Finance and Funding in the Travel and Tourism Sector

This report delves into the importance of management decision-making and financial tools in the travel and tourism sector. It covers cost, volume, pricing strategies, financial analysis, and funding sources for capital projects.

Finance and Funding in the Travel and
Tourism Sector
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Table of Contents
Introduction....................................................................................................................................3
TASK 1 (LO1, AC1.1, 1.2, 1.3, M1, M2, M3, D1, D2, D3).........................................................4
LO1-................................................................................................................................................4
P1.1..............................................................................................................................................4
P1.2..............................................................................................................................................5
P1.3..............................................................................................................................................6
TASK 2 (LO2, AC2.1, 2.2, M1, M2, M3, D1, D2, D3)................................................................7
LO2-................................................................................................................................................7
P2.1..............................................................................................................................................7
P2.2............................................................................................................................................12
TASK 3 (LO3, AC3.1, M1, M2, M3, D1, D2, D3).....................................................................15
P3.1............................................................................................................................................15
TASK 4 (LO4, AC4.1, M1, M2, M3, D1, D2, D3).....................................................................20
P4.1............................................................................................................................................20
Conclusion....................................................................................................................................23
References.....................................................................................................................................24
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3

Introduction
The central theme of the report highlights the importance of management decision making and
explanation of various tools that would assist in understanding its perspective particularly in the
travel and tourism sector. The report also depicts the significance and importance of cost,
volume, and profit in the decision-making process so as to give a glimpse of various skills that
are essential to understand the financial aspects. Besides, the report describes the major tools of
management enabling the top level managers to take a valuable decision. It will assist its users to
understand in brief the various dynamics of management decision and its applicability in most
effective manner. Certain areas of focus are properly focused throughout the project. The report
is prepared to keep in minds all the factors forming crucial element related to the tour and travel.
Some recommendation is also enclosed which will provide a useful insight to its users so as they
could make valuable judgment dealing with all positive and negative effects.
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TASK 1 (LO1, AC1.1, 1.2, 1.3, M1, M2, M3, D1, D2, D3)
Introduction
The report consists of the various cost and volume techniques and how they can be beneficial for
the Carnival Corporation & plc. The various factors are also stated in the report along with the
pricing techniques that can be used for the setting up of the price.
LO1-
P1.1.
The cost of the company includes the fixed and variable cost where fixed cost is charged as
period cost and variable cost changes with the change in the unit produced. It can be further
classified in the direct and indirect cost where direct cost is direct apportioned in the production
of the unit whereas indirect cost is not involved in the direct production cost of the product or the
services.
The volume can be analysed on the basis of break-even analysis, economies and diseconomies of
scale. The break-even volume is the point where the cost and the revenue generated are at same
level and profit is nil (Ionescu, and Dumitru, 2015). The economies of scale states with an
increase in profit there is a decrease in production cost whereas the diseconomies of income
states that the production unit decreases but excessive increase results in an increase in marginal
cost.
The cost and volume are important as with the help of the adequate volume and in case of
Carnival Corporation & plc occupancy, they can earn the maximum profit (Abdullahi, et. al.,
2017). It can help them to apportion cost and reduce it and focus on increasing the profit of the
company. It can also be beneficial in determining the occupancy they must have in order to
maintain and recover their cost. It can be useful in setting up of price and also in proper planning
and strategies formulation. This can lead to effective management of the available resources and
also in taking preventive steps for the improvement in reducing the cost involved in providing
the services.
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P1.2
The pricing is very crucial for the revenue generation and sales. It is important to set the price of
the products in an effective way. There are various pricing strategies which are stated below
through which Carnival Corporation & plc can be benefitted.
Cost led – The cost led technique is beneficial to determine the cost that is incurred for the
production or generating of the service for the consumers. It is important to cover their cost
incurred for long-term growth, therefore, making it important to know it (Dovleac, 2014). The
cost led technique can be helping them to set the price above the cost incurred or at least equal to
it.
