Merlin Entertainments Financial Analysis

This assignment provides a comprehensive review of Merlin Entertainments' financial performance. It analyzes the company's revenue, return on capital employed, and administrative cost to sales ratio. The results show a decrease in return on capital employed and an increase in revenue, indicating potential areas for improvement. A summary of the key findings is presented, highlighting the importance of proper decision-making and investment strategies for the company's success.

FINANCE AND FUNDING
IN TRAVEL AND TOURISM
SECTOR

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Importance of costs and volume in financial management of travel and tourism............1
1.2 Pricing methods used in travel and tourism.....................................................................3
1.3 factors influencing profit for travel and tourism..............................................................4
TASK 2............................................................................................................................................6
2.1 Types of management accounting information................................................................6
TASK 3............................................................................................................................................6
3.1 Interpret financial accounts..............................................................................................6
TASK 4............................................................................................................................................8
4.1 Source and distribution of funding for developing capital projects.................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Finance is necessity for the smooth running of an organisation. It includes planning,
controlling, organising and decision making. Tours and travel organisations needs funds for their
functioning and overcome with the expenses occurred while travelling. providing desirable
satisfaction to the consumers with a reasonable amount of charges. Merlin Entertainments is
severing their customers with memorable and unique experiences while travelling with the help
of the passionate and dynamic team. Adequate amount of funds and proper acquisition of
accounts are very essential for this business. It will be beneficial for the organisational economic
growth and rise their standard of living and can be fruitful in reducing the financial stress.
TASK 1
1.1 Importance of costs and volume in financial management of travel and tourism
Organising the travel industry without financial support the business will not run
smoothly. There will be many conflicts occurred in satisfying consumers. There must proper
maintenance of accounts as it will reflect the actual financial conditions of the organisation's
expenses and revenues (Brigham and Houston, 2012). The professionals in managing role should
be much conscious about the essential costs to be paid and how they can provide the adequate
consumer services.
Importance of Cost-volume-profit analysis: It describes contraction between cost,
price, profit and volume. It is a helpful tool in planning or forecasting budgets for organisations.
This tool will be fruitful for Merlin Entertainment in context with its insight or interrelationship
factors with which the revenue and profit of the firm is influenced and helps in building the
revenue structure. Organisation advances satisfactory services to tourists that there will be
increase in the number of consumers and effectively lower downs cost occurred on facilitating
services. If costs reduce then volume of funds will raise (Rubin and Babcock, 2013). It helps in
determining or identifying the maximum volume of sales as to reduce losses or targets of
business to be achieved.
Cost management: Is a process where an organisation plans or predict the costs of
product. These can be the predictions by managerial heads of entity which helps in managing
expenditures going to occur on providing services or the operation process of Merlin
Entertainments. Need of cost management is that it allows budgeted method of performing the
operations and here managers has to decide various strategies that will be helpful in working in
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the budgeted limit. It is fruitful in controlling the expenditures of organisation and improves the
profitability (Kim and Krishnan, 2009). It provokes managers to make frequently changes in
policies and techniques that will help in attaining the goals of business.
Allocation of cost: Managers of an organisation makes allotment of costs to essential
operations of the organisation. This is to process at which accounting professional of Merlin
Entertainments plans costs for each services they are going to facilitate their tourists before
commencement of tours. This method is useful in assigning the costs or identifying necessity of
cost to particular task. Here the firm need to allocate funds or budgets for the services they are
offering to their consumers (Deegan, 2013). It will be related with transportation,
accommodation and food security to clients. Employment requirement for the tasks are also the
prime requirements as they are the main or responsible professionals who has direct contraction
with organisational consumers. This helps managers in making the adequate expenditure on the
particular course of work with consideration in providing satisfactory services to tourists. The
costs can be variably changed over various departments there must be better look over the
expenses done in the premises as to meet the targeted goals of the organisation. For adequate
generation of funds and finance to business there is need to make several changes into the
services provided to consumers or employees. There is need to make budgets before planning or
organising any tour (Macintosh and Quattrone, 2010). The number of consumers and their
travelling destination must be satisfying and discussed with them. Appointment of employees as
according to requirement and their capabilities to perform the tasks.
