Finance and Funding in Travel and Tourism

This report analyzes the financial management of Akaglo Tours Company (ATC), a travel and tourism company planning a summer trip to the Maldives. It examines the importance of cost and volume analysis, evaluates pricing methods, and analyzes factors influencing profit. The report also explores management accounting information, investment appraisal techniques, and sources of finance available to ATC. It concludes with an interpretation of financial ratios and recommendations for future financial planning.

Finance and Funding in
the Travel and Tourism
Sector

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1: Importance of cost and volume in financial management of Tourism businesses..............1
1.2:Evaluating pricing method used by ATC..............................................................................3
1.3: Analysis factors that are influencing profit for travel and tourism sectors..........................4
TASK 2............................................................................................................................................5
2.1: Analysing various types of management accounting information applicable in ATC........5
2.2: Application of various investments appraisal techniques ...................................................6
TASK 3............................................................................................................................................7
3.1: Interpretation of ratios in travel and tourism financial accounts.........................................7
TASK 4............................................................................................................................................8
4.1: Sources of finance available to internal and external departments......................................8
CONCLUSION ...............................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Finance is said to be lifeblood for any business, whether related to any industry they
required valuable amount capital to finance their operations in appropriate manner. In accordance
to travel and tourism sector, it seems to be primary concern which will leads to make plans for
delivery superior services and travelling facilities to various tourists. According to the mentioned
case about “Akaglo Tours company (ATC)” which is estimated for planning a summer trip to
some attractive location of Maldives beach. This project report is all about determining
importance of CVP analysis for decision making in tourism sectors. Analysis is to be done to
make use of management accounting data as a decision making tools are discussed under this
report. Interpretation of all financial ratios those are effective helpful in tourism sectors. Lastly,
sources as well as distribution of funding for formulation of capital expenses are taken into
consideration in more effective manner in this particular report (Stewart, 2017).
TASK 1
1.1: Importance of cost and volume in financial management of Tourism businesses
Tourism is primary aspects for any particular nation which is contributing maximum
revenue from the visit of tourists. Nowadays, it seems to become more vital sectors that has
made huge influences on increasing GDP as well as growth of nations economy. The primary
motive of travel and tourism are wealth creating and generating maximum job opportunities
during an accounting period. In some part of regions is taken as more valuable sources of welfare
that can enhance standard of living. As per the mentioned scenario, ATC company is planning a
summer trip in Maldives for one month. In respect to provide more reliable and comfort to the
people they will be hiring a cruise and chalets. It has been determine that wide number funds can
be going to invest in the arrangements of all these things. It will directly make impacts on the
productivity and growth of the company (Baker and Corcoran, 2012). A well organise techniques
would be used by the management to control their costs. Such as:
CVP analysis: It is known as one of the main aspects that is associated with examine all
necessary changes which is related with organising trip are analyse in effective manner. It is
consider as more reliable tools which shows relationship among volume, costs, prices and
collected gains during the period. It seems to be internal parts of profit planning procedure of
ATC. By using this, managers of the company would have plenty of option for an organisation to
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effectively control their financial resources in respect to attain maximum number of advantages
in near future. It would deliver insight to managers of ATC regarding all impacts and
relationship between factors and associated implications that relies upon revenues. In analysis
cost and profit certain important aspects are needed to be taken into consideration. Such as:
Cost: It is consider as value of amount which is delivery by managements in order to
retain something. It consists of various elements like:
Direct costs: These are said to be those costs which are directly livered on production or
planning of any tours. There are numerous costs which would incurred but cannot be possible to
control (Ciplet, Roberts and Khan, 2013).
Indirect cost: All those costs those are indirectly charged by the travel and tourism
company for the delivery services to people. It is categories into two parts such as fixed and
variable costs.
Fixed costs: It refers as those are costs which remain unchanged with the production of
products and services during the period of trip journey. This will arises with the purchase of any
accommodation facilities from tourist in Maldives. Examples, Rent and telephone charges.
