Financial Management in Travel and Tourism

This assignment delves into the significance of finance in travel and tourism businesses, highlighting the use of cost-volume-profit (CVP) analysis to assess desired results and manage resources efficiently. Financial ratios are also crucial for analyzing overall performance, ensuring that costs are controlled effectively. The assignment discusses various types of budgets and emphasizes the importance of accurate financial statements in business decision-making. It concludes by emphasizing the ability of businesses to secure funds through different capital projects.

FINANCE AND
FUNDING IN THE
TRAVEL AND
TOURISM SECTOR

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
1.1 Significance of volume and cost in financial management...................................................3
1.2 Methods of pricing related to travel and tourism sector.......................................................4
1.3 Identifying factors which influences travel and tourism sector............................................5
TASK 2............................................................................................................................................7
2.1 Different types of management accounting information with respect to Dalata Hotel
Group plc.....................................................................................................................................7
2.2 Presenting applicability of management accounting information with reference to decision
making tool of Daltan Hotel group plc.......................................................................................8
TASK 3..........................................................................................................................................10
3.1 Justifying financial statements of Dalata Hotel Group Plc of past two years.....................10
TASK 4..........................................................................................................................................13
4.2 Justification of sources of funds for capital projects...........................................................13
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Finance and funding is essential for every sector especially for travel and tourism
industry. It is contributing huge part in economy as it has better opportunity for growth as well.
The present report is giving brief discussion about Carnival Corporation Plc which is one of the
largest leisure travel company as it is planning a trip accordingly and it is creating ability for cost
volume and profit analysis which has been performed with appropriate strategy. There is
presentation of specific pricing methods which are used in travel and tourism sector and it is
elaborated properly. There is presence of different applications of information of management
accounting which is specified in this business. Further it is also discussing about different
sources and distribution of funding for developing public and non public tourism.
TASK 1
1.1 Significance of volume and cost in financial management
The amount which is given or paid for obtaining or buying anything in context of
business as it is referred as monetary valuation of time, utilities, material, efforts and resources
which are consumed is termed as cost. The amount of expenses which is directly denoting
monetary aspects and its finance can be measured related to business in known as volume. The
analysis of cost volume profit is directly depicting planning process which management is using
for predicting volume of future of any cost which has been incurred, and margin which is earned

and sales performance (Finkler and et. al., 2016). There has been presentation of accurate
analysis on alterations in sales and cost which id directly giving effect on margin in context of
future period. The world's largest leisure travel company is Carnival Corporation plc which
consists of portfolio of 10 global cruise line brands. It is also owing tour organization which is
complementing in cruise operations.
Volume and cost, both are necessary for business of travel and tourism. In the context of
cost, it also gives emphasis on reduction of cost, decision making and it also improves
management performance and helps in designing financial structure in very effective manner.
Cost is considered as very important factor as it reduces cost of activities in context of business
and it provides margin for business. It can be altered as per business requirement. According to
cost, whole financial account is managed. To earn the best return on investment decision making
process is used for capital budgeting. The travel and tourism activities which are linked with
business manages and designs financial structure related to different cost. There is presence of
different projects which helps in increasing performance of financial management and for better
comparison of financial stability of business related to travel and tourism.
There is presence of different types of volume related to business. Analysis of volume of
business is considered as necessity for travel and tourism business. If there is presence of
economies of scale then it will secure some amount of money and it will be increasing the level
of production. There is requirement for justifying break even analysis along with its process
where recovery of initial cost which is used as capital for business. In business such as travel and
tourism, break even point is very essential concept for identifying cost. If economies of scale is
not performed in effective manner then it is replicated by diseconomies of scale/ Volume
analysis is mandatory for tourism business for getting information about operations related to
business.
1.2 Methods of pricing related to travel and tourism sector
In the present era, travel and tourism industry is getting huge growth. There are various
people who are visiting different places, travelling in this world and bookings has been done via
internet. For every country, this specific industry is very important as it helps in inflow of money
and for developing nations. For making business decision in very effective manner so that it can
earn good profits and move towards expansion of business in the future. For adopting pricing
methods there is need of marketing principles. Price of tourism business is set according to

brand, location and star rating which is given for facilities related to accommodation. The key
role has been played by pricing policies which set prices for covering reasonable amount of
margin which can be received (Timothy, 2017). For identifying selling prices, profit margin
should be summed in cost and for expansion or growth of firm it is sufficient. The pricing
methods which are applicable for setting prices are stated below:
Cost led pricing
Market led pricing
Return on investment pricing
Profit led pricing
 Cost led pricing: The prices are set as per volume and cost of business. In the first step,
break even point has been calculated for getting sufficient margin on specific investment
on any business. If price of any business has been set above break even point then it will
indicate high level of margin has been received by business.
 Market led pricing: The prices are set according to skimming and penetration pricing in
this method. The prices which are set at lower level which will attract customer and
through this company will be involved in tough competition in specific market is termed
as penetration pricing method. The method where prices are set at higher level due to
good position in market and competitive advantage has been gained over the firm is
termed as skimming pricing.
 Return on investment pricing: Interest rate and return on investment helps in setting
prices in this method.
 Profit led pricing: It consists of two methods such as pricing based on customer and
competition pricing. The prices are set according to its competitors price is termed as
competition pricing and prices which are set as per demand of buyer is known as pricing
based on customer.
1.3 Identifying factors which influences travel and tourism sector
There are different factors which can influence profit for travel and tourism businesses, these are
discussed below-

