Financial Analysis of Merlin Plc

This assignment delves into the financial performance of Merlin Plc, a company operating within the travel and tourism sector. It examines factors influencing profitability, such as pricing strategies, seasonal variations, and external economic conditions. The analysis also explores management accounting systems employed by Merlin Plc to make informed business decisions. Additionally, the assignment identifies various funding sources available to raise capital for the company's operations.

Finance and Funding in the Travel and
Tourism Sector

TABLE OF CONTENTS
Introduction......................................................................................................................................1
Task 1...............................................................................................................................................1
1.1 Significance of costing and volume in financial management of the organization..........1
1.2 Pricing method applied in organization............................................................................2
1.3 Factors influence profitability in Marline Entertainment plc...........................................4
Task 2...............................................................................................................................................5
Task 3...............................................................................................................................................5
3.1 Financial ratio of The Restaurant Group (TRG)..............................................................5
TASK 4............................................................................................................................................7
4.1 Source of finance which are available with Merlin Entertainment Plc to raise fund for
business projects.....................................................................................................................7
Conclusion.......................................................................................................................................7
References........................................................................................................................................9

Introduction
Finance and funding is most important part of business unit. Funding supports an
organisation in completing their operations in effective manner and generating profit. Present
study is based on Merlin Entertainment plc which is operating its business in the entertainment
field (Arabska and Terziev, 2015). It has branches in approx. 23 countries worldwide. Current
assignment will discuss significance of cost and volume in management of financial activities.
Pricing methods implement by the Merlin entertainment will be discussed in this report.
Furthermore, study will describe various factors which impact on profit of travel and tourism
business. In addition, report will define various types of management accounting information and
its uses in decision making process. Study will illustrate financial accounts of The restaurant
group. At the end of report sources and distribution of funding in the Merlin entertainment will
be discussed.
Task 1
1.1 Significance of costing and volume in financial management of the organization
Cost and volume are two essential elements or the firm. Cost plays significant role in the
success of business. Travel and tourism organizations have to spend some amount for running
their business smoothly (Bao, 2014). This investment is done to provide quality services to
consumers so that they feel satisfied. The main aim of Merlin Entertainment plc is to generate
high revenues and control over unnecessary expenditures. Needs of tourists can get changed any
time. As cited firm offer variety of services to different types of visitors. In such condition it has
to make changes in its services which can help in meeting needs of users. CPV is the cost
volume analysis method which helps the entity in understanding relationship between
expenditure made by the firm and generated profit. Both these have strong relationship with each
others, if Merlin Entertainment plc is spending huge amount in its operations then its profit may
get reduced to great extent (Bhat, Bhatta and Shumais, 2014). On other hand if it makes effective
control over its spending then it will support the firm in generating high revenues.
Break even analysis, cost volume analysis are several methods which supports in
analysing cost and volume of the entity. With the help of CPV analysis companies can gain
information its internal position. Different types of cost are as following:
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 Fixed cost: Merlin Entertainment plc has to spend money for paying salaried to staff
members, utility bills etc. these are fixed cost which are necessary to do by the firm. It is
the responsibility of financial manger that to monitor different expenditures properly so
that it can reduce unnecessary expenses (Divisekera, 2016). By this way Merlin
Entertainment plc will be able to generate high profit. Manager of the entity has to
provide salaried to staff members on time so that they feel satisfied and perform their
duties well. Manager of the company needs to make budget and accordingly have to
spend in this activity so that operations can be completed within specified budget.
 Variable cost: It is another type cost which includes activities such as tax, transportation
etc. This type of expenses are depended upon the production of the company. If
production is high then variable cost will get increased. Cited firm have to analysis and
monitor activities properly so that Merlin Entertainment plc can generate high profit (Sin
and Minca, 2014).
Break even analysis is the great tool through which company can do cost volume analysis sin
effective manner. This tool will be beneficial for the Merlin Entertainment plc because by this
way corporation will be able to get relevant information about this expenditure and cash inflow.
This will support in making sound decision for increasing profitability of the cited firm. CPV
analysis will be beneficial for Merlin Entertainment plc in planning activities properly and
making good budget. This will support an entity in identifying its capabilities of attracting new
consumers and satisfying them (Stauvermann and Kumar, 2017).
1.2 Pricing method applied in organization
Travel and tourism sector is performing well and it is the main industry that support in
increasing foreign currency in the organization.
Marline Entertainment is working in the entertainment industry, it has to provide accommodation
services to its consumers. It is for gaining success in the market it is essential to attract more
people towards the brand. For that cited firm need to adopt effective pricing strategy that can
assist in meeting needs of clients (Whitford and Ruhanen, 2016). There are various pricing
methods which are implemented in entity are as following:
Cost plus pricing
It is considered as one of the most effective pricing strategy. It is the tool in which
company has to add all cost and according to this individual has to decide pricing. By this way
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firm can get profit and ca generate high cash in the workplace. Marline Entertainment plc is
performing well and operating its business in many locations (Finance and Funding. 2016).