Return on investment – The investment of the money on the project is based on the return that
can be attained from it, therefore, it is important to set the price in a way that the return can be
achieved. The company can get benefit from this strategy as their investment are very big and
also irrevocable therefor making it important to determine the cruise price that can be set and the
profit that can be generated.
Reason for making the profit – It is important to earn the profit in an organisation for the long-
term growth. It is also important to satisfy various stakeholders of the company so that they can
establish in the high markets and even globally (Carnival Corporation & plc, 2017).
Improvement can be made in the goods and services with the help of profit earned.
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P1.3
There factors that can lead to an increase and decrease in the profit of the company. They can be
internal or external. Some of the factors are as follows:-
Planning – It is important for a business to be successful that the planning is carried on
effectively and efficiently. The Carnival Corporation & plc are surrounded by various factors,
therefore, it is important to study them and respond to them in a planned way or adoption of any
wrong or ineffective policy can lead to loss of revenue and profit (Benkovskis, and Wörz, 2014).
Seasonal and trend analysis – The demand depends upon the seasons and the trend that is going
in the market. The visits to the destination are dependent on the trend and also the season in
which it is going (Zhang, and Kulendran, 2017). The Carnival Corporation depending on these
trends and season can lead to increased revenue and profit for the company because of increase
in demand.
Economic and Political environment – The economic and political environment can affect the
demand for the consumers as well the cost of the company. Good economic environment or
political environment can boom the demand and unfavorable change in political and economic
policies can lead to increase in cost such as an increase in interest rate etc.
Conclusion
It can be concluded with the report that the cost and volume can help in earning the maximum
profit. The pricing strategies can be useful in an effective setting of the service price so that the
revenue can be earned. It can also be seen that the factors can affect the demand as well as the
profit of company.
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TASK 2 (LO2, AC2.1, 2.2, M1, M2, M3, D1, D2, D3)
Introduction
The report aims to cover the aspects involved in the management accounting information. It
helps in the decision making process. For ease of understanding, a practical instance of Dalata
Hotel Group plc. An interpretation and analysis of final accounts of Dalata Group have been
covered to facilitate the understanding of the concept.
LO2-
P2.1.
Title Slide
Contents covered in the presentation:
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In the words of Kizielewicz (2016), it is imperative to understand that management accounting is
different from the financial accounting system. However, it uses various concepts of financial
accounting information system. It can also be said that management accounting information
system is broader than simply accounting information system (Kizielewicz, 2016).
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An analysis of financial statement or annual report can also help in taking various critical
decisions such as expanding or disclosure of any related tour and tourism segment.
As suggested by Tirkey & Khilkhal (2014), a careful and detail understanding and analysis of
financial statements can help in ratio analysis. Also, it can compare its performance with other
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travel industries operating in the dynamic environment. Such analysis also indirectly helps in
budgetary control and ultimately assist in the decision-making process. The basic advantage of
financial statement analysis is that it can be used by every organization. Prominent ratios that can
be used by Dalata Group are gross profit ratios, net profit ratios, price-earnings ratios (Tirkey
& Khilkhal, 2014).
With the determination of various financial ratios, Dalata group can easily gain an in-depth
understanding of the financial performance. Thus, it can be inferred that an analysis of profit and
loss account makes the working of top-level managers easy and helpful in the accomplishment of
various long-term goals of the concerned organization. Correct preparation of statement of profit
and loss is also useful for the shareholders of Dalata Group since they will be interested in
knowing Earning Price per share and profit after tax.
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Some of the widely used tools and techniques that can be used are variance analysis, zero-based
budgeting, and responsibility accounting. Since it is service based industry, usage of ABC cost
analysis and Just-in-time approach is not possible. Also, another important consideration is that
if found necessary budgets can be revised on the requirement of changing scenarios taking place
in the environment.
Correct selection of decision-making tool is essential for gaining competitive advantage and give
a cut-throat competition to its competitor. As such, any company can perform as an entry barrier
to new business enterprises.
