Finance & Management Accounting Assignment

This assignment explores various aspects of finance and management accounting. It delves into financial forecasting and analysis methods outlined by Samonas (2015) and applied in contexts such as UK housing markets (Smith et al., 2013). The task also involves analyzing pricing strategies, drawing from Chand (2016) and Maguire (2017), and calculating key ratios like current ratio, quick asset ratio, stock turnover ratio, fixed assets turnover ratio, and debt equity ratio for managerial decision-making.

FINANCE AND FUNDING IN
THE TRAVEL AND TOURISM
SECTOR

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Assessing significance of cost and volume within Merlin Entertainment with reference to
financial management.............................................................................................................1
1.2 Description of pricing strategies undertaken within travel and tourism businesses.........2
1.3 Analysing factors which create impact on Merlin Entertainment's profitability position5
TASK 2............................................................................................................................................6
2.1 Describing different systems of management accounting (MA) which considered by
Merlin Entertainment Plc.......................................................................................................6
2.2 Explaining ways through which management accounting helps to Merlin Entertainment
for taking fruitful business decisions....................................................................................14
TASK 3..........................................................................................................................................24
3.1 Assessing financial performance of The Restaurant Group (TRG) Plc on the basis of
financial ratios......................................................................................................................24
TASK 4..........................................................................................................................................30
4.1 Sources which help to the firm for enhancing capital for any business project.............30
CONCLUSION..............................................................................................................................30
REFERENCES..............................................................................................................................32

