Finance and Funding in the Travel and Tourism Sector

This report discusses the finance and funding in the travel and tourism sector, focusing on cost and volume analysis, pricing methods, and factors influencing profit. It provides an overview of the financial performance of The Restaurant Group Plc.

FINANCE AND FUNDING IN
THE TRAVEL AND TOURISM
SECTOR

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Importance of cost and volume analysis in financial management of travel and tourism
businesses...............................................................................................................................1
1.2 Pricing methods used in travel and tourism sector...........................................................2
1.3 Factors influencing profit for travel and tourism businesses............................................5
TASK 2............................................................................................................................................6
2.1 Different types of management accounting information..................................................6
2.2 Use of management accounting information as a decision-making tool..........................6
TASK 3............................................................................................................................................6
3.1 Financial performance of The Restaurant Group.............................................................6
Interpretation....................................................................................................................................7
TASK 4............................................................................................................................................9
4.1 Sources and distribution of funding for development of capital projects........................9
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Finance plays a significant role in business to survive in the market. Funding is a process
of collecting money as well as allotting in the business. The present report describes about the
finance and funding in a travel and tourism industry which is the fast growing industry
worldwide. In present case, Merlin Entertainment Plc is used to describe about the finance and
funding. The report throws light on cost, volume and profit elements which play an important
role in managing financial accounts of the firm. It describes about management accounting
information as well as sources of finance. It gives overview of financial performance of The
Restaurant Group Plc.
TASK 1
1.1 Importance of cost and volume analysis in financial management of travel and tourism
businesses
Cost and volume is a term which is used by the financial managers to derive cost of
product and services. The analysis has various components such as fixed and variable cost, direct
and indirect cost etc. In this, the cost must be included in the product, price for selling the
product must be constant in a financial year and all units which are produced within an
accounting year must be sold in the market (Evans, Stonehouse, and Campbell, 2012). The
analysis is very important to Merlin Entertainment firm to manage financial situation. Various
importance of the cost volume analysis is given as below: Fixed cost: Fixed cost is a cost which does not change and vary according to the
production units. If the services and products of the firm will change then the cost will
remain constant in the travel and tourism enterprise. The cost plays important role to
derive a break even point of the firm and it is helpful to determine cost and price of the
product and service. It is a basic expense of the production process which cannot be
avoided by the organisation (Eagles, 2014). It will help the Merlin entertainment to know
about the total cost as well as to derive prices of services offered by the travel and
tourism company. Examples of fixed cost are rent of building, amortization, taxation
amount, depreciation on assets etc. Variable cost: It is a cost of product which varies according to the production volume. If
in the business, production level increases or decreases then variable cost gets fluctuate.
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Variable cost varies in same direction of the production level for example; if production
level increases then variable cost will also increase. On the other hand, if output level
decreases then respective cost will decrease. It is very helpful to determine cost as well as
price of products and services. Example of variable cost are raw material cost, fuel cost,
labour cost, commission which charges on the basis of production level. Labour cost
fluctuates when cost charges as per the production units of the organisation. Direct cost: Another component of cost volume profit analysis is direct cost which is
incurred to produce products and services (Mancini, 2012). The cost is directly associated
with the production process as well as business entity. It is clearly associated in specific
activity of production process. In the business, very few direct costs are attached with the
total cost and with the specific activity of production. Direct costs of business are such as
direct material, direct labour, manufacturing supplies etc. The cost volume analysis is
important to determine direct cost of the products and services of the mentioned firm. Indirect cost: A cost which is not directly associated with production process is known as
indirect cost. The cost which is not directly accountable in total cost is the fixed cost or
variable cost. Indirect cost include various overhead cost which are associated with the
enterprise rather than total cost of goods and services. Indirect costs are such as
administration costs, labour overhead cost, security costs, personnel costs etc. These costs
are accounted in other costs instead of production cost of total cost. Administration costs
are such as utilities, rent of facilities as well as property and building, depreciation on
assets or equipments etc (Morrison, 2013).
 Contribution margin: Contribution margin can be counted as a portion of profit. It is a
margin which remains after deducting all the variable expenses from total revenue or
sales of the organisation. The mentioned analysis is helpful for Merlin Entertainment to
derive contribution margin. Sum of money which remains is used by the firm to cover the
overall fixed cost and after that whatever remains is considered as a profit of the
organisation.
