Finance and Funding in Travel and Tourism Sector

Explore the importance of finance and funding in the travel and tourism sector, analyzing cost, volume, pricing methods, and factors influencing profit. Understand management accounting information and decision-making tools for businesses in the industry.

Finance and Funding in Travel and
Tourism Sector
1

Contents
Introduction................................................................................................................................3
Task 1.........................................................................................................................................4
1.1 Explain the importance of costs and volume in financial management of travel and
tourism businesses using Carnival Corporation & plc as your case study.................................4
1.2 Analyse pricing methods used in the travel and tourism sector. You should use relevant
examples from different cruise brands of Carnival Corporation & plc.....................................5
1.3 Analyse factors influencing profit for travel and tourism businesses using Carnival
Corporation & plc cruise brands as your case study..................................................................7
Task 2.........................................................................................................................................9
2.1 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......................9
2.2 Assess the use of management accounting information as a decision-making tool for
Dalata Hotel Group plc............................................................................................................14
Task 3.......................................................................................................................................18
3.1 Interpret financial accounts of Dalata Hotel Group plc for the year ended 31st December
2016 showing at least two years performance.........................................................................18
Task 4.......................................................................................................................................20
4.1 Analyse sources and distribution of funding for the development of capital projects
associated with tourism............................................................................................................20
Conclusion................................................................................................................................22
References................................................................................................................................23
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Introduction
Funding states the money or amount which is provided or offered by the business entities
along with the sector related to regulatory bodies for the particular purpose. But on the other
hand, funding refers to the procedure of receiving capital or money and that is useful for the
purpose of business and in this fund, are provided by the financial institutions which include
banks as well as other lending agencies (Difference between, 2018). In task one, discussion to
be done on cost and volume along with the importance of the different cost in Carnival
Corporation. Along with this, a demonstration to be done on different pricing method for the
company. In task two and three, Dalata Group Plc needs to be taken for analysing the
management information system and decision-making tools. Along with this, examination to
be done of financial accounts of Dalata Group. In task four, different sources and distribution
of funding for tourism development are to be presented.
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Task 1
Introduction
In this task, discussion to be done on the importance of finance and funding as well as cost
and volume as it reduces the profit of the company. If business entity manages the cost then
this will help them in generating more revenue. Along with this, a demonstration to be done
on diversified pricing methods which help in setting the appropriate price and by that they
can make correct decision to invest or not.
1.1 Explain the importance of costs and volume in financial management of travel and
tourism businesses using Carnival Corporation & plc as your case study.
If carnival Plc wants to earn more revenue, then they have to manage the cost as well as a
volume which help in collecting the funds and that can be used in the development of tourism
sector.
Cost
Cost can be defined as the value of money and that can be used up to produce something and
by that, they can deliver appropriate services. It includes different type of cost that is direct or
indirect cost, fixed as well as variable cost. Fixed cost is that cost which does not vary
according to the changes in the number of units. Variable cost is that cost which is changing
according to the number of units (Boardman, et. al., 2017).
Cost volume profit analysis: It assists in determining and analysing the changes in cost as
well as a volume which affect the operating income of the company. In this, sales price per
unit is constant and total fixed cost are constant (Cliff Notes, 2016).
Volume
Break-even point: It is a point where the company can identify the situation of no profit no
loss. It includes the sales volume at which company earns no money. It assists in determining
the potential to generate more profit. Along with this, changes need to be analysed in the
profit when prices are altered (Accounting tools, 2017).
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Economies and diseconomies of scale: Economies of scale define the advantages of cost as
it assists in expanding its services in the long run. It provides the discounts to the business
entity. Diseconomies of scale assist in increasing the cost of production of Carnival Plc. The
main factors include supervision or lack of decision (Nitisha, N.d).
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1.2 Analyse pricing methods used in the travel and tourism sector. You should use
relevant examples from different cruise brands of Carnival Corporation & plc.
