Finance and Funding in Travel and Tourism Sector

Assignment – Finance and funding in
Travel and Tourism sector
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Table of Contents
Introduction....................................................................................................................................4
Task 1..............................................................................................................................................5
Introduction................................................................................................................................5
P1.1 Explain the importance of costs and volume in financial management of travel and
tourism business using Carnival Corporation & plc as your case study. (M3)...................6
P1.2 Analyse pricing methods used in the travel and tourism sector. You should use
relevant examples from different cruise brands of Carnival Corporation & plc. (M2).....8
P1.3 Analyse factors influencing profit for travel and tourism businesses using Carnival
Corporation & plc cruise brands as your case study. (M1)...................................................9
Task 2:...........................................................................................................................................11
P2.1 Explain different types of management accounting information that could be used
in travel and tourism businesses using Dalata Hotel Group plc as your case study.........11
P2.2 Assess the use of management accounting information as a decision-making tool for
Dalata Hotel Group plc...........................................................................................................17
Task 3............................................................................................................................................19
P3.1 Interpret the financial accounts of Dalata Hotel Group..............................................19
LO4:..........................................................................................................................................26
P4.1 Analyse sources and distribution of funding for the development of capital projects
associated with tourism...........................................................................................................26
Conclusion....................................................................................................................................28
References.....................................................................................................................................29
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3

Introduction
The central theme of the report depicts the significance of finance as well as funding for travel
and tourism sector. An attempt has been made to explain the fact that development of travel and
tourism is equally important. There are various sources to gain and attract finance which is
essential for the promotion of this sector. Management accounting information system plays a
crucial role in the growth of travel and tourism sector. For this purpose, various tools of
management or planning information system can play a significant part. The report tries to cover
various aspects associated with the travel and tourism sector. For better understanding and
knowledge, tools of management accounting information system have been applied to Dalata
Hotel Group Plc, company operating in the tourism sector. This instance will help to understand
the complexities and scope of organizations operating in the travel and tourism sector. Besides
this, several conclusions and interpretations have been given at appropriate places throughout the
report.
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Task 1
Introduction
This report depicts the use and implications of management accounting information system in
the decision-making process. It tries to list factors affecting the price of companies operating in
the tourism sector. For this purpose, the cost-volume relationship has been discussed. For the
ease of understanding, an example of Carnival Corporation & plc has been explained. Thus, this
report will facilitate a better understanding of significance and pros of management accounting
information system in the financial management of companies operating in travel and tourism
sector. An additional knowledge of pricing methods will assist in understanding it better.
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P1.1 Explain the importance of costs and volume in financial management of travel and
tourism business using Carnival Corporation & plc as your case study. (M3)
According to Dogra, (2016), financial management has its own significance in every company
whether small or big and whether manufacturing or service oriented. For this purpose,
knowledge of cost and volume is a prerequisite. For practical understanding, an instance of
Carnival Corporation & plc has been covered.
Importance of costs and volume of travel and tourism business
Some of the major advantages of costs and volume in financial management that Carnival
Corporation & plc will enjoy in the long run are as follows:
 Since Carnival Corporation & plc is the world largest travel leisure company, proper
classification and segmentation of costs are very important to maintain its dominance in the
market. Bifurcation of costs will improve the operating performance of the organization.
 An in-depth study of cost and volume components will facilitate the better understanding
of financial performance of the concerned business enterprise. As such, stakeholders will get
satisfied.
 According to Georgescu, (2015), proper analysis of the cost of each and every tour
package will help in the determination of profitability of individual travel and tour package. As
such, Carnival Corporation & plc can easily determine the package which is not profitable and
can make suitable and appropriate changes to make it profitable. Break-even analysis is one of
the most important tools for cost analysis as it helps at the minimum cost that needs to be
charged or recovered from the tourists or travelers.
 Generally, companies engaged in tour and travel business spend a major proportion of
their expenditure towards advertising and promotion since they need to make the tourists aware
of their tour packages. Thus an in-depth analysis of marketing plan along with their associated
cost needs to be assessed periodically. This will help the top level managers in taking various
strategic and crucial decisions.
 Since Carnival Corporation & plc is a service-oriented organization, it is essential to
properly allocate and absorb the cost of the various services provided by the concerned
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company. Correct allocation of will also satisfy the service-users or travellers and they are
ensured that the company is charging a fair price for their customers (Georgescu, 2015).
