Finance and Funding in the Travel and Tourism Sector: A Comprehensive Analysis

This comprehensive study delves into the financial aspects of the travel and tourism sector, focusing on the importance of cost volume profit (CVP) analysis in the financial management of a travel and tourism business. It examines various pricing methods used to determine the price to charge tourists, analyzes factors influencing profit, and explores different types of management accounting information. The study also assesses the use of investment appraisal techniques as decision-making tools and interprets financial statements using appropriate ratios for profitability, liquidity, efficiency, and investment. Finally, it analyzes internal and external sources of funding for developing new hotels in the sector.

Finance and funding in the travel and tourism sector
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Table of Contents
Introduction........................................................................................................................3
Task 1................................................................................................................................4
1.1 Examine the concept of CVP analysis and explain its importance in the financial
management of a travel and tourism business such as ATC........................................4
1.2 Provide an analysis of pricing methods that ATC can use to determine the price to
charge each tourist on the trip. [M1]...............................................................................6
1.3 Analyse the factors that will influence the profit ATC will earn on the holiday trip.
[D1].................................................................................................................................8
Task 2..............................................................................................................................11
2.1 Explain the different types of management accounting information that could be
used in ATC..................................................................................................................11
2.2 Assess the use of investment appraisal techniques as decision-making tools using
an example from ATC or other relevant company.......................................................13
Task 3..............................................................................................................................15
3.1 Download the main financial statements of any travel and tourism company and
interpret the financial statements using appropriate ratios for profitability, liquidity,
efficiency, and investment. [M3, D2, D3]......................................................................15
Task 4..............................................................................................................................19
4.1 Analyse the sources of funding, both internal and external the company can
obtain in developing the new hotel...............................................................................19
Conclusion.......................................................................................................................20
References.......................................................................................................................21
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Introduction
This unit of Finance and Funding in the Travel and Tourism Sector focuses on the
learners to gain the knowledge about the cost volume profit analysis. It also includes the
significance of cost volume profit (CVP) in the financial management of tourism and
travel association such as Akaglo Tours Company. This unit also includes the analysis
of various pricing methods which gets used in the Akaglo Tours Company for
determining the rates for charging to each and every traveler on the tour. Various
approaches to study for analysing an appropriate pricing method have also discussed in
the study in an attractive manner. Some of those factors which highly influence the
profitability of Akaglo Tours Company have also taken place herein. Calculation of profit
in organising a tour for around 90 tourists has also been included which greatly helps in
understanding the about the assumed profits and revenues.
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Task 1
1.1 Examine the concept of CVP analysis and explain its importance in the
financial management of a travel and tourism business such as ATC.
It is well known that the financial management is connected with the deployment and
arrangements of various kinds of funds which helps in the functioning of tourism and
travel business such as Akaglo Tours Company. The cost gets explained by the total of
various expenses or expenditures which get included in the business activities for
producing the services and good in an efficient manner. In order to meet the customers’
needs and requirements, it is importantly required to maintain the cost of the services
and products in an efficient manner. It helps in the better functioning of the business
activities and takes the business to the top. Various kind costs take place herein such
as fixed cost, direct cost, variable cost, indirect cost, and tec.
 Fixed cost is known as the one which gets paid for the activity which remains
unchanged for each and every activity related to the business. Depreciation, rent
amount is the example of it
 According to Boskov, et. al., (2016), the cost which actually gets paid for buying the
material, expenses labor is known as the direct cost.
 The cost which is basically getting include in some overhead such as property rent,
energy cost, cleaning cost is well known as Indirect Cost.
 The cost which gets increased with the increment of activity level like material cost,
wages and etc. get to include the Variable cost (Boskov, et. al., 2016).
There are so many techniques or analysis that gets included in the process of the
business for making appropriate decisions. Break-even analysis & cost volume profit
analysis are the most important and popular techniques which get used in the business
of Akaglo Tours Company. Cost volume profit analysis helps in increasing the efficiency
of the business in various ways.