In the tourism sector, the tour operator needs to set the price for the different holiday
packages and for that appropriate method should be used. It includes:
Cost-plus pricing method: It is an appropriate and effective method for setting a price for
the holiday packages. This method also called as markup pricing method as it assists in
determining the cost of their services (Study.com, 2017). This method succour in setting the
price of a particular service. It includes the direct material, direct expenses as well as direct
labour cost. It can be computed in three steps which include determining total cost by adding
fixed and variable cost. Then divide the total cost by a number of units and at last unit cost
should multiply by the markup percentage for the selling cost (Peavler, 2016).
Return on investment method: It is part of profitability ratio which assists in calculating as
well as computing the profit on the basis of investment in terms of percentage of the original
cost. It aids in measuring the money which was made on the investment according to the
investment on a purchase price. It helps the investor in making the decision to invest or not
(My Accounting Course, 2017).
Break-even pricing method: This method is associated with the break-even analysis as it is
a forecasting tool which is used by the marketers to determine the sales of the company. This
will not consider directly to the demand in the market at the time of determining the price
(Know This, 2018). This can be calculated by using formula include:
Fixed cost / Price – Variable cost per unit = % of units to break even.
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1.3 Analyse factors influencing profit for travel and tourism businesses using Carnival
Corporation & plc cruise brands as your case study
There are numerous factors which have an adverse impact on the profit for business related to
travel and tourism sector by using Carnival plc. It includes:
High competition in the market: In the market, there are different tour operators and that’s
why competition is increasing in the tourism sector. They are providing services at an
affordable price and this will increase the number of visitor’s.
Terrorism: It is the main driving force and this will be having an impact on the decision of
visitors as well as tourism sector. If the attack was done by the terrorists in the diversified
areas then this will affect the revenue of carnival Plc because this will decrease the number of
consumers and by that spending’s also decrease (Saha and Yap, 2014).
Natural disasters: This is also an important factor as it has a big influence on the travel and
tourism sector. This factor impacts the destinations and by that decision of the visitors as
well. This creates the physical damage to the different areas and by that company’s profit
decrease (Tsai, et. al., 2016).
Figure1: Factors affecting tourism
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Source: (Ajake, 2015)
Variations in the currency rate: The value of the currency is changing on a rapid basis and
if visitors purchase currency or book their packages on old price then this will affect the
profit or the tour operator and by this carnival Plc suffers the loss. Investigation of the impact
of the exchange rate regimes the flow of international tourism (De Vita, 2014).
Variations in the policies of regulatory bodies: According to the variations in the needs and
wants of the consumers, then the policies of government changes accordingly. When the
policies of regulatory bodies are changing then tour operator or Carnival Plc need to
implement those policies as it assists in attaining success in the market and by that visitors
can make a correct and appropriate decision (Weimer and Vining, 2017).
Conclusion
From the above, it has been depicted that the employees of Carnival Plc need to maintain cost
along with the volume which helps in increasing the profit. The managers of the company
adopt an appropriate method of pricing to set the price of the holiday packages as it assists in
increasing the number of consumers. Along with this, they have to analyse the different
factors which have an adverse impact on the revenue of the company.
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Task 2
2.1 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
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Management accounting information assists in managing the accounting information. It helps
in making the correct and appropriate decision. Along with this, they have to do proper
functioning with the proper management and control on the functions and performance of the
company.
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Financial statements are essential to the company as it assists in making the managerial
decisions. It is a formal record of all the activities related to finance. This will succour in
identifying and analysing the position and performance of the company in the market. It
should be present in a proper manner.
The balance sheet of the company denotes the financial position of the company as it includes
the assets and liabilities of the business. Balance sheet help in computing the ratios which
assist in comparing and analysing the performance of the company in the market at a time of
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high competition. This analysis helps in control in the budget as well as assist in making the
correct decision for the betterment of the company.
By computing and calculating the different financial ratios, Dalata Group can analyse their
performance and position in the competitive market. From the income statement or profit and
loss statement, top-level managers can easily prepare or set their goals and objectives for the
long term. When employees of the company prepare appropriate statement then this will help
shareholder in making the correct decision.