Cited firm need to add all cost and has to divide them with total produced unit.
For instance
Fixed cost of the company = 1000
Accommodation cost=500
Total cost of Marline entertainment= fixed + accommodation
Total cost=1000+500=1500
If mark-up cost of the company is 20% then
=1500*20/100
=1500+300
=1500
Hence, total selling price would be 1800. From the calculation It can be said that it is
another effective pricing method which is applied in most of the travel agencies. Companies
emphasis on production cost. It calculates all its cost of production and decide selling price. This
supports an entity in generating high revenues and earning profit.
Cost led method
calculation it can be said that if company wants to gain profit of 20% then it would be able to
generate more revenues and will be able to recover its cost easily (Methods of Pricing: Cost-
Oriented Method and Market-Oriented Method, 2016).
Market led pricing
It is pricing method, in this type of method Marline entrainment have to keep high price
of its products and services when it is seasonal time. In this time, many visitors take interest in
travelling and they come visits travels frequently. At that time, companies have to keep their
products price high so that it can generate high profit. It is considered as one of the effective tool
that can support cited firm in recovering its cost in less time period. By keeping high pricing
entity can generate desire profit (Return on Invested Capital (ROIC), 2017). Cited firm also
adopts penetration pricing policy in which it keeps its products price low when it is off season.
At that time les people take interest in travelling so to attract more people company keeps lower
price of their entertainment packages. But when it is season time then it increases its cost. It
supports in attracting more people towards the brand and generating high profit.
Marginal cost pricing
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It is the type of pricing method which is generally applied in such place when fixed cost
of entity is high. In this, Marline entertainment look upon the needs of travellers and as per their
requirements entity keeps its products’ price (Whitford and Ruhanen, 2016). B If person requires
luxurious services then individual will have to pay high cost but if no luxurious services are
included then price of the product will be kept low.
Return on investment
It is the pricing method in which cited firm can identify its cost of production and add its
profit margin into it for setting pricing of travel packages (Return on Invested Capital (ROIC),
2017).
Different company adopt differ pricing tools, as per their working and. Hand sea life is
the competitor of Marline entertainment plc. Both these are operating in the same field but
adopts different pricing methods. Marline entertainment plc adopts cost plus pricing strategy.
Cite firm calculate its fixed and variable expenditures and add its profit margin into it, it supports
the firm in setting pricing of the travel packages (Stauvermann and Kumar, 2017). On other hand
Hand Sea Life uses market led pricing policy. Both these strategies are able to generate good
revenues in the organization
1.3 Factors influence profitability in Marline Entertainment plc
There are various elements that impact on profitability of the corporation. These are as
following:
 Seasonal variation: It is considered as one of the major component that impact on
revenues of entity. Merline Entertainment plc generates high revenues in season time. If it
is off season then travellers will not take interest in travelling. That will affect its
profitability to great extent.
 Political issues: It is another major factor which impact on profitability of Merline
Entertainment plc. If there is political instability and if there is restriction in trade
agreements (Divisekera, 2016). Then in such condition sales of the cited firm can get
reduced. By this way profit of the firm will be minimized.
 Economic factor: It is another main factor which affect profitability of cited firm. If there
is recession them population will not be able to spend much amount in travelling. By this
way sales of the company will be reduced to great extent. On other hand if there is strong
economic condition then purchasing capacity of the people will get increased. In such
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condition customers will spend money in buying travel packages. This can influence
profitability of business unit (Sin and Minca, 2014).
 Bad debts: It is considered as one of the major component which affect revenue of the
firm. If liabilities of the entity is too high then it would get failed to generate revenues.
 Staffing: It is another element which impact on cash flow in the Merline Entertainment
plc. Skilled employees can serve consumers well. They can understand their needs and
can provide them services as per their requirements. But if staff are not talented then it
may create consequences of entity. In such condition people will not take interest in its
products and will not buy its services (Bao, 2014).
Task 2
Covered in PPT
Task 3
3.1 Financial ratio of The Restaurant Group (TRG)
Ratio Formula 2015 2016
Profitability ratio
Revenue 1278 1457
Gross profit 1085 1230
Gross profit margin (Gross profit/ revenue)*100
84.898278
5603
84.420041
1805
EBIT 394 454
Total assets 2735 2958
Total capital employed (Total assets-current liabilities) 2469 2606
ROCE (EBIT/capital employed) *100
15.957877
6833
17.421335
3799
Liquidity ratio
Current assets 260 340
Current liabilities 266 352
Current ratio (Current assets/current liabilities)
0.9774436
09
0.9659090
909
Stock 26 36
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Quick ratio
[(Current assets-stock)/current
liabilities]
0.8796992
481
0.8636363
636
Efficiency ratio
COGS 794 910
Inventory/ stock turnover
ratio (COGS/Inventory)
30.538461
5385
25.277777
7778
Account receivables 16 20
Debtors' receivables
period
(Accounts receivables/revenue) *365
days
4.5696400
626
5.0102951
27
Account payable 31 41
Creditors payment period (Accounts payables/COGS) *365 days
14.250629
7229
16.445054
9451
Calculations shows the market position of TRG and its growth as well. Profitability ratio
explains that company is performing well. In the year 2015 its sales revenues were 1278 whereas
in 2016 it has been increased and reached to 1457. Gross profit ratio was 84.89% in 2015
whereas in 2016 it is 84.82%. It can be interpreted that increased productivity has helped the
firm in increasing its profitability (Finance and Funding. 2016).