 Carnival Corporation & plc operates in multiple nations namely, UK, Italy, and Australia,
it is exposed to foreign exchange operating exposure. It may be possible that the company is
earning foreign exchange but it is facing operating loss in the home or domestic currency. By
applying various tools of cost accounting systems will help to manage and hedge against such
operating exposure.
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P1.2 Analyse pricing methods used in the travel and tourism sector. You should use
relevant examples from different cruise brands of Carnival Corporation & plc. (M2)
There are several pricing methods available to a tour and travel company. Each pricing method
has its implications and suffers from various limitations and as such, every pricing method
ensures the recovery and charging of associated costs. According to Saigeetha1 & Surulivel,
(2017), selection and application of appropriation is a very cumbersome task for top-level
managers. Selecting the most appropriate pricing method depends on various factors. Some of
the widely used pricing methods that can be used in the travel and tourism sector are listed
below:
 Cost-driven pricing: Most of the service sector industries adopt this pricing method so as to
ensure the minimum desired profit. Also, this is the traditional and the oldest method since
everyone desires to recover its cost. Under this pricing method, the price of each and every
service is determined on the basis of its cost component. All the cost that has been incurred,
whether direct or indirect, in relation to the provision of that particular service is added. For
instance, there are three different brands of Carnival Corporation & plc namely P & O Cruises,
Princess Cruises and Costa Cruises. Thus, it is very important that costs of each cruise are
charged to services provided by that particular cruise.
 Market-driven pricing: This pricing method is appropriate where there is a cut-throat
competition among all the participants. Under this pricing method, the price of each and every
product, whether tangible good or service depends on the price charged by other rivals. As such,
it ensures the uniformity of price structure across all the service providers. Accordingly, Carnival
Corporations & plc first needs to determine its competitors in each and every country where it is
operating and then it should keep an eye on their price structure. Such constant review will help
the Carnival in gaining a competitive advantage over its rivals.
 ROI Based pricing: Under this pricing method, the price of every service requires determination
of the required return and accordingly revenue is fixed. Carnival Corporation & plc manages
different brands and each brand owns and controls individual ships. It is essential to determine
the cost structure of each ship and hence price is determined and hence price is determined. This
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pricing method ensures the identification of indirect cost that can be controlled or minimized if
proper care is taken.
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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. (M1)
There are various factors that influence the amount of profit of travel and tourism business. Some
of the factors affect positively while other factors may have a nominal effect. However, it is
imperative for the tour company to consider all the factors while determining the price of new
service or tour package. Ignorance of a single factor may bring disrepute to the tourism
company.
Some of the influential factors that influence the profitability of travel and tourism businesses are
listed below:
 Internal organization: According to Kizielewicz, (2016), internal organizational structure or
working of the concerned travel and Tourist Company is one of the major factors influencing
profit. Good level of cooperation and understanding among all the departments or segments of
Carnival Corporation & Plc will help to understand the cost structure of other departments or
segments and as a result better and a reasonable price can be arrived at. Also, such proper
coordination will assist in a reduction or elimination of unproductive time.
 Seasonal fluctuations: Corporates providing tours and travel service will have to face seasonal
cycle. These organizations earn a good amount of profit during the peak seasons. On the other
hand, during the off-season, it has to struggle and find difficult to earn a higher profit. As a
result, Carnival Corporation & plc can keep its price higher to the extent possible during the peak
seasons so that it can earn maximum possible profits.
 Macro-environmental factors: There are various macro environmental factors which affect
greatly or largely the tours and travel business. These factors may affect the price of any
provision of service as well. As such, these factors influence all the corporates engaged in the
tourism sector. Another interesting feature of such macro factors is that these factors may be
positively welcomed by some tourism company while for other companies, it may create havoc
and they find it difficult to deal with it. Some of the major external factors that may force
Carnival Corporation & plc to change or amend its existing pricing policy are the political
environment, technological environment, legal environment and so on.
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 Other factors: Besides the above-listed factors, there are several other factors as well ignorance
of which may create difficulty to Carnival Corporation & plc to survive. Such factors mainly
include the number of bad debts, concessions or discount in the promotional tour package, the
extent of competition and likewise. For instance, if the amount of bad debts of Carnival group is
increasing year by year, then it will have to create more provision in relation to debtors. As a
result, the profit will be on the verge of declination.