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Cash flow analysis is also a part of financial statements and this can be done by adopting
appropriate tools or techniques which include zero-based budgeting, variance analysis along
with the responsibility accounting. The industry which is based on the service, they can adopt
Just-in-time approach as well as ABC cost analysis. According to the scenario, they have to
maintain proper budget according to a situation which will assist in attaining targets.
Budget report also included in the financial statements as it assists in forecasting of the cost
and expenses so that they can attain success in future. This helps in attaining the advantages
in the tourism sector. Along with this, it also succours in determining and demonstrating the
expected sales which will company in attaining success.
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2.2 Assess the use of management accounting information as a decision-making tool for
Dalata Hotel Group plc
Management information system states the procedure of information or data by using internet
along with the intelligent devices. This information system help in managing and supporting
the managerial decisions within the business entity. In managing the information system,
middle-level managers provide support to ongoing operational activities.
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Information and communication technology software is adopted by the Dalata group Plc as it
assists in increasing the risk of the company. This will help in increasing the risk of data
security as well as analyse the internal or external cyber event with the capability of data loss.
This software can manage by the doing the operations on a robust infrastructure related to
information technology. This can be mitigated by taking suggestions or advice from the
experts.
The higher-level managers, as well as staff members, need to make the effective and
appropriate decision for the betterment of the company and for this they have to use
appropriate tool which assists in attaining maximum benefits. This will help business entity in
attaining the success and by this, in front of the company, any type of barrier cannot occur
(Mind Tools, 2018).
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The employees and managers of Dalata Group Plc can prepare appropriate financial accounts
and provide to the stakeholders so that they can make a proper decision by forecasting the
accounts to invest or not. As this tool assists in maintaining the control of the spending as
well as an increase in cost (Chambers, et. al., 2018).
The number of shares awarded and that should be computed by using and analysing the face
value as well as the share price of €4.69. At the time of peak season, Dalata Group is fixing
their price according to the products but on the other hand, at the time of off-season, the price
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is decreased by them. This provides the satisfaction to the consumers as well as assist in
increasing the profitability and performance of the company in the market.
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Task 3
Introduction
In this task, discussion to be done on different financial accounts as it assists in analysing the
statements which help stakeholders in making the correct and appropriate decision related to
investment. There are different statements which they can adopt is cash flow statement,
trading account, balance sheet and so on.
3.1 Interpret financial accounts of Dalata Hotel Group plc for the year ended 31st
December 2016 showing at least two years performance
Calculation of Profitability Ratios
Sr. No. Particular The year 2016 (€
Million)
The year 2015 (€
Million)
1 Fixed Asset 879.956 692.880
2 Employed Capital 916.555 805.098
3 Net profit 34.923 21.626
4 Net sales 290.551 225.673
5 Long-term debt 264.681 250.168
6 Total Asset 985.376 861.336
7 Common Stockholders Equity 620.382 537.296
8 Current Asset 98.771 162.278
9 Current Liabilities 68.821 56.238
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10 Total Liability 364.994 324.040
11 Net Asset 620.382 537.296
12 Quick assets 96.954 160.929
13 EBIT 85.100 62.600
13 Working capital 29.950 106.040
13 Gross profit 180.687 138.766
Current ratio = (Current Asset / Current liability) 1.44 2.89
Acid test ratio = (Quick Asset / Current liability) 1.41 2.86
Return on Capital Employed = (EBIT / Employed Capital) 0.09 0.08
Capital Gearing Ratio = (Common stockholder equity / fixed cost
bearing fund)
2.34 2.15
Return on NET Asset = Net Asset / (Fixed Asset +Working capital) 0.68 0.67
Net profit percent = (Net profit / Net Sales) x 100 12.02 9.58
Gross Profit percent = Gross profit / Net Sales) x 100 62.19 61.49
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Ratios computed by using appropriate information from the balance sheet. There are different
ratios which are computed and on the basis of that comparison needs to do. The ideal current
ratio is 2:1 and the ideal quick ratio is 1:1 and after comparison in 2015 and 2016 in both the
ratios both are increasing as it is good for the company. But when the quick ratio is increasing
it denotes the increase in liquidity but Dalata group is not utilising the resources properly.