Return on capital employed ratio shows that in the year TRG grow was at 17.42%
whereas
In 2015 it was 15.95%. It shows that company is growing well, it has grown approx. 2%
which mean sin coming years it has high chance to earn more profit in future. Liability ratio
shows total outstanding of the firm and its repay capability. Current ratio of TG in the year 2015
was 0.97 whereas in 2016 it reached to 0.96. It shows that company is strongly require to
improve its efficiency level so that it can generate more revenues. It will support in meeting with
its liabilities
Quick ratio of the company in 2015 was 0.87 whereas in 2016 it was 0.86. Company is
required to improve its operations well otherwise it will not be able to generate revenues.
Inventory turnover ratio has been reduced, in 2015 it was 30.53 whereas in 2016 it reached to
25.27. TRG needs to make effective strategies to manage its inventory well. That will support in
generating good revenues over its investments. Furthermore, debtor receivable ratio of the
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company was in 2015, 4.56 whereas in 2016 it reached to 5.01. Company needs to manage its
operations and have to enhance its production abilities. This will help in gaining high profit.
TASK 4
4.1 Source of finance which are available with Merlin Entertainment Plc to raise fund for
business projects
Conclusion
From the above analysis of finance and funding it can be said that, financial resources are
basic need of each and every organisation. Due to unavailability of adequate financial an
entrepreneur cannot start or establish business in the market. The cost volume profit analysis
approach is one of the highly significant for Merlin Entertainment Plc in order to manage
financial resources and utilise them in an effective manner. CVP analysis consists with various
kinds of expenses, economies of scale and break even analysis. In order to take effectual pricing
decisions, management of Merlin Entertainment Plc considers some strategies which include cost
plus, cost led, marker based, return on investment and marginal costing approach. On the basis of
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these all strategies of pricing it selects profitable and attractive price of tour packages and
products. Moreover, to the profitability position of Merlin Plc, seasonal variations, political,
economic, bad debts, poor planning, staffing etc. factors affect in an adverse direction. Further,
several systems of management accounting like variance analysis, financial statements, budgets,
forecasting etc. are used by cited firm. On the basis of these all systems fruitful decisions for
internal business are to be made properly. It can be concluded from financial ratio analysis that
The Restaurant Group Plc performs well in the travel and tourism industry as compared to last
accounting period. In order to raise fund in the Merlin Plc, regional development fund, bank
loan, government grant, equity financing, tourism development sector etc. sources are available.
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References
Books and Journals
Arabska, E. and Terziev, V. K., 2015. Opportunities of establishment of destination management
and marketing organizations in Bulgaria.
Bao, J., 2014. Going with the Flow: Chinese Travel Journalism in Transition.Travel Journalism.
Exploring Production, Impact and Culture. pp.134-151.
Bhat, M. G., Bhatta, R. and Shumais, M., 2014. Sustainable funding policies for environmental
protection: the case of Maldivian atolls. Environmental Economics and Policy
Studies. 16(1). pp.45-67.
Divisekera, S., 2016. Interdependencies of demand for international air transportation and
international tourism. Tourism Economics. 22(6). pp.1191-1206.
Sin, H.L. and Minca, C., 2014. Touring responsibility: The trouble with ‘going local’in
community-based tourism in Thailand. Geoforum. 51. pp.96-106.
Stauvermann, P. J. and Kumar, R. R., 2017. Modeling economic growth with tourism for small
open economies. Metroeconomica.
Whitford, M. and Ruhanen, L., 2016. Indigenous tourism research, past and present: where to
from here?. Journal of Sustainable Tourism. 24(8-9). pp.1080-1099.
Online
Finance and Funding. 2016. [online]. Available through: <http://www.un.org/esa/forests/wp-
content/uploads/2015/06/brief_funding_tomaselli.pdf>. [Accessed on ].
Methods of Pricing: Cost-Oriented Method and Market-Oriented Method, 2016. [Online].
Available through: <http://www.yourarticlelibrary.com/marketing/pricing/methods-of-
pricing-cost-oriented-method-and-market-oriented-method/32311/>. [Accessed on].
Return on Invested Capital (ROIC), 2017. [Online]. Available through:
<http://www.myaccountingcourse.com/financial-ratios/return-on-invested-capital>.
[Accessed on].
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