Finance and Funding in the Travel and Tourism Industry

Added on - 22 Jul 2020

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FINANCE AND FUNDING INTHE TRAVEL AND TOURISMSECTOR
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1TASK 1............................................................................................................................................11.1 Assessing significance of cost and volume within Merlin Entertainment with reference tofinancial management.............................................................................................................11.2 Description of pricing strategies undertaken within travel and tourism businesses.........21.3 Analysing factors which create impact on Merlin Entertainment's profitability position5TASK 2............................................................................................................................................62.1 Describing different systems of management accounting (MA) which considered byMerlin Entertainment Plc.......................................................................................................62.2 Explaining ways through which management accounting helps to Merlin Entertainmentfor taking fruitful business decisions....................................................................................14TASK 3..........................................................................................................................................243.1 Assessing financial performance of The Restaurant Group (TRG) Plc on the basis offinancial ratios......................................................................................................................24TASK 4..........................................................................................................................................304.1 Sources which help to the firm for enhancing capital for any business project.............30CONCLUSION..............................................................................................................................30REFERENCES..............................................................................................................................32
INTRODUCTIONFinance is one of the key aspect for each and every business which helps to exist in themarket or industry. Due to unavailability of adequate financials, an entrepreneur cannot start andset up company as well as provide goods and services to the customers. The present project isprepared on the basis of travel and tourism sector where Merlin Entertainment Plc (MEP) isselected. It is an international company and provides very effective tour packages to theconsumers. The current assignment reflects about the costs, volume and profit's significance forthe firm in order to manage financials and make profitable decisions. Apart from this, variousmethods in order to adopt price levels are explained which used by MEP in the workplace. Itshows management accounting's approaches and systems implemented by cited TTM firm fortaking decisions in proper manner. Besides these, business performance in terms of financials ofThe Restaurant Group Plc is reflected in the project using some financial ratios. At the end ofstudy, some funding sources and bases are described which help to MEP firm in order to enhancecapital.TASK 11.1 Assessing significance of cost and volume within Merlin Entertainment with reference tofinancial managementCost is a very sensitive factor for the company which must be highly managed and of thedeclining trend. The reason is that increasing trend of expenses create negative impact on thebusiness performance directly. Along with this, cannot enhance profitability situation at the endof year. In order to manage financial aspects at the workplace of Merlin Entertainment Plc it ishighly mandatory to reduce cost and boost up sales. Under this, cost volume profit analysis isapplied as it has wide range of importance. Further, basic significance due to which this analysismethod used is stated below:Direct and indirect expenses:Those costs which associated with production and businessoperation in direct manner like materials, labours etc. are considered as direct expenses. Theseare changes on the basis of fluctuations in the volume or production units. Cost volume is usedfor 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 MerlinEntertainment Plc in an indirect manner. It includes office expenses, legal as well as accounting1
costs, telephone charges, rent, salary to the staff, depreciation, interest etc. When these all thecosts 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 usefulcriteria.Fixed and Non-fixed costs:Apart from direct and indirect expenditures, when costsvaried 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 verylow level then leads to boost up total profit within working environment of MEP firm. Asvolume of production enhances then lead to decline costing aspect and for this CVP analysis isimportant. On the other side, when costs remain constant in the firm and not change according tounits of manufacturing is known as fixed (Smith, Whitehead and Williams, 2013). Due to nothaving nature of varying, highly necessary to manage in the workplace by managers of MerlinEntertainment. Furthermore, CVP analysis is adopted as well as executed in the firm to eliminatesuch unproductive expenditures.Break even analysis:A condition of business in which management not generates anykind of profit and loss both is known as break even. In this only costs are covered by selling theproducts and services offered in the market. When costs and volume sold both are equal in termsof amount in Merlin Entertainment Plc then situation of no loss and no profit incurred. It helps toassess that in next year how much level of price should be charged from customers. In additionto 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 volumetool is adopted in proper direction.Economies of scale:A measurement in which total cost declines and total productionvolume increases at the end of year is known as economies of scale. In the Merlin EntertainmentPlc when number of units are produced with higher proportion then create impact on the costsincurred in favour of it. The CVP analysis is important for cited TTM business in order to meetthe economies of scale and raise profit level (Stewart, 2014).1.2 Description of pricing strategies undertaken within travel and tourism businessesApart from the cost, price is also a key aspect for an organisation on which goods andservices are offered to customers. Higher the price of a product leads to decline consumers2