 Events plays an important role to increase the profit of every businesses in organizations.
They come occasionally and give huge profit to the organizations. Businesses like tour
and travellers organize event which tourist enjoy and thus the profit of there company
increases. The event organizes by the carnival corporation and PLC cruise brands invite
tourist as well as increased the financial position of the business. When the industry have
any special event like national festival, holiday markets or any sports' event like
Olympics, commonwealth etc. increases the visit of tourist as well as profit margin
(Xiang, Magnini and Fesenmaier, 2015).
 Seasons – many travel origins and tourism having at least one set of high and low
seasons. It means that in lower season the rates of flights became relatively cheaper,
lower rates, and less interest etc. and in the high season all these cost increases rapidly.
Carnival corporation invites tourism in the peak seasons with lots of exciting offers to
attracts customers. This not only helps them to increase the profit but also provide high
ranking. And in non peak season they offer discounts to attract customers which affect
their profit negatively.
 Debts- Bad debts are the those monetary units which cannot be recovered. If the carnival
corporation are having bad debts the company itself have a negative impact on the profit.
These are those monetary amounts which cannot be collected from any reason.
 Economic environment- Environments are of two types external environment and internal
environment. Internal environment which can be controlled because it lies within the
organization and external environment which cannot be controlled by the organizations.
If carnival corporation wants to grab the market we must have the knowledge of the
external environment. If inflation takes place, the purchasing power of an individual
decreases so they cannot take an advantage of leisure life hence this inflation can cause
the gradually fall in business.
 Economic development – Economic development plays an important role in influencing
the profit of carnival corporation. As GDP rises it gave rise to the income of an individual
, so the people get more attracted to the leisure activity. Travel and tourism are one of the
source for leisure. So the growth in GDP give rise to the profitability of funfair
corporation.

 Strategic Planning – Planning is the first process of a management. If in an organization
there is a lack of sound planning it will definitely affect the business productivity.
Without strategic planning you cannot reach your organizational goals (Law and et. al.,
2015).
 Unavailability of skilled personnel- Human resource is the heart of an organization. All
the work in an organization depends upon the human resource. Organizations
productivity depends on the human resource. If in an organization there is a lack of
skilled human resources it can affect the performance of the carnival corporation.
TASK 2
2.1 Different types of management accounting information with respect to Dalata Hotel Group
plc
The daily transactions which are essential and performed by managers are known as
management accounting. The information related to daily accounting has been retained and for
preparing decision making in very effective manner. It can be used for comparing previous
account with organization's future account. The manager records full information in monetary
terms. Various kinds of management accounting information has been used by Dalata hotel
group plc which are stated below:
Financial statements
It is most important concept for all activities in context of finance of Dalata Hotel. These
statements are prepared in written format which will help in justifying financial information,
strength and liquidity of organization. Financial statements reflects all transaction related to
every event of business. In the same series it has 4 types which are stated below:
 Cash flow statement: All the inflows and outflows of cash and bank balance are indicated
in this specific period. The movement of every transaction has been categorised in three
segments such as financing activities, operating activities and investing activities.
 Balance sheet: It is also termed as statement of financial position which reflects Dalata
Hotel Group Plc's financial position at specific duration. In this statement, it consists of
elements such as assets, liabilities and equities (Importance of financial statements,
2018).

 Statement of changes in equity: It is also known as statement of retained earning which
provides full information in context of equity of owner which is specified over a period.
It consists of different elements like payment of dividends, gain or losses, issuance or
repayment of share capital, net income or loss as per income statement and effects of
alterations in accounting policy.
 Profit and loss statement: It indicates financial performance of organization of specific
period. The elements of this statement are Expenses and income.
Budget
The financial situation of organization is directly approaching towards management
accounting in operational aspect. Whole information has been provided by which Daltan Hotel
group plc in context of controlling and planning. In the same series there are several kinds of
budget which are stated below:
 Master budget: Brief summary has been provided of every activity which is projected by
the mode of cash budget, budgeted balance sheet and profit and loss statement. It has its
applicability in setting and planning objectives related to performance.
 Financial budget: The amount has been traced of receiving and spending of finance such
as cost from capital expenditure, revenues and income from core operation of
organisation related to business. Generally managers use this for leveraging its finance
and valuation of organization.
 Cash flow budget: it is used for projecting procedure of inflow and outflow of cash in
business within particular time period. It has its applicability for identifying that cash is
managed wisely or not. This budget usually considers various factors such as accounts
payable and receivable for assessing that Daltan Hotel group plc has ability to handle its
operations via cash on hand or not. In the same series optimum utilisation of cash has
been performed or not and along with this possibility of cash generating in future at
extent level (Types of budget, 2018).
2.2 Presenting applicability of management accounting information with reference to decision
making tool of Daltan Hotel group plc.
Investment decisions
Forecasting