1.2 Pricing methods used in travel and tourism sector
Price is an important factor of an organisation and motto of the firm is to earn maximum
profit. . There are various pricing strategies which are helpful to the management at the time of
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taking pricing decision. Merlin entertainment Plc also uses a pricing strategy to determine price
of its goods and services (Hamilton, 2014). Various pricing strategies are given as below: Cost plus pricing method: One of the most used pricing strategies is cost plus pricing
method where the price is determined on the basis of profit margin. This method is easy
and management can easily derive price of product without any obstacles. As per the
method, percentage of margin is added in total cost of production and the outcome is
considered as a price of services. Hence, total cost of product plus percentage of profit
will be price in the business. For example, suppose total cost is 100 and company want to
charge 20% of the profit, then price will be 100+20% = 120. Competition based pricing method: It is another method to set out the price of services in
business enterprise. According to the method, management charge price after comparing
pricing policy of its rivalry firms. In this, price is determined lower than competitor’s
who are serving same services to the consumers (Akyol, and KILINÇ, 2014). The method
is also used by the firm but sometimes it is unfavourable for the business conditions. For
example, price of travel service is 2000 in a business and its rivalry firm charges 1950 for
the same service. At this situation, the management of previous business will charge 1900
of the service. Hence, the prices are derived like this way according to the pricing
strategy. Marginal cost pricing method: Another method of pricing strategy is marginal cost
pricing method where only variable cost is considered to derive price of products. As per
this method, if production volume gets change then price of product also fluctuate in the
same direction of volume of production. The price will fluctuate because mentioned
method depends on the variable cost. Skimmed pricing method: As per skimmed pricing strategy, management charges higher
price at the initial stage of business (Page, 2014). When the company able to get higher
market share and increase number of customers in comparison to initial then prices will
charge lower. This strategy is highly effective and mostly used by the business entities.
 Value added pricing method: According to the pricing method prices are determined as
per the quality of product and brand image of the company. When company have high
market share and good brand image then price of its product and service will be high in
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the market. Under this method company not consider price of any rivalry firms and
another components. Here only taste and preferences and goodwill of the company is to
be consider for derive price. The method widely used by organizations which have better
brand and high market share in industry.
In the present case Merlin Entertainment Plc is a UK based organisation and operating in
the travel and tourism sector. The firm provides its services to the consumers worldwide and
have a brand image in the mentioned fast growing industry (Readman, 2012). Hence, the
company using value added pricing strategy to determine price of its services. The company uses
the method because it offers good quality of services and have a brand image in eyes of
consumers. The company has various brands in the world such as FallsCreek, SEA-LIFE, Thorpe
Park etc. This brands are also using value added pricing method due to having brand image in the
world. Return on investment method: Another method is return on investment for derive cost of
product and services offered by the travel and tourism company. As per the method the
firm set prices on the basis of return which is made by management from investment. In
order to this when return of investment which is made by firm will high then prices goes
down. Higher the return on investment is better for the business organisations. The
method is very helpful to the managers to take decisions related to price fixing. High
return will lead to increase profit of the firm and when profit is high then company charge
less price of product by which more number of consumers attracts towards it.
 Absorption cost pricing method: The method considers two variable of cost at the time
of taking decision of price fixing. The variables are such as fixed cost and variable cost
which help to management in order to take pricing decisions (Jayawardena, and et.al.,
2013). As per the method company analyse fixed and variable cost and derive total cost
of the production. Hence, the firm set out price of the product as per the total cost which
incurred in production process. Mostly firms are using the method for determine price to
sale products in market. Mentioned pricing method is very easy and total cost of
production is also covered.
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1.3 Factors influencing profit for travel and tourism businesses
Profit is very sensitive element of the company and all the organisations are operated in
industry to earn the element. Profit is a sum of money which remains after deducting all the
direct and indirect expenditures of products and services from total sales and revenue. When
remaining amount is in positive value then considers as a profit while when amount remains is in
negative term then considers as a loss of the firm (Guiver, and Stanford, 2014). All companies
want to maximize profit from the production. Profit is an element which affects by various
factors in positive as well as negative manner in Merlin Entertainment Plc. Various factors by
which profit affected are given as below: Political environment: It is a major factor which impact on profit of travel and tourism
sector. Political factors are such as rule and regulations, policies of government for
services offered in international market, various taxation and tariff policies etc. When
taxes for travel and tourism industry will increase then it leads to increase cost of goods.