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Task 2:
P2.1 Explain different types of management accounting information that could be used in
travel and tourism businesses using Dalata Hotel Group plc as your case study.
Slide 1
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Slide 2:
Slide 3: This slide tells about the Management accounting information deals with all the issues
concerned or related with decision making tools. As such, it ensures better decisions by top level
and strategic managers.
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Slide 4: Each area of management accounting information system has its own characteristics.
Trend forecasting is somewhat similar or akin to budget forecasting. As such, it involves
preparing budgets and establishing or cost standards to be achieved and obtained. Trend analysis
is concerned with finding out the reasons of variations and differences between the established
standards and actual result. This analysis also helps in revising or updating existing standards or
creating new standards. Likewise, cost analysis assist in grouping, classification or segregation
of different types of cost. Product costing helps the top level management in the detailed analysis
of cost structure of the concerned product, whether goods or service.
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Slide 5: A detailed and in-depth analysis of financial statements will help to maintain an
effective management information system in Dalata Hotel Group. For ease of understanding,
both brand-wise and consolidated financial statements need to understand. Financial statements
of previous year need to compare with the current financial year and deviations need to be
figured out.
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Slide 6: Hotel Group Plc needs to prepare budgets for its two brands or operations namely,
Clayton hotel and Maldron Hotels. Such individual budget preparation will help in analysing the
performance of both brands individually. Various types of budget reports need to be prepared by
the management of Dalata Group so that there can be effective cost management in the overall
organization of Dalata Hotel Group Plc. The range of cost needs to be prepared which implies
that cost needs to be maintained and controlled within that range. If the actual cost is less than
the budgeted cost, then it is a positive sign. On the other hand, actual cost being higher than the
pre-determined cost is a serious situation that needs to be properly dealt with.
Slide 7: The top level or strategic level managers of Dalata Hotel Group Plc need to do variance
analysis of their financial statements. They can take the help of experts, wherever required.
While doing variance analysis, assumptions made during the budgeting phase need to be
considered. Such analysis is investigated further into the financial affairs of the concerned
organization.
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Slide 8: The top level or strategic level managers of Dalata Hotel Group Plc need to do variance
analysis of their financial statements. They can take the help of experts, wherever required.
While doing variance analysis, assumptions made during the budgeting phase need to be
considered. Such analysis is investigate further into the financial affairs of the concerned
organization.
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P2.2 Assess the use of management accounting information as a decision-making tool for
Dalata Hotel Group plc.
Slide 9: Some of the widely used tools and techniques that can be used are variance analysis,
zero-based budgeting, and responsibility accounting. Since it is service based industry, usage of
ABC cost analysis and Just-in-time approach is not possible. Also, another important
consideration is that if found necessary budgets can be revised on the requirement of changing
scenarios taking place in the environment. With the determination of various financial ratios,
Dalata group can easily gain an in-depth understanding of the financial performance. Thus, it can
be inferred that financial statement analysis makes the working of top-level managers easy and
helpful in the accomplishment of various long-term goals of the concerned organization. Correct
preparation of financial statements is also useful for the shareholders of Dalata Group since they
will be interested in knowing Earning Price per share and profit after tax.
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Slide 10
Slide 11
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Task 3
P3.1 Interpret the financial accounts of Dalata Hotel Group.
There are four basic types of financial ratios that play important role in measuring the
performance of the company. They majorly express the relationship between the items of the
financial statement. They are the true indicators of organizations financial performance and
productivity. It helps in comparing the performance of companies and industry or of the same
company over the years (Accounting for management.org 2017).
By comparing the financial statement of the Dalata Group for the two FY 2015 &2016. We can
interpret that in 2015 the sales of the company has been 225,673,000 whereas in the year 2016 it
has increased to 290,551,000. It has increased by 28%. Increase in sales has resulted in the
increase in profits to 34,923,000 from 21,626,000 in the year 2016. From the income statement,
we can observe that the EPS has gone down up €0.1455 in FY 2015 to €0.1909 in 2016. From
the balance sheet of Dalata Group, we can conclude that the total assets are 985, 376,000 in the
year 2016 which has increased from 861,336,000 in the FY 2015. From the overall financials, it
can be concluded that the Dalata Group has been doing well and have a good financial standing (
Dalata group, 2017).
