Finance and Funding

This report discusses the significance of cost and volume in financial management, various pricing methods in the travel and tourism sector, and the factors influencing profits. It also includes the interpretation of financial statements of Dalata Group plc.

Finance and Funding

TABLE OF CONTENTS
TASK 1............................................................................................................................................1
P1.1 Discuss significance of cost and volume in financial management...............................1
P1.2 Discuss various pricing methods in travel and tourism sector.......................................2
P1.3 Outlining factors influencing profits..............................................................................4
TASK 2............................................................................................................................................5
P2.1 Various types of management accounting information..................................................5
P2.2 Use of management accounting information in tourism sector......................................5
TASK 3..........................................................................................................................................10
P3.1 Interpret financial statements of Dalata Group plc......................................................10
TASK 4..........................................................................................................................................11
P4.1 Sources and distribution of funding for capital projects..............................................11
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Finance is the blood for any organisation and without it, firm cannot function properly.
The same applies to travel and tourism sector as well. The enclosed report deals with various
companies which are engaged in travel sector and which all needs funding for carrying out their
day-to-day activities with much ease. Carnival plc is travel company which is the market leader
in UK and another company is Dalata Hotel Group Plc which is engaged in hospitality sector.
The importance of funding is discussed in the report. CVP analysis is carried out for organisation
so that it may be able to control cost and earn desired level of profit by maintaining volume of
production in effectual way. Moreover, pricing methods are discussed along with factors which
influence profits of travel sector. In addition to this, financial ratios are being calculated for
studying financial position of sector in effective way. Apart from this, importance of
management accounting information is also discussed and how company utilises the same.
Overall importance of funding is discussed which is important to travel and tourism sector for
achieving goals on time and at the same time, satisfying customers with much ease and outreach
rivals by making well-structured strategies in the best possible way and yielding good quantum
of profits.
TASK 1
P1.1 Discuss significance of cost and volume in financial management
Cost Volume Profit analysis (CVP) is an important analysis which is used in tourism
sector and other sectors as well. CVP is used by Carnival plc to figure out how changes occurred
in cost affects overall expenses which are required for maintaining operating expenses and net
profit in the best possible way. As, Carnival plc is engaged in providing ten global cruise brands
in various countries and as such, it is required that it carry out CVP analysis in the best way so
that profit and cost can be maintained with much ease (What Is CVP, and How Is It Important to
Managerial Accounting?, 2018). Costs, volume and profit are three pillars in the financial
management which is needed to carry out effectively by the company so that it may flourish in
the market with much ease. Importance of CVP analysis are as follows-
1. It helps Carnival plc to reduce the cost of tour packages of various cruises in effective manner
as it comes to know whether consumers are ready to buy the same or not. Thus, it provides them
complete clarity and transparency in effectual way so that costs and profit can be maintained in
quite effective way with much ease.
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2. CVP analysis is useful for company as it can maximise level of volume in each of the cruises
be it in Italy, England, Florida, North America, Europe, Australia and many other countries as
well. By increasing it , reduction in cost of packages of various tours can be easily done by
company. This will help to maintain well-determined rate of profit in effective way. This will
eventually help company to garner more profits (Tribe, 2015).
3. CVP analysis help to maintain effective profit level by analysing costs in that way so that
profit is not reduced. This is done by ploughing back of resources so that the same money can be
utilised in future functioning with much ease. Carnival plc is benefited by following this profit
approach and led itself to enhanced profits in the best possible manner.
4. Distribution of costs is required in order to assess per unit expense of tour packages, this
process is known as appropriation and it is helpful in carrying out various costs in much effective
way. Carnival plc will be able to analyse profits by deducting cost of cruise packages from the
revenue earned by it in the best possible way.
5. Various costs such as variable, fixed, direct and indirect costs are analysed by Carnival plc to
maintain profit level at peak. Fixed costs are lighting expenses, vendor payment etc. Variable
costs such as hiring new employees, destination expenditures etc. Whereas, direct cost is
incurred on arrangements of hotels, foods etc to provide facilities to customers. On the other
hand, indirect cost is incurred such as advertisement related expenses, selecting and hiring
professionals for tasks etc. These costs are to be carefully analysed by Carnival plc so that cost
may not exceed profits in any way (Guttentag, 2015). Thus, it can be conveyed that CVP
analysis is quite important tool to company to analyse expenses on global cruises to make ensure
that expenses are controlled and profits are being generated with much ease.