INTRODUCTION
Finance is one of the key aspect for each and every business which helps to exist in the
market or industry. Due to unavailability of adequate financials, an entrepreneur cannot start and
set up company as well as provide goods and services to the customers. The present project is
prepared on the basis of travel and tourism sector where Merlin Entertainment Plc (MEP) is
selected. It is an international company and provides very effective tour packages to the
consumers. The current assignment reflects about the costs, volume and profit's significance for
the firm in order to manage financials and make profitable decisions. Apart from this, various
methods in order to adopt price levels are explained which used by MEP in the workplace. It
shows management accounting's approaches and systems implemented by cited TTM firm for
taking decisions in proper manner. Besides these, business performance in terms of financials of
The Restaurant Group Plc is reflected in the project using some financial ratios. At the end of
study, some funding sources and bases are described which help to MEP firm in order to enhance
capital.
TASK 1
1.1 Assessing significance of cost and volume within Merlin Entertainment with reference to
financial management
Cost is a very sensitive factor for the company which must be highly managed and of the
declining trend. The reason is that increasing trend of expenses create negative impact on the
business performance directly. Along with this, cannot enhance profitability situation at the end
of year. In order to manage financial aspects at the workplace of Merlin Entertainment Plc it is
highly mandatory to reduce cost and boost up sales. Under this, cost volume profit analysis is
applied as it has wide range of importance. Further, basic significance due to which this analysis
method used is stated below:
Direct and indirect expenses: Those costs which associated with production and business
operation in direct manner like materials, labours etc. are considered as direct expenses. These
are changes on the basis of fluctuations in the volume or production units. Cost volume is used
for managing and eliminating those kinds of expenses which are unproductive for the firm
(Higgins, 2012). On the other side indirect expenditures are those which incurred in the Merlin
Entertainment Plc in an indirect manner. It includes office expenses, legal as well as accounting
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costs, telephone charges, rent, salary to the staff, depreciation, interest etc. When these all the
costs are high then firm cannot boost up total net profit at the accounting year ending. Therefore,
to administer and reduce total expenses of such kinds in MEP entity the cost volume is useful
criteria.
Fixed and Non-fixed costs: Apart from direct and indirect expenditures, when costs
varied in the company in accordance to changes in the total production level is called as non-
fixed. It can be easily reduced by the firm from production and selling. As these are of the very
low level then leads to boost up total profit within working environment of MEP firm. As
volume of production enhances then lead to decline costing aspect and for this CVP analysis is
important. On the other side, when costs remain constant in the firm and not change according to
units of manufacturing is known as fixed (Smith, Whitehead and Williams, 2013). Due to not
having nature of varying, highly necessary to manage in the workplace by managers of Merlin
Entertainment. Furthermore, CVP analysis is adopted as well as executed in the firm to eliminate
such unproductive expenditures.
Break even analysis: A condition of business in which management not generates any
kind of profit and loss both is known as break even. In this only costs are covered by selling the
products and services offered in the market. When costs and volume sold both are equal in terms
of amount in Merlin Entertainment Plc then situation of no loss and no profit incurred. It helps to
assess that in next year how much level of price should be charged from customers. In addition
to this, number of production units are also determined which are must be sold in the market.
Moreover, for making effective analysis of break even point in MEP company the cost volume
tool is adopted in proper direction.
Economies of scale: A measurement in which total cost declines and total production
volume increases at the end of year is known as economies of scale. In the Merlin Entertainment
Plc when number of units are produced with higher proportion then create impact on the costs
incurred in favour of it. The CVP analysis is important for cited TTM business in order to meet
the economies of scale and raise profit level (Stewart, 2014).
1.2 Description of pricing strategies undertaken within travel and tourism businesses
Apart from the cost, price is also a key aspect for an organisation on which goods and
services are offered to customers. Higher the price of a product leads to decline consumers
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attraction towards the company. Therefore, to assess an effective, attractive and profitable price
of tourism services the Merlin Entertainment adopts some strategies which are such as follows:
 Cost based: As per this method, at the very initial level total costs incurred in the firm
are calculated for producing and selling them. After that, number of units which are
manufactured, counted by the management. Once these both the procedures are
completed then total expenses divided by total production volume (Maguire, 2017).
Further, whatever outcome generated in the computation, considered as price of the
product or service offered by Merlin Entertainment Plc. For example: if total cost is
worth of 50,000 GBP and total production is 250 units then price will be worth of 200
GBP (50,000 / 250). Under this, any additional aspects are not included for determining
price of each product.
 Market based: In this strategy, firstly market scenario is analysed where level of supply
and demand of tourism services are identified. If people demand more number of
products and services from Merlin Entertainment Plc then high prices will be charged. On
the other side, due to assessing low demand, prices will be determined same. For
instance: Customers demand 50 tour packages from MEP firm then it will charge 300
GBP. However, if they demand 60 or more packages then price will be selected lower
than 290 GBP.
 Cost plus pricing: It is modified version of the cost based pricing method where cost of