Variable cost: It is said to be that costs which can be changes or alter with accommodation and
services delivery in tourism and tour sectors. It consists of certain costs such as material and
labour etc.
Allocation and apportionment: According to this particular aspects which would
provide effective matters those are related with costs of various departments for evaluating actual
gain generated by the company. This seems to be related with various business operations done
by ATC group. By using this, company would be able to manage and control their additional
expenses.
Volume: It consists of various aspects those are effectively helpful in tourism sectors.
Such as:
BEP analysis: This seems to be more effective aspects which would assist them to
determine amount of total sale and profit position of the company. It is used to analyse break
even stage in which company would not have any profit and loss (Drehmann and Nikolaou,
2013).
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Economic of scale: This happens to guide all crucial aspects of production of more
amount of accommodation services to their tourist those are going to book tickets for Maldives.
It would be helpful in improvement of their gross margin.
Significant of CVP analysis:
Essential enough for improve performance: It will increase the ability of ATC
company to provide more effective return from provide facilities those are more reliable and
accurate for the company.
Decision making: There are various aspects or factors which contributes in increasing
proper decision-making by taken crucial actions for right matters.
1.2:Evaluating pricing method used by ATC
Pricing strategies for tours and travels businesses is more positive mix of market planning
and financial evaluation of all services that are being provided during the tours. In order to use an
incremental evaluation which is properly needs a wide ranging examination of total effects of all
kind of decision rather than common effect on the gross margin of total sales done during the
time. So the main purpose of this aspects is not to buy help which is having devise implications
of pricing policies of any tourism business.
Seasonal pricing method: It is done through using pricing planning during the year to
cover minimum, high and would seasons in a standard ways for travel and tourism businesses to
cater for various levels of demand. The School holidays dates are taken into account for best
time of travelling (Ware, 2017).
Last minute pricing: It is said to be utmost important method of pricing which is done to
fulfil last minute gaps inventory availability, last stage pricing can be more discounting everyday
prices as per the forward booking done by the company.
Discounting pricing: It is happens to be appropriate method which is having reliable
techniques for an organisation in order to deal with competitive market such as tourism (6
Different Pricing Strategies: Which Is Right for Your Business, 2017). It is more hard to reduce
profitability or even sometimes missing that vital break-even point.
Package deal: It is vital to develop package with complimentary tourism booking in
local areas or with value that included retail travel agent, incoming tour operator or online travel
agent. Maximum tourism operators are tempted to included value of commission on various
pricing strategies.
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Common pricing types:
 Per person pricing: It is a set of pricing per individual that consists of Adults as well as
children prices. It is more useful activities and transport operators as well as camp sites.
 Per unit pricing: In this company used to set prices for 1 unit of products such as per
unit price. This seems to be more standard way to price accommodation (Kemp, 2014).
Particular Amount
Sale prices per tourist 7500
Less: Meal charges 1250
Contribution 6250
Fixed cost 500000
Total number of tourist 80
Total number of profit 600000
Desire profit 100000
1.3: Analysis factors that are influencing profit for travel and tourism sectors
Planning is more essential aspects for ATC company which is planning an effective
summer holiday trip in Maldives holiday beach. It has plenty of obligation that are determine by
the managers in respect to examine all crucial factors which are presented in atmosphere. The
company need to determine negative and positive aspects that are relies on profit earning ability
of an organisation. Evaluation of vital factors that are having essential implication on an
organisation of effective planning which would directly analyse employees performances of their
operations as per their certain standard that are helpful to attain future benefits for ATC
company. It would attain valuable aims and objectives in regards to total sales of tour packages
and profitability. Some essential factors are discussed underneath:
Festival season: It has been seen that most of the people travel in mostly festive season
because of meeting and watching new cultural locations of various nations. This period of time is
consider more beneficial for ATC as most people used to visit new destinations. It has been
observed that most Tourists used to spend their holidays with their families s they wish to go on
festival. In accordance with this factors which is more favourable for ATC is to attain more
number of people to grab tours packages (Yescombe, 2011).