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P2.2.
The company has proper security features in relation to ICT software. Accordingly, there are risk
measures regarding the implementation of ICT software.
Dalata Hotel Group plc is further planning to hire and appoint outside expert advice so as to
implement the software in a better way. Dalata Hotel Group follows the de-centralized concept
since it believes in knowledge and management accountability along with effective information
systems.
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Correct selection of decision-making tool is essential for gaining competitive advantage and give
a cut-throat competition to its competitor. As such, any company can perform as an entry barrier
to new business enterprises.
Dalata Hotel Group can use latest final accounts for better forecasting. It can help in setting cost
standards as well as controlling cost. As such, forecasting is an effective cost control tool.
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Dalata Hotel Group plc can fic its price higher during the peak season. Whereas, during the off-
season, it can fix its prices lower to entice or attract both domestic and foreign tourists. This will
also ensure profitability to Dalata Group and shareholders will be satisfied with the performance
of the concerned group.
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TASK 3 (LO3, AC3.1, M1, M2, M3, D1, D2, D3)
P3.1.
According to Georgescu (2015), after careful and through the reading of the annual report of the
data group it can be inferred that it has shown a hike in all the financial parameters which is a
good sign for the group. Such an increase is a good sign and indicates the strong presence and
value of the brand it is enjoying. In relation to the previous financial year i.e., 2015 EBITDA of
Dalata Group has increased from €47 million to €71.1 million showing an increase of 51.28%
which depicts the strong financial performance of the data group. During the year 2015, various
capital investments were made. In the year 2016, these investments were capitalized and start
yielding a handsome and attractive return to the investors or shareholders of the Dalata group.
The thorough understanding of annual report of Dalata Group clearly denotes that the no of
visitors are increasing year by year and this increase can be seen in 2016 as well. Shareholders
are gaining continuous financial considerations in return for their investments. They are satisfied
with the financial performance. However, this has also increased expectations of all the
shareholders and now they expect more. Looking at cash flow statements, it can be interpreted
that cash flow has also increased. In case of Maldron Hotels, rooms refurbished have increased
from 138 to 167 in comparison to 2016. While Clayton Hotels have also seen an increase in
rooms refurbished from 610 to 770. Also, management of the Dalata Group is planning to further
expand and is considering various capital outlays in which it seeks to achieve growth by the end
of 2018 (Georgescu, 2015).
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17

Particulars Year 2015 Year 2016
(in Euro '000) (in Euro '000)
Current Assets 162278 98771
Current liabilities 56238 68821
Quick assets 157614 91688
Cost of sales 86907 109864
Closing inventory 1349 1817
Net profit 21626 34923
Fixed assets 699058 886605
Working capital 106040 29950
Revenue (Net sales) 225673 290551
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Current Ratio = Current
assets/ current liabilities 2.89 1.44
Quick Ratio = Quick
assets/ Current liabilities 2.80 1.33
Stock Turnover Ratio =
Cost of sales/ closing
inventory 64.42 60.46
Net Profit Ratio = Net
profit after tax/ net
sales*100 9.58 12.02
Gross Profit Ratio =
Revenue-
COGS/Revenue*100 61.49% 62.19%
Return on capital
employed = Net profit/
Fixed Assets + working
capital 2.69% 3.81%
A brief interpretation of various accounting ratios can be listed below:
 Liquidity Ratio:
The current ratio has decreased from 2.89 to 1.44 which denotes that it has decreased by 50%. It
is not a satisfactory position since it implies that it has the current liabilities is increasing in
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relation to current assets. It can also be stated that for generating current assets, it is creating
more current liabilities. Also, current ratio has decreased below the standard ratio of 2.
Likewise, the quick ratio of Dalata Hotel Group plc has also decreased from 2.80 to 1.33 in
comparison to 2015 showing a tremendous decrease of more than 50% and is below the standard
ratio of 1.
