Tourism Finance and Management

This assignment delves into the financial underpinnings of tourism enterprises. Students will examine various sources of external financing available to tourism businesses, analyze the significance of financial statements in evaluating performance, and explore how Management Information Systems (MIS) contribute to effective decision-making within the sector.

FINANCE AND FUNDING IN
TRAVEL AND TOURISM
SECTOR

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
A. Examining concept of CVP analysis along with its importance in financial management of
EUROCARIB..............................................................................................................................1
D1.................................................................................................................................................2
B. Analysing pricing methods used for identifying price to charge every tourist.......................3
C. Analysing factors which influence profit of Eurocarib would earn on holiday trip...............4
TASK 2............................................................................................................................................4
A. Explaining various types of management accounting information used in Eurocarib...........4
B. Assessing application of investment appraisal techniques as tool of decision making..........6
TASK 3............................................................................................................................................9
A. Interpreting financial statements with application of profitability, investment and liquidity.9
TASK 4..........................................................................................................................................12
A. Analysing sources and funding distribution of funding........................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Finance is considered as process of getting money or capital with objective of business
and usually it is given through various financial institutions such as banks and other agency of
lending. Funding is actual money given through organization or through government sector with
specific objective. The present report will give brief discussion about finance and funding in
sector of travel and tourism with reference to Eurocarib tours. This is London based European
tour operator which is focussing on Caribbean holidays. This report would be signifying concept
of CVP analysis along with various methods of pricing. It will represent factors which influences
the margin of Eurocarib business. Further, it will articulate about various types of management
accounting information and application of investment appraisal techniques. In the similar aspect,
it will interpret financial statements and analysing various sources of finance.
TASK 1
A. Examining concept of CVP analysis along with its importance in financial management of
EUROCARIB
Cost volume profit analysis is referred as cost accounting method which observes impact
which varies level of volume and cost of operating profit. It studies interrelationship among cost,
price, volume and profit as it is contribution of marginal costing. It identifies alterations in
volume and cost impact on their net income and operating expenses. With breakdown of cost in
fixed and variable, CVP analysis provides organization as strong insight about products and
service's profitability. Eurocarib uses CVP analysis for making various information related to
services and products which are sold. In the similar aspect, it plays huge role in managerial
accounting as it highly focus on helping managers and task while operating business which
makes cost effective and smart moves. However, financial accounting lays special emphasis on
framing company's economic picture to outside parties like investors, banks and customer and to
identify its financial health (Camilleri, 2018).
It considers three elements such as cost, volume and profit where cost is expenses
engaged in producing or selling product or service. Volume is replicated by produced number of
units in physical product along with amount of sold service. Further, profit is replicated as
variation among product's selling price minus produced cost for giving it. CVP analysis helps in
providing overview of planning process of margin. It helps for evaluating reasonableness and
purpose of these forecasts and budgets and essential for profit and budget planning. It identifies
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maximum volume of sales for avoiding losses where objective of profit could be attained. This
analysis forecast and evaluate implications of short term decisions of Eurocarib on basis of
marginal and fixed cost, selling price and volume of sales for planning about profit on
continuous aspect.
Graphical presentation of CVP
X axis: Number of units
Y axis: Cost in pounds
D1
Particulars Figures (in £)
Fixed cost 120000
Desired profit margin 30000
Selling price per unit 1250
Variable cost per unit 400
Contribution 850
Break even (Fixed cost/ contribution) 141.17
Number of tourists need to be served for getting (120000 + 30000) / 850
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desired profit margin = 176
B. Analysing pricing methods used for identifying price to charge every tourist
Eurocarib has numerous options for choosing method of pricing. In the present scenario,
prices are associated with context of three dimensions such as demand, competition and cost.
This travel and tourism business could imply any dimensions or mix for setting product's price.
