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

This report delves into the crucial aspects of finance and funding within the travel and tourism sector, examining cost and volume analysis, pricing strategies, and management accounting tools. Using real-world case studies of Carnival Corporation & plc. and Dalata Hotel Group plc., the report analyzes financial statements, profitability ratios, and liquidity ratios to assess the financial health of these companies. Additionally, it explores various sources of funding for capital projects in the tourism industry, highlighting the importance of private and public funding options. This comprehensive analysis provides valuable insights for students and professionals seeking to understand the financial dynamics of the travel and tourism sector.

Unit-2 Finance and Funding in travel and
tourism sector
1

Contents
Introduction:...............................................................................................................................3
Task 1.........................................................................................................................................4
P1.1 Analyse the importance of cost and volume in travel and tourism business taking
Carnival Corporation as the case study..................................................................................4
P1.2 Analyse the pricing methods used in the Travel and tourism sector.............................7
P1.3 Analyse factors influencing profit for travel and tourism businesses using Carnival
Corporation & plc. cruise brands as your case study.............................................................8
Task 2.......................................................................................................................................10
2.1 Explain the types of management accounting information that can be used in the travel
and tourism business............................................................................................................10
2.2 Measure the uses of management accounting in the decision making...........................14
Task 3.......................................................................................................................................23
3.1 Interpret financial accounts of Dalata Hotel Group plc. for the year ended 31st
December 2017 showing at least two years performance (for example comparing 2017 to
2016)....................................................................................................................................23
Task 4:......................................................................................................................................29
4.1 Analyse sources and distribution of funding for the development of capital projects
associated with tourism........................................................................................................29
Conclusion:..............................................................................................................................31
References:...............................................................................................................................32
2

Introduction:
The purpose of the report prepared in the following assignment is concerned with developing
the knowledge of the users regarding the use of various management accounting tools and
techniques in the finance and funding sector and assist them in decision making function
regarding the business. The first part of the report will contain a description about the use of
cost and volume analysis in the business organisation working in travel and tourism sector.
The second part of the report will involve preparation of power point presentation explaining
the use of management accounting tools and principles. The third part of the report will
involve interpretation of various financial statements of a company operating in this sector
and making decision based on those interpretations. Further the report will include a leaflet
prepared in order to explain the various sources of funding that can be utilized in travel and
tourism sector to finance capital projects.
3

Task 1
Introduction:
The following report will be concerned with developing the knowledge regarding the
significance of analysis conducted for cost and volume acquired in the business and making
decisions in the travel and tourism sector company. The report will be prepared in context of
Carnival Corporation & plc. Which is a London based company and has been considered as
one of the largest leisure travel company.
P1.1 Analyse the importance of cost and volume in travel and tourism business taking
Carnival Corporation as the case study
The cost and volume analysis in a travel and tourism company like Carnival Corporation &
plc. can be considered as a major tool for analysing the cost structure and classifying the cost
based on their nature and volume of occurrence. The classification will help the business
managers in identifying the loopholes in costing structure and the effective strategies related
to cost control and cost reduction can be implemented in the company (Rehman, 2014).
The cost classification in cost and volume analysis can be based on following criteria:
Direct cost = The direct cost can be classified as the type of cost which can be directly traced
towards the cost unit associated with the particular unit of product produced by the company.
The direct cost can be in the form of direct material incurred or direct material labour.
Indirect cost = The indirect cost can be referred to as the type of cost which cannot be
directly traced to the unit of cost of product manufactured by the company. The various types
of costs that can be incurred in relation to Carnival Corporation & plc. can be insurance cost,
general manger salary etc.
Classification based on nature of cost:
Fixed cost – Fixed cost refers to the type of costing activity in which the behaviour of cost is
fixed and the cost does not change with the level of activity to be performed in the company.
However the unit fixed cost decreased with the level of activity increased (Garrison et al.,
2013).
4

(Source – Ready Ratios, 2018)
Variable cost – The variable cost refers to the type of costs that increases with the increase I
the level of activity performed in the company. It means with every change in the volume of
activity the variable cost will also change (Rehman, 2014).
(Source – Ready Ratios, 2018)
Cost volume profit analysis:
The cost volume profit analysis helps the company in analysing the change in profits due to
change in volume of activity and accordingly business managers can take the decision of best
level of activity to be performed.
Application of cost volume profit analysis in Carnival Corporation & plc. – The company has
been operating in travel and tourism industry in which value of activity and the cost can be a
significant factor in determining the profits to be acquired by the company. The same can be
used in obtaining the breakeven point based on which contribution and fixed cost can be
determined.
5