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Liquid Ratio
1. Current Ratio: - Current Assets / Current Liability
Current assets ratio is liquidity ratio; it basically measures the ability of the firm to pay its short-
term liability with current assets. It tells whether the current assets are sufficient to cover current
liabilities. The ideal ratio is 2:1. It means that the assets are 2 times more than the liabilities. It is
helpful in determining working capital.
In case of Dalata Group in the year 2016 the ratio stood at 1.143 it means current assets are more
than current liabilities. But this is not the ideal ratio. The ideal ratio is 2:1 therefore in FY 2016
the current ratio is ideal as it stood at 2.88. This proves that the Dalata Company has sufficient
assets to cover its current liabilities (Accounting for management.org, 2017).
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Computation of Current Ratio
Year Current
Assets
Current
Liabilities
Current
Ratio
2016 98,771 68,821 1.143
2015 1,62,278 56,238 2.88

2. Liquid Ratio:-Liquid Assets/ Current Assets
This ratio measures the ability to pay its short-term liability. It does not consider stock and
prepaid expenses. Higher the Liquid ratio better is the margin of safety. It means that the
company has enough solvencies to meet all its debts. If the ratio is more than 1 it indicates that
the company has good financial health. The ideal ratio is 1:1. It means the assets and liabilities
need to be equal.
Computation of Liquid Ratio
year Liquid
Assets
Current
Liability
Liquid
Ratio
Current
Assets
stock Liquid Assets [ current
assets -(stock+ prepaid
expenses)]
2016 96954 68,821 1.4088 98,771 1,817 96,954
2015 160929 56,238 2.8616 162278 1,349 1,60,929
Form the above table it is clear that the Liquid ratio in both years has been exceptionally good.
As it can be observed from the above table in FY 2016 it is recorded at 1.40 times and in FY
2015 it is standing at 2.86. In both years it is higher than the ideal ratio i.e. 1:1. It depicts that the
financial position of the company is good. The ratio should not be very high as it would be the
result of excess and unnecessary funds and lesser is the ratio lesser the availability of funds both
the scenarios are bad for the financial position of the company.
Profitability Ratio
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1. Gross Profit Ratio: - Gross Profit / Net Sales *100
It is one of the important profitability ratios. There are no particular standards to evaluate this
ratio. It can be interpreted as higher the ratio better it is for the company’s financial health. This
ratio is a good measure of comparison between two companies or within in the company for a
period of two years.
Computation of Gross profit ratio
Year Gross Profit Net Sales Gross Profit/Net Sales *100
2016 180687 290,551 62.19%
2015 138766 225,673 61.49%
As we can observe from the table that it has been almost the same for both the financial years. In
FY 2015 it stood at 61.49% and in FY 2016 it is standing at 62.19%. It can be interpreted from
the above calculations that Dalata Group Maintains stability in its financial position. We can
observe from the above table that the profits of Dalata Group have gone up in FY 2016 from FY
2015 but Gross profit has remained almost the same. The reason for this being, the proportion in
which the Gross Profit and sales have gone up.
2. Net Profit Ratio: - Net Profit / Net Sales *100
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It is profitability ratio. It does not take the operational expenses and revenue into account.
Because the purpose of this ratio is to evaluate the profitability of the business from its core
activity. It expresses the relationship between sales and net profit in percentage. This ratio is also
important for comparison between two companies. Net profit for this purpose is calculated after
deducting all kind of expenses like operational, administrative and as well as tax and dividends.
But it is short-term measurement.
Computation of Net profit ratio
Year Net Profits Net Sales Gross Profit/Net Sales *100
2016 34,923 2,90,551 12.02%
2015 21,626 2,25,673 9.58%
As it is very evident from the above calculations that the Net profit ratio for the FY 2016 is
reflected at 12.02% and in FY it stood at 9.58%. it shows that the Dalata group has increased
profit. It also shows that the companies financial decision have been successful. It is also the
picture of the good financial standing of Dalata Group.
Efficiency Ratio
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1. Total Assets Turnover Ratio:-Total Sales / Total Assets
It measures the efficiency by which the assets can generate income. For this ratio as well there is
no standard way to interpret it. Higher the ratio better it is for the company as it would indicate
that the Dalata has been using its assets efficiently and vice versa.
From the
above table,
we can
interpret by comparing figure of both the years that Dalata has got stable returns from its assets
employed. In FY 2016 it is standing at 0.2949 which is higher than the FY 2015 by 0.0329.