The types of pricing methods are stated below:
 Market oriented pricing: It is also replicated as competition based strategy as it
provides comparison of similar products which are directly offered in market. It has huge
involvement on basis of pricing with competition instead of considering demand of
consumers along with owns cost. The target market had been considered and need of
researching and analysing that market. This pricing method keeps price competition
down else it will damage business with setting of high pricing. The price set up could be
directly based on price of its competitor and allows for losing market share (Fahimi and
et.al., 2018).
 Cost led pricing: This pricing method has engagement of setting price on basis of
producing cost, selling and its distribution. Eurocarib adds fair rate of return for purpose
of compensating with context of risks and efforts. In case reducing cost on continuous
aspect, the organization must be capable for setting lower prices. Certainly this will
directly lead toward less margin but huge sales and profits but even organization along
with huge prices might directly rely on this cost led pricing.
 Penetration pricing: It is replicated as technique of pricing for setting low primary entry
price which is lower than compared for intending established price for purpose of
attracting innovative consumers. Its main objective is for encouraging consumers for
switching innovative product due to lower price. This method of pricing is directly linked
with objective of marketing as it helps in raising sales volume and market share.
From analysing various strategies of pricing, Eurocarib has applied market oriented
pricing. As in this competitive world, there are various factors which helps to gain competive
edge so in this aspect it will provide appropriate control to business in heavy competition. This
strategy would delight consumers of Eurocarib who are highly price sensitive as it would be
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providing capabilities for competing in better aspect in industry for maximising margin along
with each alteration in pricing.
C. Analysing factors which influence profit of Eurocarib would earn on holiday trip
In the present scenario there are various factors which influence margin of Eiurocarib to
earn on holiday trip such as seasonal variations, economic, social and political environment
along with recent trends and bad debts.
 Seasonal variations: There are different destinations for travel and tourism products
with presence of single set of low or high seasons. It has been identified that low season
brings lower rate, less interest along with cheaper flights. Further, in high season, every
associated cost with travel for area of increment with spent marketing dollars. The
tourism boards and suppliers would directly stack for different marketing plans along
with heavy and light season spend on budget. In the similar aspect, it will impact amount
of marketing which is undertaken in each period along with type of marketing used
(Ahmad. and Adaoglu, 2018).
 Economic factors: These might provide major impact in industry of tourism locally and
globally as well. There are various fluctuations in local and global economies which
could impact demand and supply level in tourism areas. During recession, tourism
demand is impacted at global scale. There is presence of different favourable economic
situation which will lead to favourable demand for services of tourism in global aspect. If
employment and economic activity would lead for less consumption of services of
tourism due to force for cutting extra cost along with employment level has decreased
worldwide.
 Travel trends: Travel is considered as other activity as it had been developed through
one year to next for identifying market in method of marketing products. Trends could be
based on kinds of destination which are in vogue such as exotic beaches or certain niche
travel which are highly popular such as destination weddings along with golf vacations
and spa. In the similar aspect trends are framed through travel media and tourisms
surveys which are appropriately monitored through Eurocarib's marketing professionals.
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TASK 2
A. Explaining various types of management accounting information used in Eurocarib
Eurocarib would be using various types of management accounting information as it had
unique aspect of running business as it also helps for decision making. These systems help in
producing goods at low cost along with huge margin. The types of management accounting
information are stated below:
 Management information system (MIS): It helps to employ information technology for
communicating and gathering every information to organization uses for operating it.
Every department of Eurocarib generates its own financial and operational data as its
outcome has presence of own information system for keeping appropriate track (Types of
Management Information Systems, 2018).
 Financial statements: These are reports which are formed by Eurocarib's management
for reflecting financial position and performance at specific point. It comprises balance
sheet, profit and loss statements, cash flow and statement of owner's equity. The profit
and loss statement provides information about capability of business for producing
margin as it reveals about sales volume along with nature of different kinds of expenses
as it depends on its total information.
Statement of balance sheet informs reader with context of current status of
Eurocarib on its due date as it is used for measuring funding, liquidity and position of
debt in business entity. Furthermore, cash flow reflects nature of cash disbursements and
receipts through various categories. It is considerable used as cash flows does not match
with expenses and revenue in profit and loss statement (What are Financial Statements,
2018).