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Income: It is utmost important parts of every individual to make planning for their trip by
taking into account all affordable incomes. In UK, an tourist is having positive sources of
earning and their budgets must allow them to travel one nations to another.
Technology: They used to prefers to go such places where all service and facilities are
reliable and available in regards to communicate and transport services etc. they used to select
best holiday packages where all facilities are deliver to the people in regards to accommodation,
food and other aspects.
Terrorism impacts: It is one of the crucial factors which has negative implication on
ATC business. As this problems would be associated with the safe and securities of all tourist
those are going for Summers trips. They does not choose those places which are more dangerous
in terms their life. This will create negative implication of the ATC companies overall earnings.
Currency rate: It is mostly related with the foreign exchange rate which is fluctuating in
case a person goes from one nations to another. They need to convert their currency as per the
norms of that particular regulations. It has been determine that all those nations whose currency
rate is more high is less prefer to the tourist (Huff and Rogers, 2015).
TASK 2
2.1: Analysing various types of management accounting information applicable in ATC
The primary motive of an organisation is related with recording of all financial
transaction that are incurred during planning of summary trips. Management accounting assist
the management to gather and control all internal working of the data on regular basis so that
chances of mistakes can be controlled without facing any default. This is essential as every
defaults flows that would make impacts on the business which is critically analysed before any
kind of penalty is be charged. Various types of management accounting informations are:
Cost allocation report: According to this particular report, proper allocation is to be
made to each and every resources current in business at early process so that no any ambiguous
conditions those are arises in coming future time. This would assists managers to keep a track
record on the functioning of business and associated desire outcomes.
Budget report: Every expenses that will be occurs in upcoming and then documented in
the budgets report. Through using management accounting all expenditure that can occurs in
future are recorded to make plan in effectively (Nam-Katoti and et. al., 2011).
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Job cost reporting: In respect to this, all areas of business used to determine profit which
can be earned by focusing so that no additional cost and time are wasted on any non-profitable
trips. Every aspects by which gains profit incurred are examine and then reported to make correct
analysis of their profitable projects.
In accordance to all essential accounting tools and techniques those are mentioned above
are taken into consideration as more reliable ways to record every data in accurate manner. This
will make improvement in understanding between the departmental events and formulate
coordination among their primary functions that are done during an accounting period.
2.2: Application of various investments appraisal techniques
There are different types of investments appropriate tools and techniques which are
helpful to determine their right option to select their future projects. The main operations of
investments techniques is used to examine the profitability that is earned through an organisation
future period of time. There are two major techniques which are essential for during this process
such as NPV and IRR. It has been identified that both these methods are equally benefits to ATC
company in coming planning process. This will also assist them to make effective best selection
of profitability areas which is providing desired profit in coming period of time. Some of them
effective factors which would contributes in improvement of better decision-making in relation
to analyse future project dependency. Some of them are discussed underneath:
Payback period: This seems to be utmost important investment tools which is being
used by various company in respect to determine total cash-flows determine during an
accounting period of time. It would indicate total time of recovery made on initial investments
made by the company.
Accounting rate of return: This would indicate specific indication among total amounts
the business used to invest to an amount. It is consider as primary liabilities to earn maximum
growth for the company in near future period of time.
Net present value: It is said to be an appropriate value in present of a sum of money, in
respect to some future value. This seems to be difference among present value of cash inflows
and cash outflows over a period of time. It is used in capital budgeting to analyse profitability of
estimated investments (Enyedi, 2016).
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IRR: It is consider as more systematic metric which is being used as capital budgeting to
predict the profitability of any potential investments. It is known as discounted rate that makes
total net present value of all cash-flows generated from a specific project.