Cost Volume Profit Analysis- According to Agba, et. al., (2017), this analysis gets
used in the business of Akaglo Tours Company for taking the effective decisions which
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are related with the profit & cost volume for the success of the business. This analysis
greatly helps the business in increasing the number of sales in an effective manner.
Increased number of sales helps in generating the desired amount of revenue and profit
efficiently. As same it also helps in reducing all those risk factors which are related to
the cost or profit in any manner (Agba, et. al., 2017).
According to Vanhove (2017), the cost volume profit analysis greatly contributes in
finding the actual cost and the analysis of the capabilities of Akaglo Tours Company in
producing the services and goods in the perfect time frame. There are so many benefits
of using the cost volume analysis of profit by the Akaglo Tours Company as it helps in
controlling the various activities of the business in an attractive manner. It also helps in
taking the better decisions for the success of the business. As same it plays a vital role
in fixing the actual prices of products and services and in forecasting as well (Vanhove,
2017).
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1.2 Provide an analysis of pricing methods that ATC can use to determine the
price to charge each tourist on the trip. [M1]
There are so many pricing methods which actually get used in the tourism and travel
business of Akaglo Tours. The pricing methods basically get used in for fixing the
prices of services and products which is getting purchased by the customers. It focuses
on that prices which are getting paid by the consumers so that the association can
attain the excellent level of profit. Some of the pricing methods which help the
businesses for setting the prices are well discussed below-
 Skimming Pricing Method- According to CIOCHINĂ (2017), the managers or leaders
of the market follows the skimming pricing method in the Akaglo Tours Company for
setting the higher prices of their services and products. By the help of setting the higher
prices, it gets easier for the association to recover all the incurred cost, as because the
higher profit includes an ample number of revenues and profits in the business. The
skimming pricing method greatly helps in recovering their actual cost in the shorter
period of time and takes the business on top with higher levels of profit in the
competitive market (CIOCHINĂ, 2017).
 Cost-plus pricing method- According to Boskov, et. al., (2016), the association of
travel and tourism uses this pricing method to set the prices by including the fixed cost
and variable cost of products and services. After adding the fixed & variable cost the
leaders of the association adds some more amount for increasing the level of profit by
selling them. By the use of cost-plus pricing method the managers and leaders of the
Akaglo Tours Company set the reasonable prices for their services and products so that
they can earn the adequate and perfect level of revenues and profits as well (Boskov,
et. al., 2016).
 Per Person Pricing Method- According to Agba, et. al., (2014), this method gets
followed by some of the new entrants for evaluating the current trend of the market.
After finding out the current trend they tend to set the prices of products and services
according to the situation so that they can facilitate the customers in an appropriate
manner. In this method, the associations make charges according to the number of
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travellers. The managers or leaders of the association segregates all the charges or
prices among the children, senior citizens, couples, students and etc which greatly
helps in attracting the so many tourists towards the activities of the business. The
process helps in increasing the efficiency of the business in an effective manner (Agba,
et. al., 2014).
 Penetration Pricing Method- According to Vogel (2014), this method of pricing gets
followed by some of the small association as it helps in setting up the low fares and
prices for facilitating the services and products to their customers. The lower rates
attract so many customers towards the services and products which greatly contribute
to increasing the number of sales. However it generates less number of profits but
because of a higher number of sales, they become able to earn the higher level of
revenue or profit (Vogel, 2014).
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1.3 Analyse the factors that will influence the profit ATC will earn on the holiday
trip. [D1]
According to Mirza-Davies (2015), there are various factors which influence the profit for
tourism and travel business in Akaglo Tours Company. Some of those factors are well
discussed below-
 Season of Tourism – In the peak times the tourism and travel business earn a higher
level of revenues and profits by the customers. The associations include various
business activities so that they can meet the customers’ needs and expectations in a
successful manner. They try their best for meeting their other needs, requirements, and
expenditure of the business as well. The increased number of tourist greatly helps in
expanding the business at next level. This is how the season of tourism greatly
influences the capacity of earning profit to the Akaglo Tours Company. As same it
affects the profit level of the business in an attractive manner (Mirza-Davies, 2015).