 Budgets: It is estimating expenses and revenue of specified duration as it is re-evaluated
and compiled on periodic aspect. The application of budget helps in understanding and
limiting spending of money in specific operations of Eurocarib. It is monitoring and
managing profit and loss on timing related as its estimated outcome is expected for
happening at similar aspect in the future. In simple words, the estimated outcome will not
happen in permanent activity. Eurocarib would be using budget which helps in
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forecasting the upcoming trend related to business. In the similar aspect, it will be
determining current issues and extract the methods for resolving it.
 Variance analysis: It is quantitative investigation of variation among actual and
budgeted behaviour. It is helped for maintaining control over the business.
B. Assessing application of investment appraisal techniques as tool of decision making
Investment appraisal techniques are referred as process of planning used for identifying
that Eurocarib's long term investments like new machinery, plants and products are worth for
cash funding. For instance, Eurocarib has undertaken initial investment of 150000 for 5 years at
13% cost of capital so it will apply various investment appraisal techniques for selecting one
project such as:
Net present value
Computation of NPV (Project 1)
Year Cash inflows PV factor @ 13%
Discounted cash
inflows
1 57750 0.885 51106
2 70350 0.783 55094
3 61950 0.693 42934
4 75600 0.613 46367
5 88200 0.543 47871
Total discounted cash
inflow 243373
Initial investment 150000
NPV (Total
discounted cash
inflows - initial
investment) 93373
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Computation of NPV (Project 2)
Year Cash inflows PV factor @ 13%
Discounted cash
inflows
1 59482.5 0.885 52639
2 72460.5 0.783 56747
3 63808.5 0.693 44222
4 77868 0.613 47758
5 90846 0.543 49308
Total discounted cash
inflow 250675
Initial investment 150000
NPV (Total
discounted cash
inflows - initial
investment) 100675
Interpretation: Project 1 and 2 both are giving positive outcome but project 2 will be
accepted as it is giving high returns. It had also considers time value of money and beneficial to
organization as well (Meseko, Obieje and Karpenko, 2018).
Accounting rate of return
Computation of Average rate of return (Project 1)
Year Cash inflows
1 57750
2 70350
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3 61950
4 75600
5 88200
Average profit or cash inflow 70770
Average initial investment 150000
average initial investment [(initial investment +
scrap value) / 2]
ARR 47%
Computation of Average rate of return (Project 2)
Year Cash inflows
1 59482.5
2 72460.5
3 63808.5
4 77868
5 90846
Average profit or cash inflow 72893.1
Average initial investment 150000
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Average initial investment [(initial investment +
scrap value) / 2]
ARR 49%
Interpretation: The above table is reflecting average annual return of both projects as
there is cut throat competition among both projects. Project 1 is providing 47% return and project
2 is 49% so Eurocarib will be giving first preference to huge return (Tung, Law and Chon.,
2018).
Payback period
Computation of Payback period (Project 1)
Year Cash inflows Cumulative cash inflows
1 57750 57750
2 70350 128100
3 61950 190050
4 75600 265650
5 88200 353850
Initial investment 150000
Payback period 2
0.4
Payback period 2 year and 4 months
Computation of Payback period (Project 2)
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Year Cash inflows Cumulative cash inflows
1 59482.5 59482.5
2 72460.5 131943
3 63808.5 195751.5
4 77868 273619.5
5 90846 364465.5
Initial investment 150000
Payback period 2
0.3
Payback period 2 year and 3 months
Interpretation: The most essential investment appraisal technique is payback period
which reflects duration for recovering its initial investment. As in project 1, initial investment of
150000 is covered in 2 years 4 months and project 2 would be covering in 2 years and 3 months.
Eurocarib would be choosing project 2.