Break even analysis: Analysis provides information where the cost occurred for
particular operations meets with gains of organisation. It includes cost of salary and wages of
their employees by fixing their remuneration scale. Merlin Entertainments can be benefited with
such analysis as the managers will have adequate knowledge regarding costs they have allocated
for each piece of work. Pay-offs to their employees and installation advanced technologies will
help the organisation in making the adequate changes in the managerial decisions. Expenses
market over each tours must be equal or less than the gains acquired by entity. Break even
technique helps in frequently analysing profitability of organisation and making adequate
changes to such operations (Yuan, 2009). It helps the managers in making favourable financial
decisions and that will be helpful in achieving the attainable aims of firm. Employees or workers
in travel department must be talented and appointed on the fixed amount of remuneration as per
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their duties. They must be paid adequately as they can meet daily expenses and salary must be
adequate for their economic conditions (Zimmerman and Yahya-Zadeh, 2011). Here the firm can
meet to its break even point if there will be changes in managing
1.2 Pricing methods used in travel and tourism
Pricing techniques helps in acquisition and analysing all the expenses or revenue
occurred in the accounts of the organisation. It is fruitful in developing new plans and deciding
where to control the expenses (Kim and Krishnan, 2009). Generally, the costs rise in travelling
due to the travel charges, bills of hotels, restaurant charges etc. Merlin Entertainment should
adopt the various techniques, this can be in under control as if the proper methods used to control
the pricing which includes:
Cost based pricing: This method refers to a technique at which the percentage of
expected profit that can be added to the cost of production to be obtain the final price. Further, it
can be said that in this method a percentage amount of total cost of production is added to the
cost of product to analyse the selling price.
Rack rates pricing: This pricing technique means the full rate prices. Before providing
any discount to the consumers they will be charged fully for the expenses going to be occurred in
travelling in season. Organisation charged full amount for the activity and attraction operations
without charging on the daily basis (Kim and Krishnan, 2009). Merlin Entertainments can gain
more benefits in applying this methods in deciding the prices for the expenses going to be held in
travelling. There is no need to give discount to the consumers on daily basis otherwise charge the
whole amount at once.
Seasonal pricing: Seasonal variations creates the changes in the travelling process of
individual. During the peak seasons, the number of tourists rises so this will be a favourable
chance for Merlin Entertainment to increase the charges on packages (Deegan, 2013). The
seasonal period includes, school holidays, local events, national holidays, festive season and the
change in the climate like winters, rainy season etc. This will be fruitful in running the business
in the peak period and the pricing will generate more funds.
Last minute pricing: The prices for the tour package is decided at the last movement.
Apart from daily discounting there will bookings on the last minute on the websites provided by
Merlin Entertainments. This can be beneficial for the consumers as the charges on air ticket
reduced at the last minute.
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Discounting: A reduction can be provided to the consumers on the prices implied in tour.
Discounting can be beneficial for the tourists to travel the location the locations at very lower
cost (Deegan, 2013). Merlin Entertainments should provide reduction to the consumers if the
season of peek time is running. This can be beneficial for this organisation in retaining costumers
and eventually it will be helpful in generating funds.
Package Deals: Deciding a package with the organisation providing the best dealing to
the consumers. The complete package will help the costumers in knowing all the places to visit,
hotels, travelling method and the total duration of the tour (Arnold, 2013). This is very time
saving process and will be beneficial for Merlin Entertainments to generate a good amount of
fund.
Commission: Many a times the booking can be done by the involvement of third party.
This are known as agents to the organisations (Arnold, 2013). They generate consumers by
convincing them through direct telephonic conversation or face to face interactions. They discuss
the whole package with them and provides details about the tour. Providing commission to them
is a expense for Merlin Entertainments but it will resultantly generates costumers for the tour.