 Climate- According to Ireland (2015), it is well known that people tend to visits only
those places which are perfect and attractive in terms of climate. The places which
follow the good climate and pleasant weather forecast highly attract a lot of customers
for visiting which helps the tourism industry in such a great manner for earning higher
amount of profits. As same, the bad weather or climate conditions affect the tourism
industry in such a negative manner in terms of success (Ireland, 2015).
 Political Stability-It has been observed that people are more likely to visits those
places which carry the excellent political stability. The places, states or countries which
are quite disturbed in terms of political stability gets less visited by the people which
influence the success of the Akaglo Tours Company in a negative manner. At the other
hand positive situation of political stability helps in attracting the lot of customers which
highly contributes to the success of the business. Instability of political areas becomes
unable to finalise their actual prices of products and services which takes the business
into the situation of loss.
 Terrorism- According to Becker (2016), it is the most important factor which highly
influences the business in either negative or positive manner. The places which are
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covered by the terrorist or terrorism earn less amount of profit. The increase the
terrorism affects the tourism activities which reduces the profits of the business. At the
other hand, the places which are less affected by the terrorism and terrorists get highly
visited by the tourists and increase the level of profit in the business of tourism (Becker,
2016).
For the viability of holiday trip for around 90 tourist’s books to go on the trip, the
calculation is counted below. It also includes the justification for earning the profit of at
least £ 100,000. In this calculation the net profit has been calculated including the cruise
yatech and beach chalets and meal charges as well. It helps in understanding the
overall expenses of conducting the tour in an appropriate manner.
Net profit which will be achieved
Particulars Particulars Amount
Revenue 7500*90 675000
Crusie yacht and beach chalets 5,00,000 -5,00,000
Meal charges 90*1250 -112500
Net profit 62500
To achieve net profit of £100,000, it need to increase
number of units by 16
Particulars Particulars Amount
9

Revenue 7500*96 720000
Crusie yacht and beach chalets -500000
Meal charges 96*1250 -120000
Net profit 100000
Contribution per unit Sales-variable cost
6250
Break even unit Fixed cost/ contribution per unit
80
Number of units required to achieve profits of
100,000
Profit required/ contribution per
unit
16
This calculation helps in understanding that the revenue which will get achieved in the
business will be £ 675000. It will include the net profit of £62500.As same for increasing
the numbers of units by 16 the revenue amount will be around £720000 wherein the net
10

profit will be counted as £ 100000. It will include the sales variable cost of 6250 with the
breakeven point of 80 as contribution per unit.
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Task 2
2.1 Explain the different types of management accounting information that could
be used in ATC.
It has been very well observed that the accounting information plays an imperative role
in all the aspects of enhancing the performance of the business. The management
accounting helps in forecasting the actual revenues and preparations of budgets for the
betterment of the association. The business of Akaglo Tours uses the management
accounting information to perform efficiently. The management accounting information
gets considers as one of the best tools which get used in the process of decision
making for gathering or collecting the required data from various departments. The
adequate information which gets collected by the management accounting helps the
management for taking the effective decisions. It also collates the data for the
respective users which becomes so efficient in determining the associational
effectiveness and efficiency. There are various types of management accounting
information which helps the business attractively; some of those are as follows-
 Traditional cost accounting- According to Vogel (2016), this process helps in
allocating the actual cost of the various products which are based on the raw material,
labor, overhead expenses and etc. As same it also helps in finding out the actual cost of
all these.
 Lean Accounting- It is known as one of the most popular methods or process which
greatly helps in reducing the prices and costs by eliminating all the wastage so that
business can reach on top by speeding up the various processes and activities. It also
helps in measuring and reducing the various kinds of errors from the business (Vogel,
2016).
 Transfer Pricing – According to Lee, et. al., (2017), it is known as the unit of
association charges or prices of any kind of goods and services. It helps the association
in reducing production cost and increasing the sales.
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 Throughput Accounting- It is the most used method by the managers which helps in
identifying the constraints for taking the corrective decisions. They include the very short
number of labors, raw materials and etc. (Lee, et. al., 2017).