each product calculated previously. After that profit percentage is estimated and added in
the expense incurred for producing each tour package in MEP enterprise (Chand, 2016).
For example: if cost of each unit is 300 GBP and desired profit is 24% then price will be
372 GBP (300+24%).
 Full cost plus pricing: A method of determining price in which all the costs associated at
the workplace are taken into consideration and then desired profit is added is known as
full cost plus pricing. Further, material, labour and other expenses are considered or fixed
and variable both expenditures are used. In the total cost, desired profit level like 30%,
25% etc. added which is price of the tour packages.
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 Marginal or variable cost pricing: Apart from this, it consists with only variable or not-
fixed expenses like number of passengers, guests in hotel etc. on which profit level is
added to derive price. For example: price = variable costs + profit.
 Competitive pricing: As per this, base of competitors prices and costs are taken to
determine charges of the tour packages. If rivals of Merlin Entertainment Plc charges
2500 per tour then it will determine price lower than this.
 Seasonal pricing: In accordance to this, price is to be determined on the basis of seasons.
In the holiday times high price is to be charged and on the other side low prices is to be
considered which will help to attract more customers.
 Packaged pricing: In this, price is to be derived on the basis of holiday package where if
tour is of the more or fewer days, then price will be settled accordingly by Merlin Plc.
 Destination based pricing: As per this stated pricing strategy, destination of tour
become matter of concern. For instance: If destination is highly attractive, famous and
expensive then higher price will be selected and vice-versa.
 Market skimming pricing: Under this pricing method, quality and standard of products
and service are to considered while making decisions of prices. For example: if one tour
package is highly luxurious and another is not then Merlin Entertainment Plc will charge
high and low prices respectively.
 Market penetration pricing: Another pricing strategy is market penetration in which
Merlin Entertainment charged lower prices of its services at the time of introducing in
market. As it grows and move towards next phase of industry life cycle then increased
charges from the customers. The reason is that, it helps to raise market share frequently in
the industry and boost up total profit. For instance: At the initial level if MEP charged
250 GBP price then will determine higher than 250 of same product.
 Target rate of return pricing: When the company makes investment in any project or
tour package then determine specific level of rate of return. On the basis of stated pricing
method, if Merlin Plc desires 15% rate of return then on the cost or it will charge profit
and accordingly.
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 Cut throat pricing: In the travel and tourism industry high level of competition is there
in which price is one of the big matter of concern. Here cut throat pricing method is used
by Merlin Plc in which the lowest prices are to be considered as compared to rivals. The
reason is that, it helps to grab or kill overall market and attract huge customers towards it.
 Market leader pricing: In accordance to this mentioned pricing method, company
settles very low level of charges of the tour products and packages. The reason is that, if
it charges more price in comparison to competitors then customers will switch towards
other entities. Therefore, position of market leader will be affected negatively of Merlin
Plc.
1.3 Analysing factors which create impact on Merlin Entertainment's profitability position
Profit is based on the sales and costs of the company because lower expenses and higher
revenue leads to boost up profitability. To this particular financial data, various elements create
impact in both positive and adverse direction. Further, such factors are described below:
Seasonal variations: For the tourism companies, it is one of the highly effective factor
where in the holiday times more people purchase tour packages. This thing leads to generate
higher sales and profit in the cited company (North, Baldock and Ullah, 2013). On the other side,
when there is a winter season then very less number of customers will buy products from Merlin
Entertainment. Therefore, profitability position affects in an adverse direction of the introduced
business.
Economic aspects: In a country several economic factors are there like interest, inflation,
growth, exchange rate etc. According to this, if rate of inflation improves then prices will be also
increased in the market. Due to this particular situation, purchasing power of customers will
affect in a negative direction. Ultimately, sales revenue as well as profit will be influenced in
MEP business entity up to the larger extent.
Present market trend: Another factor which create impact on the profit of MEP is
market trend available in the present times (Morrison, 2013). For example: in the current market
situation if demand is lower of tour packages then firm will not able to increase sales in
favourable condition. Due to this situation overall income of introduced TTM company will be
declined and ultimately financial performance as well in presented industry.
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Bad debts: The company when selling products on credit to the customers and not given
to it then that amount considered as bad debts. As level of total bad debt increases in the firm
then directly influence to the income generation capability. The reason is that, sales generated is
used to fulfil bad debts by MEP company which lead to reduce profit condition. In order to
decline negative impact of this on profitability, the Merlin Entertainment needs to refuse
customers for allowing on credit sales.
Poor planning: Apart from the above mentioned factors, if management not able to
frame an effective financial schedule then cannot manage costs (Hall and Page, 2014). As total
expenses enhanced due to mismanagement along with improper utilisation of financial resources
then profit position will be affected up to higher level of Merlin Entertainment Plc.
TASK 2
2.1 Describing different systems of management accounting (MA) which considered by Merlin
Entertainment Plc
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7