 Profitability ratios:
However, Dalata Hotel Group has tried to achieve a nominal increase in net profit ratio. This can
be seen from the fact that it has increased from 9.58% to 12.02% in 2016 in comparison to 2015.
Similarly, gross profit ratio has also seen an increase. While in 2015, the gross profit ratio it was
61.49%, it becomes 62.19% in the year 2016.
Return on capital employed has also increased from 2.69% to 3.81% in comparison to previous
year.
Conclusion
From the above discussion throughout the report, the importance and advantages of management
accounting information have been depicted. For better understanding, its implementation in the
Dalata Hotel Group plc, a UK based tour, and travel industry has been cited. Besides, the source
of application and its distribution and allocation in the capital projects relating to tourism
business has been covered.
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TASK 4 (LO4, AC4.1, M1, M2, M3, D1, D2, D3)
P4.1.
Introduction
In the words of Kizielewicz (2016), each country has its own department or Ministry of tourism
to promote its travels and tours and to entice and attract domestic as well as foreign visitors.
Some time, Department or ministry of culture plays such role or assist in promoting tourism.
Such department tries to explain and popularize the role and importance of its various heritage
sites as well as its contribution towards world economy. For this purpose, governments of
various nations appoint celebrities as their brand ambassadors which promote various tourist
spots of such concerned country. The purpose of approaching such celebrities is that they attract
travelers and tourists through their public image. Such celebrity can be any public figure
(Kizielewicz, 2016).
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Title
Sources of funds and its allocation
towards capital projects to develop and
promote tourism sectors.
Sources of Finance
Majorly there are two types of funds that are widely used in the
tourism sector. They can broadly be classified into Public funding
and Nonpublic funding. Public funding is mainly raised through
government sources and nonpublic funding are private funds.
Introduction:
It becomes important for the job role of
the junior consultant to research and
analysis various sources of public and
nonpublic funding. Along with ensuring
proper distribution of the funds raised.
Travel and tourism is the sector with
high growth and future prospects. In this
section will learn about the various
sources of funds available to the
organizations indulged in tourism. And
how concerned organizations make
productive use of funds available for the
Public Funding
Public funding comes from the
government of the country. It
can come from local or central
government. It can be in forms
of loan which is attached to the
liability of interest. Government
bonds of the various time period
and amount issued by the
government. The government
also gives grants and subsidies
to the companies involved in the
tourism business in order to
Non-Public Funding
These funds are availed either
form the financial institution
which is majorly associated
with the promotion of travel and
tourism. They can provide loans
at concessional rates. The
organization involved in travel
and tourism came forward and
enters into the finance a capital
project. The organization can
also issue bonds in the name of
travel and tourism and raise
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betterment of tourism. encourage tourism sector. The
government might also come
forward to enter into merger and
acquisition to finance capital
projects. Public funding can also
include special types of
provisions that might be
available for financing capital
projects (Gov. UK 2014).
funds from the public. They can
issue debentures, preference
equity which can serve the
purpose and do not lead to
dilution of ownership. The
organization can also make use
of the internal sources of funds.
Such funds would be cheaper as
they are costless (Kizielewicz,
2016).
Conclusion
It can be concluded that a combination
of public and private funds will be a
better option since choosing a single
source may be riskier. Each source of
the fund has its own pros and cons.
Factors affecting the selection of
sources of fund need to be taken into
consideration.
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Conclusion
From the discussion throughout the report, it can be concluded that management decision-
making process in tours and tourism sector is very important for any nation. It explains the role
and significance of tourism sector of any particular nation or country contribute towards the
development and promotion of economy. The report highlights the basis of such decision in
improving the financial aspects of the business concerns. Furthermore, the areas of key
consideration that is related to profit generation and various factors influencing it are discussed
throughout the study. The report also detailed the various sources of capital funds and its
allocation and distribution in various projects so as to get a handsome and a fair return. Certain
suggestions and improvements are provided at appropriate places throughout the report so as to
enable any tourism company to deal with major issues it may come across with.
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References
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