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Variance Analysis
According to Rahmani (2017), variance Analysis is a kind of quantitative exploration of
the differences between the planned and actual; behaviors. The variance analysis helps
in maintaining the proper control over the association and as same in improving the
performance of the business in an effective manner. For understanding the variance
analysis an example has been described below very well.
If the budget of sales is £ 20000 & the actual sales are £ 9000 then the variance
analysis yields a difference with £ 1000 (Rahmani, 2017).
Variance analysis plays an imperative role in assisting the various ways of managing
the budgets by taking the control on budgeted vs. actual cost. The variances between
actual and planned costs help in adjusting the goals, strategies, and objectives of the
business in an appropriate manner. There are so many derived variances which get
used in the variance analysis of Akaglo Tours Company such as labor rate variance,
purchase price variance, selling price variance and etc.
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2.2 Assess the use of investment appraisal techniques as decision-making tools
using an example from ATC or other relevant company.
Investment is well known as the procedure of obtaining the title related to the assist
such as real asset and financial asset in regards of receiving the returns from the
various kinds of assets. The investment appraisal mainly determines that, should new
projects or investments should get undertaken in the business of Akaglo Tours
Company or not. Decision making in business is very important for the existence of
reliability and accuracy. The investment appraisal technique includes the various
methods. Some of them are well discussed below-
 PBP (Payback Period) Method- According to Chiutsi, et. al., (2017), this method gets
used in the capital budgeting and mainly refers to the actual period of time which is
importantly required on the return on the investment for repaying the original
investment. This period gets expressed over the years. This method mainly focuses on
recovering the money which has been invested in before (Chiutsi, et. al., 2017).
 Accounting Rate of Returns or Average Profit Method (ARR) - It is well known as
the average return rate. It also gets considers as the financial ratio which gets used in
the capital budgeting. The ARR mainly calculates the actual amount of return which has
been generated from the net or actual income of the proposals for capital investment. It
is basically the percentage of return. The average profit method includes the expected
profit or return on the basis of which investment made.
 NPV Method (Net Present Value)- According to Rahmani, et. al., (2017), it gets
considered as the difference or gap between the present value of cash outflows or the
present value of cash inflows in a limited period of time. The net present value basically
gets used in the capital budgeting for analysing the actual profitability of the project or
projected investment. It generally includes the time value of money.
 Benefit-cost ratio Method or PI (Profitability Index) - It is well known as an indicator
which gets used in the cost-benefit analysis which basically attempts for summarising
the overall or actual value of money for the project or proposals. All the cost and
benefits should get expressed in the present value or discounts under it. It helps in
15

finding out the actual or total discounted value of the products and services which is
getting provided to the customers (Rahmani, et. al., 2017).
 The internal rate of return Method (IRR) - The interest price of return is known as the
interest rate or price which gets considers as the net present value of all the cash flow.
The interest rate of return basically gets used for evaluating the attractiveness of the
investment or project. It is also known as the metric which gets used in the capital
budgeting for estimating the profitability of the potential investments. It is the discount
price which creates the (NPV) net present value in the actual form.
 Probability-based technique- According to Baird, et. al., (2017), the probability based
techniques includes the various types such as quota sampling or stratified sampling. It
basically gets used in form of random selection. In the probability of the same
population, the procedure and process of random selection method get used in an
appropriate manner in the business of Akaglo Tours Company (Baird, et. al., 2017).