Year Cash flows %PV factor Net present value
0 -20000 1.00% -20000
1 8500 0.9090909091 7727.27272735
2 10000 0.826446281 8264.46281
3 7500 0.7513148009 5634.86100675
4 5000 0.6830134554 3415.067277
Total 31000 25041.6638211
NPV 5041.6638211
Internal rate of return 22.21%
TASK 3
3.1: Interpretation of ratios in travel and tourism financial accounts
Profitability 2016-09 2017-09
Net Margin % 6.04 3.48
Asset Turnover (Average) 1.2 1.29
Return on Assets % 7.27 4.5
Financial Leverage (Average) 5.4 4.83
Return on Equity % 45.22 22.97
Return on Invested Capital % 28.13 15.72
Liquidity/Financial Health 2016-09 2017-09
Current Ratio 0.74 0.66
Quick Ratio 0.5 0.47
Efficiency 2016-09 2017-09
Days Sales Outstanding 12.01 8.35
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Days Inventory 2.86 2.38
Payables Period 67.35 56.34
Receivables Turnover 30.39 43.69
Inventory Turnover 127.48 153.53
Fixed Assets Turnover 4.68 4.65
Asset Turnover 1.2 1.29
All the data is taken from one of the leading tourism company named “TUI group”. From
the above financial ratios, it has been determine that profitability position of the company is not
so effective as compare to last year. Whereas, return on assets they are getting about 4.5 in
current year which is much lower in respect to last year.
Liquidity position of the company is indicating financial health of TUI which is helpful in
analysing performance of ATC overall financial position. The current ratio of the company is
0.66 in 2017. It is not consider as more ideal because it does not reached at their set position.
They quick ratio of the company is 0.47 in 2017. This means that company is not able to
meet their short-term debt obligations that are associated with the company. The position of ATC
needs to much effective as compare to this particular company that is taken into account as more
reliable in terms of financial position (Drosos and Skordoulis, 2018).
Efficiency position of the company is more effective as the inventories turnover is
rotating more faster rate as compare to ATC. It means that company is efficient enough to make
future decision-making.
TASK 4
4.1: Sources of finance available to internal and external departments
It has been analyse that departments of ATC is planning to develop their own Hotel in
respect to hiring beach chalets for accommodation. It has been seen that total amount by which is
needed to formulate such hotel in Maldives with total estimation of £250 million. In respect to
attain future desired focuses that required to raise wide number of capital from internal and
external sources of funds (Buckley, 2018). Some of them are discussed underneath:
Internal sources of finance:
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Retained earning: It would said that the total amount of profit that is not distributed by
an organisation between their shareholders but to retain in the business of future planning.
Owners investments: This can leads to make investment of their kept savings those are
being used during the time of expansion of business at international level.
Debt collection: It is known as one of the effective collection which is done as amount of
debtors for increasing liquidity position of an organisation. This is consider more useful in future
estimation of plans.
External sources:
Bank loan: It is one of the important sources of outside finance which is taken from any
financial institution and banks in respect to operate their business in more effective manner. The
rate of interest is much more high as they do not pay principles amount of allotted time period.
Debenture: It consists of an appropriate process of collecting necessary capital from
public by issuing debentures to their various parties. An organisation required to make set
amount of payment as interest to public in accordance with that debt cost.
CONCLUSION
On the basis of all the data collected in the above project report some necessary outcomes
would be generated to the company. It has been articulated that the ATC company needs to make
use of proper use of all essential aspects those are helpful for them to plan holidays packages for
various tourists. With the help of CVP analysis an estimation of total cost and expenses can be
managed effectively. All the benefits that are discussed above are needed to be taken into
account for increase their performance of an organisation. Factors those are associated with the
financials stability evaluated in better manner. Certain sources of funds are discussed positively
to take better decision-making in near future time.
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REFERENCES
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Drehmann, M. and Nikolaou, K., 2013. Funding liquidity risk: definition and measurement.
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Drosos, D. and Skordoulis, M., 2018. The role of environmental responsibility in tourism.
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Enyedi, Z., 2016. Party Funding in Hungary. In Political Finance and Corruption in Eastern
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Online
6 Different Pricing Strategies: Which Is Right for Your Business? 2017. [Online]. Available
through :<https://quickbooks.intuit.com/r/pricing-strategy/6-different-pricing-strategies-
which-is-right-for-your-business/>.
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