are offered to local public. Term loans also
provides method for generating funds to carry out business activities.
Venture capital :- Money is invested by venture capitalist and it supports in carrying out
activities of enterprise in successful and effective way. In addition to this it is an easier method for
generating funds for business as there are less legal formalities involved in this method.
Bank overdraft :- This method can be adopted for raising cash for carrying out day to day
activities of the business. Moreover, short term finance can be generated by adopting this method
and it renders medium for funding activities of the enterprise.

CONCLUSION
Summing up the present report it can be concluded that CVP analysis is a effective medium
that supports for managing financial activities of the enterprise. There are various pricing methods
that can be used for determining the price of services that are offered by travel and tour company.
Market oriented and economy pricing are best methods that can be adopted for setting price of
different holiday packages that are offered by the company. There are various elements that gives
impact on various activities of travel and tourism company. Political and legal guidelines given by
government of a country gives impact on the operational activities of the enterprise. In addition to
that cost occurred for executing business activities and overhead charges are also one most
significant elements that gives impact on financial activities of the enterprise. It is required that
appropriate source of finance should be selected for carrying out business functions. Various
external sources of finance includes venture capital, debentures, equity shares, term loan and leasing
and hire purchase options. There are some internal sources of finance that can be adopted for
funding operations of enterprise. Fixed and current assets are most significant elements that
provides internal source for carrying out business functions.

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Online
CHTC. 2016. [Online]. Available through: <http://happytours.eu/en/content/about/products/>.
[Accessed on 26th December 2016].