attraction towards the company. Therefore, to assess an effective, attractive and profitable priceof 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 firmare calculated for producing and selling them. After that, number of units which aremanufactured, counted by the management. Once these both the procedures arecompleted then total expenses divided by total production volume (Maguire, 2017).Further, whatever outcome generated in the computation, considered as price of theproduct or service offered by Merlin Entertainment Plc. For example: if total cost isworth of 50,000 GBP and total production is 250 units then price will be worth of 200GBP (50,000 / 250). Under this, any additional aspects are not included for determiningprice of each product.Market based:In this strategy, firstly market scenario is analysed where level of supplyand demand of tourism services are identified. If people demand more number ofproducts and services from Merlin Entertainment Plc then high prices will be charged. Onthe other side, due to assessing low demand, prices will be determined same. Forinstance: Customers demand 50 tour packages from MEP firm then it will charge 300GBP. However, if they demand 60 or more packages then price will be selected lowerthan 290 GBP.Cost plus pricing:It is modified version of the cost based pricing method where cost ofeach product calculated previously. After that profit percentage is estimated and added inthe 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 be372 GBP (300+24%).Full cost plus pricing:A method of determining price in which all the costs associated atthe workplace are taken into consideration and then desired profit is added is known asfull cost plus pricing. Further, material, labour and other expenses are considered or fixedand variable both expenditures are used. In the total cost, desired profit level like 30%,25% etc. added which is price of the tour packages.3
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 isadded to derive price. For example: price = variable costs + profit.Competitive pricing:As per this, base of competitors prices and costs are taken todetermine charges of the tour packages. If rivals of Merlin Entertainment Plc charges2500 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 beconsidered which will help to attract more customers.Packaged pricing:In this, price is to be derived on the basis of holiday package where iftour 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 tourbecome matter of concern. For instance: If destination is highly attractive, famous andexpensive then higher price will be selected and vice-versa.Market skimming pricing:Under this pricing method, quality and standard of productsand service are to considered while making decisions of prices. For example: if one tourpackage is highly luxurious and another is not then Merlin Entertainment Plc will chargehigh and low prices respectively.Market penetration pricing:Another pricing strategy is market penetration in whichMerlin Entertainment charged lower prices of its services at the time of introducing inmarket. As it grows and move towards next phase of industry life cycle then increasedcharges from the customers. The reason is that, it helps to raise market share frequently inthe industry and boost up total profit. For instance: At the initial level if MEP charged250 GBP price then will determine higher than 250 of same product.Target rate of return pricing:When the company makes investment in any project ortour package then determine specific level of rate of return. On the basis of stated pricingmethod, if Merlin Plc desires 15% rate of return then on the cost or it will charge profitand accordingly.4
Cut throat pricing:In the travel and tourism industry high level of competition is therein which price is one of the big matter of concern. Here cut throat pricing method is usedby Merlin Plc in which the lowest prices are to be considered as compared to rivals. Thereason 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, companysettles very low level of charges of the tour products and packages. The reason is that, ifit charges more price in comparison to competitors then customers will switch towardsother entities. Therefore, position of market leader will be affected negatively of MerlinPlc.1.3 Analysing factors which create impact on Merlin Entertainment's profitability positionProfit is based on the sales and costs of the company because lower expenses and higherrevenue leads to boost up profitability. To this particular financial data, various elements createimpact 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 factorwhere in the holiday times more people purchase tour packages. This thing leads to generatehigher 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 MerlinEntertainment. Therefore, profitability position affects in an adverse direction of the introducedbusiness.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 alsoincreased in the market. Due to this particular situation, purchasing power of customers willaffect in a negative direction. Ultimately, sales revenue as well as profit will be influenced inMEP business entity up to the larger extent.Present market trend:Another factor which create impact on the profit of MEP ismarket trend available in the present times (Morrison, 2013). For example: in the current marketsituation if demand is lower of tour packages then firm will not able to increase sales infavourable condition. Due to this situation overall income of introduced TTM company will bedeclined and ultimately financial performance as well in presented industry.5
Bad debts:The company when selling products on credit to the customers and not givento it then that amount considered as bad debts. As level of total bad debt increases in the firmthen directly influence to the income generation capability. The reason is that, sales generated isused to fulfil bad debts by MEP company which lead to reduce profit condition. In order todecline negative impact of this on profitability, the Merlin Entertainment needs to refusecustomers for allowing on credit sales.Poor planning:Apart from the above mentioned factors, if management not able toframe an effective financial schedule then cannot manage costs (Hall and Page, 2014). As totalexpenses enhanced due to mismanagement along with improper utilisation of financial resourcesthen profit position will be affected up to higher level of Merlin Entertainment Plc.TASK 22.1 Describing different systems of management accounting (MA) which considered by MerlinEntertainment Plc6
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