Hence, these investments' appraisal techniques are decision making tool which helps as
decision making tool as it is used for comparing trend, forecasting and deviations should be
corrected. It also helps in setting criteria such as profitability, accomplishing budgets and
objectives as well (Bahreini and Adaoglu, 2018).
TASK 3
A. Interpreting financial statements with application of profitability, investment and liquidity
Thomas Cook
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Profitability ratio analysis
2016 2017
Gross Profit 852 937
Net profit 12 13
Sales revenue 7812 9007
Earnings before interest and tax or
operating profit 236 267
Capital employed 366 281
Net income 12 13
Average total assets
GP ratio Gross profit / sales * 100 10.9% 10.4%
NP ratio Net profit / sales * 100 0.15% 0.14%
Return on capital employed EBIT / capital employed 64.48% 95.02%
Interpretation: The above table is reflecting profitability analysis of Thomas cook which
is one of the known organization of travel and tourism industry. It had represented gross profit,
net profit and return on capital employed of year 2016 to 2017. Its gross profit and net profit is
decreasing by small proportion but on contrary, it is earning huge return on employed capital
from 2016 to 2017 as 64.48% to 95.02% (Buckley, 2018).
Liquidity ratio analysis
2017 2018
Current assets
2,65
6 2,241
Current liabilities
4,63
0 4,325
Inventory 43 42
Prepaid expenses 340 401
Quick assets 2273 1798
Current ratio Current assets / current liabilities 0.57 0.52
Quick ratio
Current assets - (stock + prepaid
expenses) 0.49 0.42
Interpretation: The above table is signifying liquidity of Thomas cook with context of
current and quick ratio. These both parameters are not appropriate for fulfilling short term
obligations for long and short term aspect as well.
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Solvency ratio analysis
Long-term debt 847 1047
Shareholder's equity 366 281
Debt-equity ratio Long-term debt / shareholders’ equity 2.31 3.73
Interpretation: The above table is stating capital structure of Thomas cook as it was 2.31
in year 2016 and raised to 3.73 in year 2016 which shows that debt has been raised for financing.
Efficiency ratio analysis
2017 2018
Cost of goods sold 6960 8070
Average Inventory 37.5 42.5
Turnover or sales revenue 7812 9007
Average total assets 6,457 6,785
Average fixed assets 4,111 4,337
Stock turnover ratio (In times) 185.6 189.9
Total assets turnover ratio 1.2 1.3
Fixed assets turnover ratio 1.9 2.1
Interpretation: The above table is showing efficiency of Thomas cook from year 2016 to
2017 with context of inventory, total assets and fixed assets turnover ratio. Its inventory turnover
is increasing which is warning signal but on contrary, its fixed asset and total asset turnover is
raising is positive sign (Gogstad, Kutan and Muradoglu, 2018).
Investment ratios
2016 2017
Earnings per share
(Net income - preferred dividend) /
Number of shares outstanding 0 0.01
Interpretation: The above table is signifying investment ratio with context of earning per
share which was 0 in 2016 and in 2017 it raised to 0.1 which is positive signal to organization.
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TASK 4
A. Analysing sources and funding distribution of funding
Internal sources of funds
It suggests finance or capital's nature which is produced internally through business not
as loan which is arranged externally through financial institutions or banks. The internal sources
of fund are:
 Retained profit: It is considered as very significant and important source of finance
which is established for profitable business. If Eurocarib will produce net profit then it is
choice of owner that it had to extract through business as method of dividend or to
reinvesting it. This could be featured as fixed interest burden along with instalment
payments such as capital borrowed.
 Sale of asset: Eurocarib could sell off its assets and produce cash which is used internally
for purpose of funding through capital requirements. It might be best source for short and
long term finance.
 Decrement in working capital: Eurocarib has need of two types of finance such as
working capital for regular needs and long term finance for capital expenditure. The
working capital could be decreased by raising cycle of stock and accounts receivable or
through increasing cycle of trade payables. It helps in saving on interest cost, savings on
bank charges along with streamlined operations (Thomas, 2018).