8

9

10

11

12

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2.2 Explaining ways through which management accounting helps to Merlin Entertainment for
taking fruitful business decisions
14

15

16

17

18

19

20

21

22

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TASK 3
3.1 Assessing financial performance of The Restaurant Group (TRG) Plc on the basis of
financial ratios
When any business operating in particular industry then go for analysing performance in
terms of financials and others. The reason is that, it helps to known actual level of its and frame
strategies in accordance to that. For this specific analysis, some methods and approaches are
considered by the management. The present scenario is focusing on the financial performance of
The Restaurant Group Plc which has presence in the food industry worldwide. In order to know
level of business performance related to financials then ratio analysis is taken into consideration
(Damodaran, 2016). Under this, values recorded in different financial statements like P&L, B/S,
cash flows etc. are used. Various financial ratios like liquidity, efficiency, solvency, profitability
etc. are interpreted for TRG Plc below:
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Liquidity ratios:
A measurement of financials which shows capability of an entity in order to pay short
term liabilities using cash is known as liquidity ratios. In other words, it reflects level of cash
availability with the company at the end of year (Robinson and et.al., 2015).
2014-15 2015-16
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.28
0.36
Illustration 1: Current ratio
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2014-15 2015-16
0
0.05
0.1
0.15
0.2
0.25
0.13
0.2
Illustration 2: Quick asset ratio
Analysis:
Increasing value of current ratio from 0.28:1 to 0.36:1 reflects that, TRG Plc performs
well in the industry where it operates presently. It can be said that, TRG becomes more profitable
which leads to boost up cash position at the end of FY 2016. Therefore, its current ratio enhances
and shows better performance. Apart from this, Quick asset or acid test ratio was 0.125:1 only in
the accounting period 2014-15. In the next year, it improves from 0.125:1 to 0.20:1 which is
clear indication of raising financial performance. Moreover, ideal ratio of CR and QR are 2:1 and
1:1 respectively. When looking at such ratios then performance of The Restaurant Group is poor.
For boosting up liquidity position, the management needs to manage cash as well as use tactics
to raise revenue in the market.
Efficiency ratios:
In the workplace, when capacity of revenue generation by utilising various resources
needs to assess then efficiency ratios are used. Higher the values of this particular measurement
is one of the profitable situation for the firm (Weygandt, Kimmel and Kieso, 2015).
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2014-15 2015-16
0
10
20
30
40
50
60
70
80
61.27
74.05
Illustration 3: Stock turnover ratio
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2014-15 2015-16
0
0.5
1
1.5
2
2.5
1.59
1.91
Illustration 4: Fixed assets turnover ratio
Analysis:
Looking at the efficiency ratios then, time of stock and fixed assets turnover was 61.27
and 1.59 times at end of fiscal year 2014-15 respectively. Second one measurement was very low
which shows that, employees of TRG Plc are not able to utilise available fixed assets in the firm
in an optimum direction. In the next FY i.e. 2015-16, both the ratios enhance and reaches up to
74.5 and 1.91 times which is positive indication. As per this, stock is properly and effectually
utilised by the organisational members in order to produce and sale goods and services.
However, use of fixed assets are not utilised profitably where the firm needs to provide training
to the workers (Easton, 2015). It will help to use non-current assets properly and boost up total
efficiency level of TRG Plc in restaurant segment.
Gearing ratio:
A fundamental analysis which indicates debt position of the firm in exchange to capital
raised through equity is identified as gearing ratio. Higher the proportion of this tool shows
adverse situation of business in its industry (Samonas, 2015).
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2014-15 2015-16
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
0.16
0.18
0.2
0.11
0.18
Illustration 5: Debt equity ratio
Analysis:
It can be assessed by considering the above graph that, D/E ratio was 0.11:1 at the end of
FY 2014-15. On the basis of this, it has been clearly said that firm raising fund through equity
shares in high proportion in comparison to debt or loan. When looking at the next year i.e. 2015-
16 then it increases from 0.11:1 to 0.18:1 which is adverse condition. The reason is that, high
level of this ratio shows that capital structure of TRG Plc is not better and profitable. However,
when comparing with standard proportion of D/E i.e. 0.5:1 then it performs well in both the
accounting periods. Moreover, the cited firm must work upon it to decline this level. For this, it
should raise required capital by considering equity financing rather than debt (Revell, 2016).
When looking at the all analysed ratios then performance of TRG enhances from FY
2015 to 2016 in the restaurant sector. Apart from this, it needs to adopt some effective strategies
which will help to raise performance and become brand in operating segment.
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TASK 4
4.1 Sources which help to the firm for enhancing capital for any business project
CONCLUSION
It can be articulated considering the above analysis that, financial resources are one of the
pivotal source for the businesses for operating in specific industry. In the Merlin Entertainment
company when financials are required to manage properly then cost volume profit analysis
method is considered. Apart from this, different pricing methods are adopted by TTM companies
like cost led, market penetration, market led, cost plus etc. There are wide range of elements
included in market which create impact of Merlin Entertainment's profit which are seasonal
changes, bad debts, planning, market trends, economic, political etc. It can be assessed that,
management accounting is an effective system considered by selected firm. In this, different
methods addressed which are variance analysis, budgets, financial statements, forecasts etc.
Along with this, it is supportive in order to take business decisions of internal aspect for
enhancing financial performance. Furthermore, The Restaurant Group Plc is performing well in
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the industry at the end of 2015-16 as compared to 2014-15. Moreover, some sources used by
Merlin Entertainment Plc to raise fund are regional development fund, government grants, equity
financing, bank loan and tourism development department.
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