P1.2 Discuss various pricing methods in travel and tourism sector
Carnival plc provides various cruise packages to customers so that they may satisfy with
much ease. To make effective packages so that customers are lured and at the same time, profit
margin is also kept, Carnival firm uses various pricing methods so that desired profit may be
produced quite effectively. The various pricing methods are as follows-
1. Profit led method-
This method of pricing is done by assessing competitors-based pricing strategy and
moreover, customers based as well. The competitor-based pricing is kept by business by
analysing the price of the competitor so that consumers may not be driven away by lower costs
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of packages of rivals. As, Carnival plc functions in various countries such as England, North
America, Europe and many other nations as well, it is important to follow same prices of
packages. Thus, each country has several competitors and as a result, firm has to adopt similar
strategies so that customers are attracted to it and not driven away by rivals. On the other hand,
customers based pricing is done by analysing needs and income of customers and as such, prices
are quoted (Vanhove, 2017).
2. Cost plus pricing method-
This method means that firm quote price of product by taking profit margin and adding to
the cost of the packages incurred by it. Carnival plc does pricing in this way by adding certain
profit margin in the total cost of tour package and then total the cost and profit margin to finally
quote the price of the product or services in the best possible way. This means that cost and
profit are included in the total price which is then provided to customers so that they may buy it.
This technique is commonly used by firm to quote price of items and services in the most
productive way (Mei, Arcodia and Ruhanen, 2015).
3. Seasonal pricing method-
This pricing method is adopted by Carnival plc when the management analysis that in
certain season, more profits can be produced quite easily. The price quoted in this season is high
as compared to other off seasons where profit cannot be produced with much ease. Thus,
Carnival plc utilises such season and then quote higher prices of the packages of various cruises
so that it can earn more profits in the best possible way. Customers are also ready to pay higher
prices, this helps company to put price in desired way so that it may earn revenue. During the
season, prices are kept high intentionally so that business may recover losses which are incurred
in off seasons. Thus, it is effective tool to set prices (Van der Sterren, 2017).
4. Market related method-
The business follows strategy which is based on reducing prices of the goods to gain
more customers. Carnival plc uses this strategy to gain more customers in the event of low sales
and profits. Main aim behind using this strategy is that maximum customers are attracted by
lowering or penetrating prices so that more of them are lured towards business in the best
possible way. This is related to penetration of prices and then resultant losses are recovered by
organisation by skimming the prices. This means that business recover losses by setting high
prices of the similar tour packages so that losses may be recovered quite easily.
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P1.3 Outlining factors influencing profits
Several factors which influence profits of Carnival plc are listed below-
1. Terrorism-
This is the main factor which influences profit of Carnival plc in adverse way. With
having fear of terrorist attacks, travellers are afraid of visiting nations for spending quality time
with their families and friends. This highly affects tourism and travel business of Carnival plc.
This reduces profits of the concern quite badly. Terror attacks should be stopped by government
by taking strict measures so that profits are not reduced and travellers may visit places easily
(Shahbaz, Kumar, Ivanov and Loganathan, 2017).
2. Currency rate-
Currency rate also affects tourism business of Carnival plc as currency rates of nations
keeps on fluctuating. This affects customers as price of the tour packages are either low or high
depending upon the currency rates of nation. When currency rate is high, visiting customers may
resist to travel as prices of the packages tend to high enough. The customers which tend to travel
to countries resist as it costs more than their currency. This much affects Carnival plc as it
reduces profits in adverse manner.
3. Government policies-
The government policies also led to influence profits quite badly. From time to time,
government enacts various laws and regulations which are to be followed by Carnival plc to
carry out activities with much ease. These policies affect business and as a result, it lowers down
or impacts profits of the concern. The government intervention affects travel and tourism
business in adverse manner. Various laws and regulations are made by government that restricts
business of Carnival plc in adverse manner (Gurtner, 2016). Moreover, taxation policies are
enacted by company which affects profitability position of the company.
4. Seasons-
Seasons are also another factor which affects profitability position of Carnival plc. This is
important as during the period of holidays and vacations, business is at peak. This is the season
of the business which affect profits of the business in the best possible way as it charges high
prices of tour packages quite effectively. This helps to earn more profits in the manner as it
charges relevantly high prices of the similar packages. While, in the case of off season, profits
are not earned which directly affects profitability position of it.