Planning finance
Cost of capital
Solvency
 Decisions regarding investment: For optimising capital resources in very effective
manner which helps in earning efficient return, different decisions regarding investment
are undertaken. There is always requirement by every business to be careful while
choosing the best investment option so accordingly growth strategy should be adopted by
Daltan Hotel Group plc.
 Business should consider information related to management accounting with respect to
proper decision and best future outcome.
 The financials should be forecasted which will help in decision making process by
providing overall structure of fund of Daltan hotel group plc where is presence of
optimum utilisation of resources and its effect on funds usage in particular manner.
 The finance of organization should be planned along with future financial transactions
and budgets are framed. It will be a huge contribution for decision making by manager
and for deciding essential activities which are required in future for funding purpose.
 The essential factor for framing balanced and optimal structure of capital is termed as
cost of capital. All the decisions in context of cost of capital, there is huge requirement
for evaluating management's goals for maximising valuation of organisation and it should
decrease cost of capital.
 The Daltan Hotel's group plc had indicated its solvency by capacity of organisation for
attaining financial commitments for long term aspect. The cash flow of organisation is
also observed which is enough for meeting short and long term liabilities as well. There is
presence of many possibilities of default in debt obligations because of less solvency. The
financial sound organization must have ratio of solvency higher than 20% but it also
according to type of industry. The cash flow should be measured rather than net profit as
it is considered as better deciding factor in context of solvency and usually for
organizations which incurs depreciation of assets in huge amount and very low level in
context of profitability has been performed. For assessing ability of organisation for

attaining its specific obligations which has necessity for appropriate picture of solvency.
There is very less amount of debt because of bad cash management practices and its
outcome solvency position is not good but it is represented by its measures where debt is
also included (Angel, Menéndez-Plans and Orgaz-Guerrero, 2018).
TASK 3
3.1 Justifying financial statements of Dalata Hotel Group Plc of past two years
Financial ratios (2016 – 2017)

Interpretation:The above table is indicating financial ratio of Dalata Group Plc of two
years such as 2016 and 2017. These are depicting performance of organization of two years
which is also assessing its health and its comparison from average of industry which is assessing
that firm is operating in well manner or not. There is presentation of profitability, liquidity,
efficiency and solvency ratio which is clarifying organization's performance in very efficient
manner (Camilleri, 2018).
Serial
no.
Ratio Interpretation
1 Gross profit ratio In the year 2016, it was 62.20% and in next year it raised to
63.20% due to better earning capacity of organization with
so much ease. It can be directly imply that organization has
ability to control its expenses and as outcome, profits are
increased in very efficient manner.
2 Net profit ratio It got increased by 7.58% from year 2016 to 2017 such as
12.02% to 19.60% which indicates huge margin. It can be
implied that organisation has given good control over
expense related to operation as it will be increasing in very

effective manner.
3 Return on Capital
Employed
In year 2016 it was 4.53% which got raised in nest year to
7.56% which is replicating that sales are generated on
investment which is made in very possible way. Viability
of organization has been increased and evaluated with so
much ease.
4 Return on Equity (ROE) It is also termed as profitability indicator which is
reflecting effecting ways for utilising investment of
shareholders to great extent for generating sales in very
effective manner. In 2016 it was 6.03% and it raised up to
10.06 in 2017 which is stating that it is utilising its
investment is very effective manner.
5 Current ratio Current ratio is representing liquidity of organization which
was 1.44 : 1 in 2016 and decreased up to 0.46 : 1 in 2017
which is implying that organization will be facing difficulty
for repaying payment of debt in specific framework. The
organisation has low current ratio.
6 Quick ratio It is calculates as 0.83 : 1 in year 2016 and decreased up to
0.35 : 1 which indicates that organisation will face
difficulty in repaying its liabilities from its liquid assets.
7 Receivables Turnover
ratio
In year 2016 it was 42.04 which got decreased to 41.53 in
2017 which replicates that organization has ability to gather
all amount from its creditors.
8 Stock Turnover ratio It is increasing from year 2016 to 2017 which identifies
that organization is not able to use its inventory in
appropriate manner.
9 Creditors' payment
period ratio
It is decreasing from 2016 to 2017 from 42.33 to 38.98
respectively which can be interpreted as organization is
making its payments in very effective manner (Eugenio-