Breakeven chart:
(Source – Ready Ratios, 2018)
Contribution breakeven chart:
6

P1.2 Analyse the pricing methods used in the Travel and tourism sector.
Based on the background information of the company Carnival Corporation & plc. and
considering the types of services offered the various pricing strategies which can be used in
this company are as follows:
Cost plus pricing – The cost plus pricing policy is associated with establishing the prices of
products after identifying the cost associated with that product and adding a suitable margin
to that cost. This would require determining the appropriate profit margin correctly.
Market led pricing – The pricing policy will be represented by the method in which the
company Carnival Corporation & plc. will use competitors prices regarding the similar
products and the industry factors will be kept in mind while establishing the prices for those
products. The same will enable the company to obtain a competitive advantage in the market
(Garrison et al., 2013).
Value based – The value based pricing policy will be associated with the method of pricing
in which the value derived by the customer after using the product or service will be
considered as appropriate price.
The determination appropriate pricing strategy will be crucial for the company Carnival
Corporation & plc. as the customers in this industry are having lot of options in choosing a
suitable plan according to their requirements Thus the competition prevailing will not affect
the company profitability if pricing is done accurately.
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P1.3 Analyse factors influencing profit for travel and tourism businesses using Carnival
Corporation & plc. cruise brands as your case study.
Factors Explanation in context of Carnival
Corporation & plc.
Political factors The political factors including the regulations
and legislations prevailing in the political
market of UK will affect the company’s
selling objectives in long run (Thomas,
2014).
Seasonal factors The company operating in travel and tourism
like Carnival Corporation & plc. will be
highly influenced by the seasonal variation as
the peak season for tourism will result in high
profitability for the company and vice versa.
Social factor The engagement of the people socially and
their tendency of taking advice from friends,
family members and colleagues will also
affect their decision reading travelling.
Current rends The current trends prevailing in the industry
of travel and tourism will be very crucial in
determining the profitability and selling of
products.
Bad debts The bad debts acquired by the company in
past will largely affect the credit policy and
sales productivity of the company (Thomas,
2014).
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Conclusion:
The above business report helps in concluding that the cost volume profit analysis and the
pricing policy will act as a significant management accounting tool which will assist the
managers of Carnival Corporation & plc. in taking business decision and the profitability
will be affected significantly.
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Task 2
2.1 Explain the types of management accounting information that can be used in the
travel and tourism business
10

11

The training will be provided in order to develop the understanding of users for adopting
management accounting techniques and tools in decision making process.
12

The management accounting in the modern context can be defined as the process of
accounting in which the management reports are prepared for the purpose of providing
information to business managers operating in travel and tourism sector.
13

2.2 Measure the uses of management accounting in the decision making
The various types of management accounting information will involve financial statements of
the company, budgeting reports, variance analysis reports and the management accounting
information system.
14

The financial statements refers to the information presented for analysing the financial
performance and position of the company during the reporting period and can be used by
external as well as internal users of the company.
15

The balance sheet of the company helps in demonstrating the position of various assets and
liabilities of the company during the reporting period. The same is prepared after considering
the assets and liabilities.
16

The income statement helps in describing the performance of the company and interpreting
the items if revenues and expenses for the company.
17

The budget expense of the company Dalata Plc. shows that the company has been
concentrating in controlling the expenses which are made towards operating activities and the
major investment has been made by the company in capital projects.
18

The MIS is the advanced accounting system which helps in generating value added reports
for the management and assists them in taking critical economic decision regarding the
company.
19

The technique of management accounting helps the business managers in taking important
decision regarding the level of activity to be achieved.
20

21

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Task 3
3.1 Interpret financial accounts of Dalata Hotel Group plc. for the year ended 31st
December 2017 showing at least two years performance (for example comparing 2017 to
2016).
The financial statements of Dalata Hotel Group plc. are presented below for the year
ending 2017:
Income statement of the year ended 2017:
(Dalata PLC. 2017)
Statement of financial position for the year ended 2017:
23

(Dalata PLC. 2017)
24

Ratio Calculation:
Profitability ratios:
Analysis – BY referring to the above calculations it can be seen that return on capital
employed for the year 2016 has been 11% which has increased to 17% in the year 2017.
However the return on assets has been low for the company in both the years. Thus it can be
established that the company need to implement appropriate pricing policy for acquiring
sufficient profits (Thomas, 2014).
25

Liquidity ratios:
Analysis – The determination of current ratio shows that the company has improved its
liquidity position as the current assets have been increased in the year 2017. This has been
same in the case of quick assets and therefore the ability of the company to pay its short term
liabilities has been sound.
26

Debt ratios:
Analysis – The debt ratio of the company show that the long term debt employed in the
capital structure of company has been reduced over the last year. The same has been .59 in
the year 2016 which is the result of high debt employed in the company. But the same has
been decreased in the year 2017 which is resulting in increased cost of capital. Therefore it is
required to bring the debt structure at an optimum level of 2:1.
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Operating ratios:
Analysis – The operating ratio has been fluctuating for the company Dalata Plc. and this has
to be controlled by the management by implementing appropriate strategies for reducing the
operating expense (CGMA, 2017).
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Task 4:
4.1 Analyse sources and distribution of funding for the development of capital projects
associated with tourism.
The various types of capital projects that can be developed in United Kingdom are associated
with development of infrastructures which can provide easy connectivity to the various
attractions and sites. The variety of projects will include theme attractions parks, Disney
world for the children to which can help in attracting the tourist from all over the world. The
various sources of funding for financing the projects can be in the form of:
Private sources – The private sources of funding will involve the funding raised form
retained earnings of the company, private institution and agents who charge a fixed interest
for the amount t of funds provided. The same source of funding will involve a minimum cost
of capital in order to develop the projects (CGMA, 2017).
Public sources of funding – The public sources of funding for financing the capital projects
will include the grants that are received from the government, the donations received from
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the public and the funding raised from public institutions. These types of funding will not
involve any higher cost of capital and they are easily acquired for the purpose of funding.
30

Conclusion:
The above report relating to finance and funding in travel and tourism organisation concludes
that cost volume analysis and pricing strategies adopted in the enterprise can help the
business managers in taking critical decision about the selling aspects. The organisation will
require adopting various management accounting tools and techniques in order to utilize the
information generated in a sound manner and taking significant decision about the company.
The financial statements and their interpretation through ratio analysis will help the company
in analysing the current performance and position and according to that necessary steps will
be taken to improve the current operational performance and position of company. The
various capita projects which can be developed in this sector will require heavy financing and
the appropriate sources of funding should be obtained by the company in order to achieve
minimum cost of capital and this will enable the company to attract many visitors and
achieve highest profitability.
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