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5. Natural calamities-
All the factors which influences profits of Carnival plc is affected because of human
intervention whereas, business may be affected by natural disasters or calamities as well. Natural
factors such as earthquake, drought, floods and any other natural calamities. These are
uncontrollable factors as business has no influence over it. These disasters become hurdle for
business as it is not able to have control on these factors. These factors are uncertain in nature
and this highly affects profitability of company in effective way. Organisation faces huge losses
because of natural disasters (Johnston, Crooks, Snyder and Whitmore, 2015).
6. Business Trend-
The business is affected trend of customers as well. When more of the customers visits
nations, then business is also able to earn more profits. In contrary to this, profits are reduced up
to high extent when customers avoid visiting destination. It can be seen in the case study of
Carnival plc that it has ten global cruises destinations which implies that customers are ready to
visit various nations to spend leisure time with near and dear ones. As a result, profits of the
company increase at rapid rate which is crucial for it.
7. Countries involved in war-
The travel and tourism business are much affected by the war if prevailing in between
two countries and as such, profits of the company is declined at a rapid rate. This is not a good
sign for the travel sector as tourists will not prefer for coming to spend quality time with family
and friends in the nation where war is prevailing or even there are situations in which war can be
declared between the nations. As such, travel sector is highly affected as revenue goes on
decreasing.
8. Inadequate promotions-
The travel sector is required to promote destinations so that customers may have some
information about the places so that they may come and visit places and the sector can earn
profits with much ease. Without promotions, people far off places cannot come as they do not
know tourist destinations in the nation. As a result, marketing and promotion should be done so
that people may come and visit vacations. This will help tourism sector to achieve goals in
effective way. Without promotions, company cannot attract tourists. As such, advertisements and
promotions play important role in the travel and tourism sector quite effectually. Thus, above
factors affect profit of the business adversely.
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TASK 2
P2.1 Various types of management accounting information
P2.2 Use of management accounting information in tourism sector
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TASK 3
P3.1 Interpret financial statements of Dalata Group plc
Particulars Formula 2016 2015
Profitability ratios
Gross profit margin Gross profit / Net sales * 100 62.20 % 61.50 %
Net profit margin Net profit / Net sales * 100 12.02 % 9.73 %
Return on capital
employed (ROCE)
Earnings Before Interest Taxes /
Capital employed 0.073 % 0.05 %
Return on Equity Net income / Shareholders' Equity 6.03 % 5.34 %
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Liquidity ratios
Current ratio Current assets / Current Liabilities 1.44 : 1 2.84 : 1
Acid Test ratio Liquid assets / Current Liabilities 0.83: 1 2.72 : 1
Efficiency ratios
Receivables Turnover
Net credit sales / Average accounts
receivable 42.04 47.96
Inventory Turnover
Cost of Goods Sold / Average
inventory 69.4 89.5
Creditors' payment period
Total suppliers purchases / Average
accounts payable 42.33 38.58
Solvency ratios
Gearing ratio Debt / Equity 0.43 0.47
Debt to assets Debt / Assets 0.37 0.37
Financial ratios have been calculated from the final accounts of Dalata Hotel Group Plc
of two years such as 2015 and 2016. Financial ratios are calculated which shows financial health
of company in the best possible way. It can be interpreted from above calculated ratios that
financial position is overall good. It is seen that it is able to perform good in the hospitality sector
which is shown by financial ratios. Starting from profitability ratios such as gross profit margin
and net profit margin are quite good and has increased considerably. Gross profit margin was
61.50 % in 2015 which is increased in 2016 as the figure reached 62.20 %. On the other hand,
net profit margin was 9.73 % in 2015 which increased as well in 2016, figure is 12.02 %. On the
other hand, ROCE is also increased as it was 0.59 % and increased up to 0.07 %. While, Return
on Equity is also maximised as it was 5.34 % and in 2016 reached to 6.03 %. This overall shows
that Dalata Hotel Group Plc has remarkable profitability position (Hingtgen, Kline, Fernandes
and McGehee, 2015).
Liquidity position of company is however declined in the recent year. This shows that
hotel is unable to pay its obligations which falls within one year. It should make effective
strategy so that it may be able to pay liabilities on time. Efficiency ratios such as receivables
turnover ratio was 47.96 in 2015 and reduced to 42.04 in 2016 which shows that it is not able to
receive credit money from debtors and as such, it is required that hotel should make effective and
strict credit policies so that timely payment can be attained. While, creditor payment period is
increased as it was 38.58 in 2015 and in 2016 reached to 42.33 which shows that it is able to
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make timely payments to suppliers quite effectively. However, inventory turnover ratio is
decreased as it was 89.5 in 2015 and in next year reached to 69.4 which shows that it is not using
stock effectively to generate sales (Rylance, 2017).