Martin and Inchausti-Sintes, 2016).
10 Gearing ratio The organization is relying more on equity financing as
compared to debt because it was 0.43 in 2016 which got
decreased in 2017 as 0.33.
11 Debt to assets ratio In year 2016 it was 0.25 and in next year it reduced 0.22
which is analysing its overall financial performance which
is enhancing organisation.
TASK 4
4.2 Justification of sources of funds for capital projects
Public capital projects includes railway infrastructure which includes all the information
related with the railway , bridge construction while non public capital projects includes the
construction of hotels , buildings etc. Tourism Information Points, Interpretation Boards, small
scale tourism/environmental improvement with associated interpretation, development of small-
scale heritage sites with interpretation and information, integrated footpath development and
improvement, integrated bridleways development and improvement, cycle route development
and improvement. Following are the sources and distribution of funding for the development of
capital projects with tourism-
 Loans – loan is the lending of money from an individual, or an organization etc. They are
the external sources of the fund where they get accumulated from the borrowings
performed by the company by giving collateral security to the loan providing
organizations. It is the fastest and easiest way to accumulate funds. The only this is
required that company has to pay interest which is fixed by the loan providing institution.
Loans are of two types loans, long term loans and short term loans. Short term loans are
undertaken for the shorter period for the good allocation of resources while long term
loans are those which are taken for the long period. Capital projects are long term
projects so for this long term loans are taken.
 Retained earning – Retained earning are the profits. Every organization works for the
profit. There main goal is to maximise their profits. Profits that are earned are also used

as a source of fund in capital projects. Some amount profit is reinvested to the business so
that if there is any emergency that profit can be use (Scott, Hall and Gössling, 2016).
 Equity - Another way through which sources can be accumulated is the issue of the share
capital so that funds of the business can be increased. It is time taking process but much
better than any other sources of collecting funds. There are many other process of
collecting funds which company follow. Another way is followed by the business is to
retaining the fund for the long term so that they may get increased and can be further
invested in future in any project. This is known as capital stretch method. It is the easiest
and simple method which consist of bills of exchange and many other receipts related to
creditors of the business. After the sources of funds the next step is the distribution of the
fund. Business has the budget of $25 million so the company will take the loan of $10
million and will pay the interest to the institution monthly after putting some collateral
security.
CONCLUSION
From the above study it can be concluded that finance is very essential concept in travel
and tourism business which helps in meeting daily task in very efficient manner. It has also
shown CVP analysis which is used for assessing desired level of results in efficient way. It has
been articulated that financial ratios are very essential for analysing overall performance of
organisation. It can be summed up by attaining desired information through cost will be
controlled in effective manner. As every business has ability to get fund by different capital
projects.

REFERENCES
Books and Journals
Angel, K., Menéndez-Plans, C. and Orgaz-Guerrero, N., 2018. Risk management: comparative
analysis of systematic risk and effect of the financial crisis on US tourism industry: Panel
data research. International Journal of Contemporary Hospitality Management. 30(3).
pp.1920-1938.
Camilleri, M. A., 2018. Tourism Supply and Demand. In Travel Marketing, Tourism Economics
and the Airline Product (pp. 139-154). Springer, Cham.
Eugenio-Martin, J. L. and Inchausti-Sintes, F., 2016. Low-cost travel and tourism
expenditures. Annals of Tourism Research. 57. pp.140-159.
Finkler, S. A. and et. al., 2016. Financial management for public, health, and not-for-profit
organizations. CQ Press.
Law, R. and et. al., 2015. Distribution channel in hospitality and tourism: Revisiting
disintermediation from the perspectives of hotels and travel agencies. International
Journal of Contemporary Hospitality Management. 27(3). pp.431-452.
Scott, D., Hall, C. M. and Gössling, S., 2016. A review of the IPCC Fifth Assessment and
implications for tourism sector climate resilience and decarbonization. Journal of
Sustainable Tourism. 24(1). pp.8-30.
Timothy, D. J., 2017. Managing heritage and cultural tourism resources: Critical essays,
Volume one. Routledge.
Xiang, Z., Magnini, V. P. and Fesenmaier, D. R., 2015. Information technology and consumer
behavior in travel and tourism: Insights from travel planning using the internet. Journal of
Retailing and Consumer Services. 22. pp.244-249.
ONLINE
Importance of financial statements. 2018. [Online]. Available through
:<https://www.invensis.net/blog/finance-and-accounting/importance-accurate-financial-
statements-business/>.
Types of budget. 2018. [Online]. Available through
:<https://www.fool.com/knowledge-center/5-types-of-budgets-for-businesses.aspx>.