1.3 factors influencing profit for travel and tourism
Travel and tourism industries are highly influenced by the macro and micro
environmental barriers (Arnold, 2009). This can be economic obstacle including difference in the
currency of one country to other, the cultural variations and several challenges face by the
organisations. Merlin Entertainment is operating in 23 countries and have faced many cultural or
social obstacles and changes in the currency. There are some factors mainly includes:
Events: Events at any location can be faced by the individuals are like national holidays,
festival, championships and tournaments of sports. These events can minimise or maximise the
number of tourists (Kim and Krishnan, 2009). National holidays can be beneficial for the citizens
of any country they can plan their holidays with their family and friends. The championships or
tournaments at various places can be helpful in generating more tourists. People like to watch
their favourite team or players playing in any match, they will pay the travelling charges, hotel
charges and the tickets for the stadium. It will be fruitful for the Merlin Entertainments and also
for the country. There will be sudden growth in the profits and economic level.
Season: The changes in the rates of travelling, prices implied by the hotels at various
locations are mainly occurred due to changes in seasons. It can be measured by the scale of low
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and high seasons, the low season brings lower rates of flights and also with the hotels and
restaurants (Macintosh and Quattrone, 2010). Reciprocally the peak season can generate more
tourists and the charges on the flights and expenses occurred on the travelling from one place to
another also increased. Merlin Entertainment can play favourably in this context and can use
some techniques in setting the prices on the peak period. The seasonal variations can be fruitful
in generating more funds and that will increase the financial conditions of the organisation.
Currency rates: The fluctuation in the currency rates of any country can affect the
financial strength of the travel organisation (Macintosh and Quattrone, 2010). There are several
differences in the currency of any country, while travelling from one nation to another where
these obstacles are mainly faced by the tourists. It can directly affect the numbers of consumers.
The sudden rise in the exchange rates can be a loss for Merlin Entertainment, they can be faced
the changes in the prices of flights and in hospitality sector.
Development: Developing cities or countries attract more tourists as it can be beneficial
for such nations as they can serve the tourists the luxurious experiences in the hospitality sector.
There can be interest is paid by the royal consumers it can be fruitful in organising the tours at
such places (Yuan, 2009). The program fixed to such places brings enough funds from the
consumers and the economy of Merlin Entertainment can be rises.
Government support: The budgets provided by the governments to the travel industries.
They are the main source of generating finance funds or the organisations. Government of
various locations plays the main role in generating more consumers by securing their historical
areas with the proper maintenance (Yuan, 2009). Tourists those who have keen interest in
knowing and elaborate the ancient places will feel beneficial in travelling such places which are
properly maintained.
Travel trends: The travel trend varies at the different places and variations in the
preferences of the consumers like some travellers like to visit the hill stations and have interest in
doing adventure in their tour. Other individuals preferred exotic beaches, these are the several
trends which influences the consumers to go and visit such places (Arnold, 2009). Merlin
Entertainment must provide packages for all kinds of travellers. This can be beneficial for them
in generating more consumers and eventually it will increase the funds for the organisation.
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TASK 2
2.1 Types of management accounting information
Enclosed in ppt.
TASK 3
3.1 Interpret financial accounts
Table 1: Calculation of Ratios for The Restaurant Group
Particulars Formula 2014-15 (GBP in
Millions)
2015-16 (GBP
in Millions)
Increase /
Decrease
Current Assets Current Assets /
Current liabilities
38 50 12
Current Liabilities 136 140 4
Current Ratio 0.28 0.36 0.078
Quick Assets Quick assets /
Current liabilities
17 28 11.000
Current Liabilities 136 140 4.000
Quick Asset Ratio 0.125 0.2 0.075
COGS COGS / Average
inventory
81.49 99.6 18.110
Average Inventory 1.33 1.345 0.015
Stock turnover Ratio 61.27 74.05 12.781
Debt Debt / Equity 6.52 8.97 2.450
Equity 60.58 49.61 -10.970
Debt Equity Ratio 0.11 0.18 0.073
Net sales Net sales / Fixed
Assets
685 711 26.000
Fixed assets 430 372 -58.000
Fixed Asset turnover
ratio 1.59 1.91 0.318
Long term liabilities Long term
liabilities / Capital
employed
48 73 25.000
Capital employed 332 282 -50.000
Capital gearing ratio 0.14 0.26 0.114
Operating profits Operating profit /
Capital employed
89 -38 -127.000
Capital employed 332 282 -50.000
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Return on capital
employed 0.27 -0.13 -0.403
Administration cost Administration
expenses / sales
38 33 -5.000
Sales 685 711 26.000
Administration cost to
sales 0.055 0.046 -0.01
Interpretation of ratio analysis:
The current ratio has increased from, 0.28 to 0.36, which shows an increase 0.078, a
strong current ratio indicates that the company is in position to pay its debts. An increase in
current ratio estates that the business's liquidity position is strong and it is in position to pay back
its short and long-term debts (Arnold, 2009). The quick ratio has also taken a hike of 0.125 to
0.2, increased by 0.075 which states that business has enough highly liquid and can pay its short-
term debts easily. The stock turnover ratio is increasing from 61.27 to 74.05, increment of 12
which implies that ratio is showing a strong point. A strong Stock turnover ratio says that the
sales of the business is high and in an increasing trend.