By increasing costs profit will be affected in negative terms. As per the rules and
regulations if rules are not in favour of the firm then hamper profitability of the company. Economic environment: Another factor is economic environment where recession and
inflation is majorly impact to the every organisation. Inflation is lead to increase price of
the products and services offered by the Merlin organisation. When prices are increase
then firm is not able to earn more profit in comparison to previous situation. Another
economic factors such as exchange rates and interest rates are also impacted to the profit
level in positive and negative manner (von der Weppen, and Cochrane, 2012). Sometimes
factors are fluctuated in favour of company and sometimes not. Social environment: Social factors are directly impact to sales of the products and
services. Various social factors are such as religion of people, marital status, economic
status, tastes and preferences of consumers, lifestyle of customers, education etc. As per
the factors when lifestyle of consumers change then they used to go for another products
and services which are suitable to them. In order to this when tastes and preferences are
change then consumers are not want same products and to fulfil that firm have to offer
another goods services which lead to increase cost. It will impact to profit of travel and
tourism business adversely.
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 Seasonal variations: According to this method tourists prefer holidays and for cold
destinations they prefer summer season. In order to this business of travel and tourism
companies are not high in winter seasons and in off seasons. Hence, in the off season
fixed cost remain constant and variable are change but company have to bear fixed cost
which lead to decrease overall profit (Ji, Li, and King, 2016). To reduce this impact
company should charge higher price in season and lower price in off season by which
profit will equal in all seasons. Bed debts: As per the mentioned factor it majorly impact to the profit level of every
business entities. Debt is known as a long term loan of business which lead to affect
profit in negative terms. Bed debt is never recovered by businesses, in order to this when
company provide services on credit and consumer is not give amount to the firm. Here
the amount will be counted as a bed debt and it will affect to the profit of travel and
tourism organisation.
 Planning: Planning is a process to run the business effectively and increase its financial
performance. When the company is not able to prepare and formulate proper plan then
cost will hamper by it (Rogerson, 2014). When cost hamper then ultimately profit get
fluctuate and impact to the overall financial performance of the mentioned business
organisation. The company need to make proper plan for every function of business
which will help to increase profit level.
TASK 2
2.1 Different types of management accounting information
2.2 Use of management accounting information as a decision-making tool
Enclosed in power point presentation
TASK 3
3.1 Financial performance of The Restaurant Group
Financial Ratios Formulas 2015 2014
Liquidity Ratios
Current Ratio Current Asset (CA) / Current
Liabilities (CL)
0.28 0.24
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Quick Ratio (C A – closing inventory)/C L 0.12 0.08
Profitability Ratios
Gross Profit Ratio (Gross Profit (GP)/ Net Sales)*100 18.51% 17.93%
Net Profit Ratio (Net Profit (NP)/ Net sales)*100 10.05% 10.55%
Operating Profit Ratio (Operating profit (OP)/ Net
sales)*100
12.97% 13.75%
Solvency Ratios
Debt to Equity Ratios Debt/ Equity 0.12 0.17
Efficiency Ratios
Total asset Turnover ratio Net sales/ total assets 1.54 1.54
Inventory turnover ratio COGS/ inventory 93.71 98.22
Interpretation
Liquidity ratios- The important ratios used by the business entity in order to compare its
previous year performance with the actual results obtained by them (Nor, and Shah, 2012). The
liquidity position of an entity will assist the top management of restaurant PLC in order to make
decisions related to their existing entity. The cash is essential component in an entity which helps
in paying off the obligations faced by the current business. The liquidity ratio is further divided
into different segments which are given as below:
Current ratio-The current approach will be used by the firm in which the internal capabilities
of the corporation are compared with the external environment. The current assets are properly
assessed in order to pay off the current liabilities incurred in the business. The above ratio of the
firm states that the company's performance has increases over the years. The current ratio is
increases with the lower amount of trade creditors which suppresses the current assets of the
business entity.
Quick ratio- Other ratio used to evaluate the performance of an enterprise which is efficiently
used by the business by excluding the inventory components (Prideaux, and McNamara, 2013).
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The inventory us excluded as it will not easily convert into cash. The increasing ratio shows the
ability of an entity by raising its existing ability from one period to another.
Profitability- The existing variables of the income statements are assessed properly in
order to comment upon the profitability generated by the business over the years. The
profitability ratios are divided into various divisions which is mention below:
Gross profit- The raw profit produces by an entity by conducting all the business operations. It
is also regarded as the initial profit which is outcome generated by an entity by deducting the
cost of sales from the sales achieved by the business concern. This is increasing over the year
due to the less cost of sales incurred by the firm.
Operating profit- The profit generated by an entity after meeting various operating expenses
like general administration, selling and distribution expenses (Deluna Jr, and Jeon, 2014). The
Restaurant PLC are required to control their operating expenses as it reduces its operating profit.
Net profit- The complete profit generated by an enterprise which can be taken as the final profit
used to assess the final business efficiency. The burden of taxation has reduces the net profit
generated by an enterprise.