External sources of funds
These sources of funds are generated from outside business as it also suggests nature of
finance and capital. The external sources of finance are:
 Equity shares: This is considered as common source of finance for organization like
Eurocarib as is directly governed through legislation. It shares rights of ownerships along
with shareholder's rights which are directly diluted at some extent. It is expensive as
compared to debt finance due to return in dividend form and in similar aspect, bonus
shares are offered to shareholders which are not tax deductible (External source of
Finance, 2018).
 Debentures: These are common mode of fund used by various organization and even
Eurocarib will also give first preference to debt over equity. It is replicated as cheap
source of finance as it does not share investors control due to paid interest on debenture
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holders which are tax deductible. Further, issuing debenture process in same for issuing
equity.
 Term loan: It is similar in context of debentures as it does not consider high cost of
issuing due to provided through financial institutions and bank. In this source, common
public is not engaged as these loans are directly secured through some assets.
 Bank overdraft: It is referred as simple mode for financing for short term. Eurocarib has
requirement of money for their regular operations which arises because of time gap
among payments and collections. These requirements are fulfilled as bank overdraft are
ideal with context of finance for short term (Seyfi, Hall and Kuhzady, 2018).
CONCLUSION
From the above study it had been concluded finance and finding plays essential role in
any business as it had shown elaboration by considering Eurocarib's tours. It had shown that
CVP analysis plays very important role with impact of volume alteration in cost, income and
revenue. In the similar aspect, it had reflected different decision making tools in which payback
period has shown huge importance for recovering its initial investment. It could be summarised
that there are different internal and external sources of finance which are important for business
operations.
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REFERENCES
Books and Journals
Ahmad, W. and Adaoglu, C., 2018. Cash management in the travel and leisure sector: evidence
from the United Kingdom. Applied Economics Letters. pp.1-4.
Bahreini, M. and Adaoglu, C., 2018. Dividend payouts of travel and leisure companies in
Western Europe: An analysis of the determinants. Tourism Economics,
p.1354816618780867.
Buckley, R., 2018. Tourism and natural World Heritage: A complicated relationship. Journal of
Travel Research. 57(5). pp.563-578.
Camilleri, M. A., 2018. Nurturing travel and tourism enterprises for economic growth and
competitiveness. Tourism and Hospitality Research. 18(1). pp.123-127.
Fahimi, A., and et.al., 2018. Testing the role of tourism and human capital development in
economic growth. A panel causality study of micro states. Tourism management
perspectives. 28. pp.62-70.
Gogstad, M., Kutan, A. M. and Muradoglu, Y. G., 2018. Do international institutions affect
financial markets?: evidence from the Greek Sovereign Debt Crisis. The European Journal
of Finance. 24(7-8). pp.584-605.
Meseko, A. A., Obieje, D. I. and Karpenko, O., 2018. Tourism potential of the confluence
between river Niger and river Benue in Nigeria: implication for project finance. Journal of
Global Entrepreneurship Research. 8(1). p.6.
Seyfi, S., Hall, C. M. and Kuhzady, S., 2018. Tourism and hospitality research on Iran: current
state and perspectives. Tourism Geographies. pp.1-20.
Thomas, R., 2018. Professional Associations as Conduits of Knowledge: Ethnographic
Reflections. In Questioning the Assessment of Research Impact (pp. 47-65). Palgrave
Pivot, Cham.
Tung, V. W. S., Law, R. and Chon, K., 2018. Changing proxies for evaluating research
performance: what matters to university programme heads?. Tourism Recreation
Research. 43(3). pp.346-355.
ONLINE
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External source of Finance. 2018. [Online]. Available through
<https://efinancemanagement.com/sources-of-finance/external-source-of-finance-capital>.
Types of Management Information Systems. 2018. [Online]. Available through
<https://bizfluent.com/about-5194585-types-management-information-systems.html>.
What are Financial Statements. 2018. [Online]. Available through
<https://www.myaccountingcourse.com/accounting-dictionary/financial-statements>.
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