Return to capital employed is same in both the years as there is no change. In the return on
net assets also there is no variation as it is also good for the company. In the capital gearing
ratio, it is decreasing while comparing both the years as it is not good for Dalata Group.
While doing a comparison of the ratio whether it is gross and net profit and both also
decreasing and this denotes that company is not having a good position in the market.
Conclusion
From the above, it has been determined that after computing the ratios, analysis done and
from that, it has been identified that company is not having good performance in the market
because gross and net profit of the company is decreasing. So, stakeholders cannot invest
their amount in the company.
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Task 4
4.1 Analyse sources and distribution of funding for the development of capital projects
associated with tourism.
Sources and distribution
of funding for the
development of tourism
sector.
Internal funding sources:
These are those funding sources
which are provided by the
employees of the business entity.
it includes the stakeholders,
employees or manager as well as
business owner. Investors are
those individuals who offer the
funds to the organisation. This
makes a profit from their
investments. Financial statements
of the company assist in
distributing the profit of the
company (Detzer, et. al., 2017).
External Funding sources:
These are those resources which
are provided by regulatory bodies
and they are providing the extra
funds which assist in
improvement or development of
tourism sector and by that they
can attract more visitors.
Capital Project:
Capital activities can
allude as fundamental
undertakings which are
made for the improvement
of movement and tourism
industry. Capital
undertakings incorporate
the foundation of the
movement and tourism
put (Kazak, 2017). For the
advancement of the
capital undertakings, there
will be a higher necessity
of back and supports.
There are some key
segments in the capital
activities in the tourism
and travel industry which
are given beneath that the
employees need to
manage infrastructure
management which assists
in attracting visitors.
Along with this, the
company have to provide
effective transportation
Introduction
In this task, discussion to
be done on diversified
sources which assist in
collecting funds for the
public as well as non-
public tourism
development. Along with
this, they have to analyse
the distribution of funds in
an appropriate manner
(Veal, 2017).
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Figure 1: Sources of finance
Source: (Bakshi, 2018)
facilities to the customers
so that they can attain the
best experience (Kazak,
2017).
Conclusion
From the above, it has
been analysing that the
employees who are
working for the
development of tourism
need to collect appropriate
sources of funds which
help in fulfilling the
requirement. All the
resources of funds provide
the effective contribution
which assists in attaining
success.
Public resources:
Open assets are given by local
people who are occupied with
contributing in regards to the
improvement of tourism. At the
point when there will be some
capital venture composed, the
nearby open can give some
subsidizing as per them. For this
commitment, nobody can impact
local people to contribute their
cash; it absolutely relies on them
to put resources into the
improvement of movement and
tourism segment (Mowforth and
Munt, 2015).
Sources of Funding:
The funding sources of
the company can be
internal or external and it
assists in improving the
facilities which are
provided to the visitors.
They can also collect the
funds from the capital
projects (Egolum, et. al.,
2017).
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Conclusion
From the above report, it has been concluded that the employees of Carnival Plc need to
manage their funds as well as fulfil the needs of consumers. They have to manage the cost
along with the volume as it affects the profit of the company. They have to manage all cost
whether it is direct or indirect, fixed or variable as it assists in generating more revenue. The
top-level managers of Dalata group need to present their financial accounts in a proper and
appropriate manner to the stakeholders. This will help them in making the correct and
appropriate decision that they have to invest in the company or not. From the above
calculation, it has been analysed that stakeholders cannot invest in the company as Dalata is
not having a good position in the market. The employees have to collect funds by using
appropriate sources whether it is internal or external which help in improving the tourism
sector.
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