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Task 3
3.1 Download the main financial statements of any travel and tourism company
and interpret the financial statements using appropriate ratios for profitability,
liquidity, efficiency, and investment. [M3, D2, D3]
S.No. Particulars Formulas 2017 2016
1
Profitability
ratios
Gross profit Gross profit/ sales 22.13 23.30
Operating profits Operating profit/ sales 2.56 2.52
Return on assets Net income/ total assets 0.18 0.01
Return on equity
Net income/ total stockholder
equity 4.29 0.31
2 Liquidity ratios
Current ratio Current asset/ Current liabilities 0.52 0.57
Liquid ratio Liquid ratio/ Current liabilities 0.51 0.56
3 Efficiency ratios
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Asset turnover
ratio Net revenues/ Total assets 1.36 1.12
Receivable ratio Net revenue/ Receivable 12.25 11.54
4
Investment
ratios
Debt equity ratio
Long term debt/ total shareholder
equity 7.18 6.09
Interest converge
ratio EBIT/interest payments 1.23 1.17
Debt to assets
ratio Total liabilities/ total assets 0.96 0.95
Particulars 2017 2016
Gross profit 1993 1820
Revenues 9007 7810
Operating profit (EBIT) 231 197
Net income (EAT) 12 1
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Current asset 2241 2645
Current liabilities 4325 4633
Liquid assets 2199 2602
Total assets 6615 6943
Receivables 735 677
Long term debt (Non-current
liability) 2010 1984
Shareholder equity 280 326
Interest payments 188 169
Total liabilities 6335 6617
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As per this financial statement of Thomas Cook, it gets clear that Gross profit ration of
this association in 2017 or 2016 was 1993 & 1820. The revenues which have been
collected was around in the ratio of 9007 & 7810. The EBIT in 2017 & 2016 was 231 &
197. As same the net income was in the ratio of 12 & 1. This statement all over helps in
understanding that Gross Profit & sales ration in the year of 2017 & 2016 were 22.13 &
23.30 which helped the business to move forwards in such a greater manner. It shows
that the current assets and liabilities were in the ratio of 0.52 & 0.57 with the liquidity
ratio of 0.51 & 0.56. This is how the net income with return assets was 0.18 & 0.0. At
the other hand return on equity ratio was 4.29 & 0.31.
20

Task 4
4.1 Analyse the sources of funding, both internal and external the company can
obtain in developing the new hotel.
It has been observed that the funds are the most important part of the business which
gracefully helps in meeting the standards of the business in the competitive market. The
sources of funds basically include the venture capital, credit, grants, donations,
subsidies, saving, taxes and etc. There are two types of funds such as internal and
external which gets obtain from the company for development of the business. The
internal sources of finance are those funds which get find from the inside of the
associations like. For example, it can be said that profit is the type of internal fund which
can keep back to the expansion of finance. At the other hand the external sources of
funds get find from the outside of the association, For example- banks, creditors and
etc. The external sources of funds also include the taking of new business partners,
bonds for creating the long-term issues or obligations, issuing the equity, commercial
paper for taking the short terms debts and etc.
 Internal Sources of funds- According to Lebambo, et. al., (2017), in the internal
sources of funds or finance the existed capital gets prepared to stretch them further.
The association of Akaglo Tours Company may become able to negotiate their pays
and bills later on. It also includes getting the cash earlier from the consumers in various
manners. The small firms usually wait for around 75 days to get paid. Extending with
this period of time leads the business to the huge boost of cash flow. These are the
sources of funds which have been generated within the association with the help of
some existing activities or assets. It also includes the sale of stock, sales of the fixed
assets, a collection of debts and retained earnings and etc. It costs very low and does
not require the collateral (Lebambo, et. al., 2017).
 External Sources of funds - According to Tourism (2017), external Sources of finance
includes the share capital, loan capital and etc. The external sources of finance mainly
imply the perfect arrangement or coordination of funds or capital sources from outside
of the association. It generally includes the loan from banks, financial institutions,
21

debenture of public deposits, preferences shares, commercial paper, lease financing,
factoring, trade credit and etc. It cost very high in terms of money or expenses and
requires collateral sometimes (Tourism, 2017).
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Conclusion
This study of Finance and Funding in the Travel & Tourism Sector explains about the
various types of methods of management accounting which get used in the business of
Akaglo Tours. The various ranges of techniques like variance analysis have also
included herein which greatly helps in improving the performance and activities of the
business. Determination of uses of variance analysis has also concluded in this unit in
an attractive manner. As same, the use of investment appraisal techniques as the tool
of decision making in the business of Akaglo Tours has been discussed well in this
study. Various financial statements of some tourism and travel have been included in
this unit by using the appropriate ratios for liquidity, profitability, investment, and
efficiency as well.
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