2. Inventory Turnover
Inventory Turnover Ratio: - Net sales / Average Inventory
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Computation of Total assets turnover
Year Total Assets Total Sales Total assets turnover
2016 985,376 290,551 0.2949
2015 861,336 225,673 0.2620

Dalata Group being a service industry it has higher inventory turnover. Because it has very less
moving inventory as compared to fixed assets. As we can infer from the above table that the
Inventory turnover is decreased from 51 times to 44 times of sales. This is a good sign of
inventory control.
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Computation of Inventory turnover
Net Sales /Average Inventory
Year cost of sales Average Inventory Inventory Turnover
2016 109,864 2,492 44.096
2015 86,907 1,696 51.257
Note :- Average inventory= (Opening stock + closing stock )/2

LO4:
P4.1 Analyse sources and distribution of funding for the development of capital projects
associated with tourism.
Introduction: Sources and distribution of funding for the development of capital projects
associated with tourism:
Title
Sources and distribution of funding
for capital projects so as to develop
tourism.
Sources of Finance
Majorly there are two types of funds that are widely used in the
tourism sector. They can broadly be classified into Public funding
and Non-public funding. Public funding is mainly raised through
government sources and non-public funding are private funds.
Introduction
It becomes important for the job role of
the junior consultant to research and
analysis various sources of public and
non-public funding. Along with
ensuring proper distribution of the funds
raised. Travel and tourism is the sector
with high growth and future prospects.
In this section will learn about the
Public Funding
Public funding comes from the
government of the country. It
can come from local or central
government. It can be in forms
of loan which is attached to the
liability of interest. Government
bonds of the various time period
and amount issued by the
Non-Public Funding
These funds are availed either
form the financial institution
which is majorly associated
with the promotion of travel and
tourism. They can provide loans
at concessional rates. The
organization involved in travel
and tourism came forward and
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various sources of funds available to the
organizations indulged in tourism. And
how concerned organizations make
productive use of funds available for the
betterment of tourism.
government. The government
also gives grants and subsidies
to the companies involved in the
tourism business in order to
encourage tourism sector. The
government might also come
forward to enter into merger and
acquisition to finance capital
projects. Public funding can also
include special types of
provisions that might be
available for financing capital
projects (Gov. UK 2014).
enters into the finance a capital
project. The organization can
also issue bonds in the name of
travel and tourism and raise
funds from the public. They can
issue debentures, preference
equity which can serve the
purpose and do not lead to
dilution of ownership. The
organization can also make use
of the internal sources of funds.
Such funds would be cheaper as
they are costless (Kizielewicz,
2016).
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Conclusion
The assignment has looked into various factors that impact over the revenue of the Carnival
Corporations in specific and travel and tourism industry at large. In task one, we have learned
about the various cost and volume that are directly attached to travel and tourism sector. Task
also looked into the various pricing techniques and factors influencing profits. Task two gave us
insight into the managerial accounting information as such information is of great help to the
stakeholders and all the related parties. The assignment also consisted of ratio analysis and
financial statements interoperation. Task four mainly focused on the various sources of finance
that are available to the tourism industry, and how these funds can be allocated for the right
capital project.
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References
 Accounting for management.org., 2017., Current ratio about us. Accounting for management.org
[online] available at: https https://www.accountingformanagement.org/current-ratio/ (accessed
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 Dalata Group, 2017. About Us Dalata Hotel Group Plc. [online] Available at:
http://dalatahotelgroup.com/investors/ [Accessed on 14 Jan 2018].
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Hospitality (DPHH) Scheme. Amity Research Journal of Tourism, Aviation and Hospitality.
Vol. 01, Issue 01.
 Georgescu, B., 2015. Pricing Strategy in Services -Pricing Strategies in Transport Services.
International Conference on Marketing and Business Development Journal.
 Gov. UK 2014. Guidance Public funds. About us. Gov. UK [online] available at:
https://www.gov.uk/government/publications/public-funds--2/public-funds (accessed on 14 Jan
2018).
 Kizielewicz, J., 2016. The role of non-governmental organizations in the field of sustainable
development of cruise ship tourism. 16th International Scientific Conference on Economic and
Social Development.
 Saigeetha1, S., & Surulivel, S., 2017. A study on financial performance using ratio analysis of
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