The debt equity ratio has increased from a 0.11 to 0.18 which shows an increase of 0.073.
A strong debt equity ratio indicates that the business is taking high risk. An increase in debt
equity ratio states that the business has added to its risk. The fixed-asset turnover ratio is
commonly used in manufacturing industries that make substantial purchases for PP&E in order
to enhance output (Deegan, 2013). The fixed asset turnover ratio is increasing by 0.318, from
1.59 to 1.91. A high fixed asset ratio indicates efficiency in managing the fixed assets. An
increase denotes a greater efficiency in the efficiency of managing fixed assets in the
business. Capital gearing is the extent to which a business acquires its assets or does funding of
its ongoing operations with its and short and long-term debts. The capital gearing ratio 2014-15
year was 0.14 and it increased to 0.26 in the next year with an increment of 0.114. An increase in
capital gearing ratio indicates that business has acquired assets or has been funding through long
or short-term debts.
The return on capital ratio has decreased from 0.27 to -0.13, which marks a decrease by -
0.043. The decrease in return on capital ratio indicates that business is not earning enough on
capital employed which leads to an overall fall in the profitability of the business (Zimmerman
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and Yahya-Zadeh, 2011). The administration cost to sales ratio has decreased by -0.009 which is
from 0.055 to 0.046. A decrease in its trend indicates that the overhead cost has decreased in the
administrative department of the business which result in increase in the overall production of
the business.
TASK 4
4.1 Source and distribution of funding for developing capital projects
Enclosed in poster.
CONCLUSION
Conclusion can be made as per the above discussion; Merlin Entertainments can generate
funds or have a good financial support with the help of making several changes in the operating
functions of the organisation. There must be proper decision-making by the professional heads as
to improve the services and facilities provided. Further, there must be revolution in the travels
and tours industries and they have to make better packages that will attract the travellers and
eventually generates investments.
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REFERENCES
Books and Journals
Arnold, G., 2013. Corporate financial management. Pearson Higher Ed.
Arnold, P., 2009. Global financial crisis: The challenge to accounting research. Accounting,
organizations and society. 34(6). pp.803-809.
Bazerman, M. H. and Moore, D. A., 2008. Judgment in managerial decision making.
Brigham, E. F. and Houston, J. F., 2012. Fundamentals of financial management. Cengage
Learning.
Deegan, C., 2013. Financial accounting theory. McGraw-Hill Education Australia.
Kim, J. and Krishnan, R., 2009. Novel two-switch-based switched reluctance motor drive for
low-cost high-volume applications. IEEE Transactions on industry applications. 45(4).
pp.1241-1248.
Macintosh, N. B. and Quattrone, P., 2010. Management accounting and control systems: An
organizational and sociological approach. John Wiley & Sons.
Rubin, O. D. and Babcock, B. A., 2013. The impact of expansion of wind power capacity and
pricing methods on the efficiency of deregulated electricity markets. Energy. 59. pp.676-
688.
Vardakas, J. S., Zorba, N. and Verikoukis, C. V., 2015. A survey on demand response programs
in smart grids: Pricing methods and optimization algorithms. IEEE Communications
Surveys & Tutorials. 17(1). pp.152-178.
Yuan, F. C., 2009. The use of a fuzzy logic-based system in cost-volume-profit analysis under
uncertainty. Expert Systems with Applications. 36(2). pp.1155-1163.
Zimmerman, J. L. and Yahya-Zadeh, M., 2011. Accounting for decision making and control.
Issues in Accounting Education. 26(1). pp.258-259.
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