Furthermore, solvency ratios such as debt to assets ratio shows that it is stable which is
0.37 in both the years. This implies that company is using good indicator of financial leverage.
This means that it is not using more debt and adequately using assets to generate sales. In
addition to this, gearing ratio is also good which is below 0.4 and it shows that company has god
solvency position. Hence, it can be said that overall financial position of Dalata Hotel Group Plc
is good and it is able to produce good quantum of profits.
TASK 4
P4.1 Sources and distribution of funding for capital projects
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.
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Sources and distribution of funding for capital
projects
The sources and distribution of funding are
required so that tourism sector may be able to flourish in
the market with much ease.
Sources
1. National Lottery Commission (NLC)-
NLC is the biggest source of funding for travel
and tourism sector for effective functioning in the market
with much ease. This body protects players and
safeguards them from any discrepancies which might
affect their game in bad manner. It monitors that lottery
is fairly played by the players in the game.
2. European Social Fund (ESF)-
This fund is essential as it is related with the funding and investment which is the main source of income for
tourism sector as it plays major role of financial instrument for them. ESF is mainly focused on creating jobs and
provide much needed funds to tourism sector for effective working.
Non-public funding
1. Debt funding- Debt financing is the option for source of finance for travel industry. This provides them funds as
certificate of indebtness and while paying principal amount in monthly instalments, interest accrued is paid as well.
This limits for taking finance by the travel sector as they have to pay high interest rates for repaying loan from
financial institutions.
2. Equity funding- It is the source of funding by selling private shares held by company. In simple words, ownership
is sold for raising capital by the travel sector firms. It is not borrowed funds, which are used in debt financing terms.
For raising finance, convertible stocks are sold by the firm so that funds may be initiated quite effectively. As a
result, it is the safest form of obtaining funds as interest is not required to pay unlike in debt financing.
Capital projects
1. Tourism Information Points (TIP)- The capital projects for which funds which are required by travel companies to
be invested in TIP. This is the information related project, which is based on providing help to visitors to solve their
queries so that they can enjoy visit in England. Thus, TIP provides needed information to visitors so that they can
become handy with various tourist attractions in England. Vacations can be purely enjoyed by guests and they may
come to know various tourist attractions with much ease.
2. Small scale tourism- This capital project is also important to be funded so that guests coming to visit can benefit
rural areas. Small scale tourism also need to be funded by travel firms so that profits can also be earned from that
sector which is usually based on obtaining small grants from the government.

CONCLUSION
Hereby it can be concluded that funding is quite important in travel and tourism sector as
without it, company cannot function properly on daily basis. In this regard, CVP analysis is
utilised by the management to take into account costs and attain desired profit level with much
ease. It is also required that pricing strategies should be followed by travel companies so that
they may be able to take effective pricing decision of the tour packages and quote the same price
to travellers so that it may earn profits in the desired way. Moreover, various pricing methods are
utilised by firm depending upon its strength and as such, competitors’-based strategies are also
followed by the company so that rivals may not beat it. In addition to this, financial ratios are
also calculated which provides clarity to various stakeholders to analyse financial health of
company and take enhanced decisions with much ease. Furthermore, various management
accounting information are utilised to take effective decisions by the management.
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REFERENCES
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Back Medical Tourism Were… in Alignment” Championing Development of Barbados’s
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tourism innovation: evidence from Norway. Current Issues in Tourism. 18(12). pp.1172-
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Paramati, S. R., Alam, M.S. and Chen, C. F., 2017. The effects of tourism on economic growth
and CO2 emissions: a comparison between developed and developing economies.
Journal of Travel Research. 56(6). pp.712-724.
Rylance, A., 2017. Estimating tourism’s contribution to conservation area financing in
Mozambique. Tourism and Hospitality Research. 17(1). pp.24-33.
Shahbaz, M., Kumar, R.R., Ivanov, S. and Loganathan, N., 2017. The nexus between tourism
demand and output per capita with the relative importance of trade openness and
financial development: A study of Malaysia. Tourism Economics. 23(1). pp.168-186.
Tribe, J., 2015. The economics of recreation, leisure and tourism. Routledge.
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Vanhove, N., 2017. The Economics of Tourism Destinations: Theory and Practice. Routledge.
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Online
What Is CVP, and How Is It Important to Managerial Accounting?, 2018 [Online] Available
Through: https://www.fool.com/knowledge-center/what-is-cvp-and-how-is-it-important-
to-managerial.aspx
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