Solvency ratios-The ability of an enterprise need to be ensure properly in order to meet
the current obligations of the external market. The ability of the business are judged by counting
their internal abilities in relation to the external debt component.
Debt to equity ratio- The equity are assessed properly in order to beat and reduced the current
debt obligation imposed on this entity. The equity element need to be higher in order to eradicate
the higher imposition of the debt element as it carriers future interest to be paid to all the
investors. This ratio is decreasing which shows the inability of an enterprise in meeting their
external obligations.
Efficiency ratio- The ratio is related to the internal capabilities of the business enterprise
which need to be strong enough in order to meet their current market obligations (Pastras, and
Bramwell, 2013). The internal components are judged by applying various test in assessing the
true value of all the components to ensure the success of the business.
Total asset turnover- This ratio is used to assess the contribution of all the assets of an entity in
generating the sales and the revenue. The assets are important in generating higher sales which in
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turn enhances the level of business enterprise. The stable position of an entity will indicate no
contribution applied by an entity.
Inventory turnover ratio: The ratio indicate that Restaurant Plc is how much efficient to
generate from its inventory. In the present scenario, in the accounting year 2014 inventory
turnover ratio is 98.22 and in the year 2015 it is decreases up to 93.71. It means company not
able to use its inventory in neat year.
TASK 4
4.1 Sources and distribution of funding for development of capital projects
Enclosed in Poster
CONCLUSION
It can be concluded from above project that Merlin Entertainment Plc is a travel and
tourism company which providing its services worldwide. It can be articulated that cost and
volume analysis is very important for every organisation to derive various costs and profit of the
product and services. Cost and volume is assists with various component of costs and useful for
the management. In order to this various pricing strategies which help to management of travel
and tourism company to derive prices of its goods and services. It can be concluded that
company use value added pricing method. Various management accounting information tools are
there which helps in business decision-making. It can be summarized that sources of finance are
useful for managers to develop projects.
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REFERENCES
Books and Journals
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Eagles, P.F., 2014. Fiscal implications of moving to tourism finance for parks: Ontario provincial
parks. Managing Leisure. 19(1). pp.1-17.
Evans, N., Stonehouse, G. and Campbell, D., 2012. Strategic management for travel and
tourism. Taylor & Francis.
Frerichs, A., and et.al., 2013. Usage of Pre-Made Text-Modules and Peer-Groups for Mitigating
Information Asymmetry in Social Lending: Evidence on Funding Success from German
Platform Smava. International Journal of E-Business Research (IJEBR). 9(3). pp.1-26.
Guiver, J. and Stanford, D., 2014. Why destination visitor travel planning falls between the
cracks. Journal of Destination Marketing & Management. 3(3). pp.140-151.
Hamilton, K., 2014. Wildlife conservation and environmental economics. Environment and
Development Economics. 19(03). pp.299-302.
Jayawardena, C., and et.al., 2013. Trends and sustainability in the Canadian tourism and
hospitality industry. Worldwide Hospitality and Tourism Themes. 5(2). pp.132-150.
Ji, M., Li, M. and King, B., 2016. Incremental Effects of the Shanghai Free-trade Zone—An
Internet Informed Assessment of Hong Kong’s Tourism Competitiveness. Journal of China
Tourism Research. pp.1-18.
Mancini, M., 2012. Access: Introduction to travel and tourism. Nelson Education.
Morrison, A.M., 2013. Marketing and managing tourism destinations. Routledge.
Nor, S. A. M. and Shah, D. R., 2012. Review and identification of tourism potentials of Isfahan
using SWOT model. Life Science Journal. 9(3).
Page, S.J., 2014. Tourism management. Routledge.
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Pastras, P. and Bramwell, B., 2013. A strategic-relational approach to tourism policy. Annals of
Tourism Research. 43. pp.390-414.
Prideaux, B. and McNamara, K. E., 2013. Turning a global crisis into a tourism opportunity: the
perspective from Tuvalu. International Journal of Tourism Research. 15(6). pp.583-594.
Readman, M., 2012. Golf Tourism. Sport and adventure tourism, p.165.
Rogerson, C. M., 2014. Informal sector business tourism and pro-poor tourism: Africa’s migrant
entrepreneurs. Mediterranean Journal of Social Sciences. 5(16). p.153.
Von der Weppen, J. and Cochrane, J., 2012. Social enterprises in tourism: an exploratory study
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511.
Online
Pricing Strategy for Tourism Businesses, 2010. [Online]. Available through:
<http://www.tourismindustryblog.co.nz/2010/03/pricing-strategy-for-tourism-businesses/>
[Accessed on 29th December 2016].
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