Sources of Finance for Capital Projects
Added on 2020-10-04
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Finance and Funding in Travel and Tourism
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1TASK 1............................................................................................................................................1A. Examine the concept of CVP analysis and its importance in financial planning....................1B. Analysis of various pricing methods for ATC........................................................................31.3 Analyzing various factors influencing profit for travel and tourism business.......................4TASK 2............................................................................................................................................5A. Explaining different types of management accounting information.......................................5B. Assessing the use of investment appraisal techniques as decision-making tool.....................6TASK 3............................................................................................................................................9A. Interpret the financial statement through ratio analysis..........................................................9TASK 4..........................................................................................................................................10A. Assess the source of funds to develop a new hotel...............................................................10CONCLUSION..............................................................................................................................12REFERENCES..............................................................................................................................13
INTRODUCTIONFinance is the most crucial component of every business entity because due to lack ofmoney, none of the enterprise can survive in the market. Akaglo Tours Company (ATC) iscurrently looking to plan a summer holiday trip at Maldives Holiday Beach lasting for onemonth. This assignment critically emphasizes upon the key tools that might be useful for themanagers in prudent decisions. It also discusses the key source of information from wherecompany can extract required dataset. Moreover, investment appraisal methods will beexamining to discuss that how it helps in quality investment planning. Moreover, ThomasCook’s financial performance will be evaluating through ratio analysis for the two subsequentyears. Lastly, ATC will be suggested with various funding sources. TASK 1A. Examine the concept of CVP analysis and its importance in financial planningCost-Volume profit analysis is a planning process that business managers use for theprediction of future activity volume, cost incur, quantum of sales and profits as well. The modelis based on a mathematical equation which application helps to assess that how fluctuating salesas well as cost will affect the final outcome. It classifies all kind of costs into two, one is fixedcost and another is variable cost. Former, as name implies, includes all those spending that don’tfluctuate with the change in the volume produced (Lanen, 2016). However, later directly changeswith the change in production such as material, labor and others. ATC is looking to plan asummer holiday trip, in this, it needs to charter a cruise to carry all tourists. Moreover, a numberof beach chalets has been booked to attract visitors costing £500,000 which is a fixed cost.However, chalet organizer will charge £1,250 per tourist for meal that is a variable cost. ATCdecided to charge £7,500 each tourists for the one-month holiday trip. Here, its managerial teamcan apply CVP analysis to assess the potential of these summer holiday trip. The analysisfacilitates managers by providing them important insight towards the interrelationship among allthe factors that affect profitability. Importance of CVP:Break-even analysis: The most important use of CVP is to compute break-even pointwhich is the point where fixed cost, variable cost and total sales intersects. It is a key concept1
which makes aware managers whether the project will cover all the costs or not (Edmonds andet.al.,2016). It is necessary for the ATC to identify BEP because it is really beneficial todetermine the point of optimum resource utilization otherwise, so that managers of the businesscan make justifiable decisions to achieve the same. However, sales volume below the BEP pointis a clear indication of loss. Price fixation: CVP is extremely helpful for the pricing decisions because it helps ingood pricing decisions. It is because ATC must require achieving their breakeven point as soonas possible, therefore, till its reach to the point, it needs to charge high price, however,afterwards, additional units can be sale to a distinguishable segment of the market at a discountedprice to reap the benefits of incremental profits. Thus, it helps in fixing appropriate prices togenerate target volume, more importantly, in the depression period. Activity level planning: It is useful in creating flexible budgets that measures cost atvarious levels of activities. It is because; sales and variable cost are favorably and proportionallyrelated to each other which in turn, helps ATC in setting appropriate budgetary targets for boththe sales and expected cost. Margin of safety: CVP analysis also finds out M/S by subtracting total sales from theBEP sales volume, greater the sales beyond BEP level depicts favorable margin and is a sing ofprofit. CVP helps to assess the risk and reward relationship and helps in quality decisions.Higher the margin of safety is always preferable and shows greater sales beyond the BEP, inturn, contributes towards greater return. Net profitability: Excess of contribution over the fixed cost measures net profitabilityearned by the firm, which is useful for the performance examination and quality businessdecisions. It helps in controlling the overrunning cost occurrence and maximizing revenuesthrough efficient use of resources, rational pricing policies and others. Thus, it becomes clear CVP model helps in forecasting, fixing selling price, bettercontrolling and sound business decisions. B. Analysis of various pricing methods for ATCSelling price decision: In order to reach the profit target of £100,000 at given salesvolume of 90 visitors, ATC may think to change its selling price. Although tourism products are2
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