Financial Management in Tours and Travel Business - Desklib

This report explains the importance of cost, volume in financial management of travel and tours industry, pricing methods of The Akaglo Tours Company (ATC), factors affecting the profit of ATC on the holiday trip, different types of management accounting information and investment appraisal techniques used in ATC.

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Table of Contents
Introduction................................................................................................................................3
Task-1.........................................................................................................................................4
P1.1 Explain the imperativeness of cost, volume in financial management of travel and tours
industry using Tours and travel business?.................................................................................4
P1.2 Analysing the pricing methods of The Akaglo Tours Company (ATC)...........................5
P1.3 Analysing the factors affecting the profit of ATC on the holiday trip?.............................6
Task-2.........................................................................................................................................9
P2.1 Explain the different types of management accounting information that could be used in
ATC?..........................................................................................................................................9
P2.1 Assess the use of investment appraisal techniques as decision-making tools in ATC?....9
Task-3.......................................................................................................................................11
P3.1 Interpret travel and tourism financial accounts................................................................11
Ratio formula...........................................................................................................................14
Power point presentation..........................................................................................................15
Final results..........................................................................................................................17
Task-4.......................................................................................................................................19
P.4.1 Analyse sources and distribution of funding for the development of capital projects
associated with tourism........................................................................................................19
Conclusion................................................................................................................................20
References................................................................................................................................21

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Introduction
In this report, pricing strategy, ratio analysis tool and cost-volume-profit analysis have
been taken into consideration. The main focus of this company to evaluate the whether the
pricing strategy implemented and financial performance of ATC company is effective or not.

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Task-1
P1.1 Explain the imperativeness of cost, volume in financial management of travel and
tours industry using Tours and travel business?
In order to determine the tours and travel packages, cost plays an imprint role. The
cost of the tours and travel packages is accompanied by the direct, indirect, variable and fixed
cost.
Direct cost Indirect cost Variable cost Fixed cost
The cost which is directly
related to the tour
expenses.
Example- payment to
labour and staffs
The cost which is not
directly related but as
much important as direct
cost.
Example- Payment for
advertisement.
It is the cost which varies
with the changes in total
revenue of the company.
Example- tours operation
units
It is the cost which is
fixed in nature and
does not vary with the
increased units.
Example- Supply chain
cost
Lighting and contract
expenses.
CPV analysis of ATC
 It establishes the relationship between cost-volume and profit of the company.
 The CPV analysis is used to lower down the cost of tour packages and
increase the return on capital employed (Chen, Tsai, & Liu, 2018).
Importance of cost in the financial management decision making
It helps in determining the break-even point of the business.
It assists in reducing the overall price of the tours and travel packages.
It is also used to pre-determine the profit of the business.
Importance of volume or tours and travel packages units in the financial management
decision making
 It is used to determine the contribution per units of the total sales units.
 It helps in determination of the margin of safety of the business.

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P1.2 Analysing the pricing methods of The Akaglo Tours Company (ATC)
The pricing strategy is used to increase the overall profitability of the company. There are
several pricing strategies which are given as below.
Market leading pricing strategy
Penetration pricing strategy- This strategy is used to penetrate the market with the low
price of tours and travel packages.
Price skimming strategy- This pricing skimming strategy is used by branded tours and
Travel Company to sell its high-quality packages at the high price.
Profit-oriented pricing strategy
Rival based pricing Client’s based pricing
In this pricing strategy, the price of the tours and travel
packages is set as per the rivals offering (Dalata,
Carnival, TUI group)
This pricing strategy is followed to increase the
overall market share by keeping the price of the tours
and travel low.
Return based pricing strategy
This pricing strategy is used to earn the stipulated profit from the business.
Costing based pricing
This pricing strategy is followed to sell the tours and travel operations at very low cost.
However, there are several companies which have followed different pricing strategy (Jacob,
2017).
Name of the company Price setting methods
Carnival Corporation Customer-based pricing
Dalata Penetration strategy
TUI Skimming strategy
Other small tours operators Cost leading pricing strategy

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P1.3 Analysing the factors affecting the profit of ATC on the holiday trip?
With the changes in economic, there are several factors which may impact the profit of ATC.
Economic factor
The GDP rate of the UK has increased by 2.47% which shows strong value creation of the
UK currency value on the international level. The increased inflation rate and strong
purchasing power of the people in UK is the positive indicator for the growth the tourism
busienss in UK (Taylor, 2017).
Support from government bodies
The UK government promotes the tours and travel business by providing capital funding to
tours and travel operations for their tourism operations. It increases the overall balance of
trade of the organization at large.
Seasonal based selling
It is analyzed that at the time of high peak season, the tours and travel operators keep their
tour package price high which shows the positive impact on the profit earning capacity of the
company.
Joint venture
Entering into the joint venture with the other companies will increase the overall tours and
traveling operation program and services in the market.
The case study shows that total cost of the tours and travel operation would be £ 6, 12,500.00
Cruise yacht and the beach
chalets
£
5,00,000.00
Meal cost £ 1,12,500.00
Total cost £
6,12,500.00
If this project is accepted then the profit would be £ 62,500.

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Computation of the profit
earned by ATC
Particular Amount
Total sales amount for 90 tourist
£
6,75,000.00
The total cost of the tour
packages
Cruise yacht and the beach
chalets
£
5,00,000.00
Meal cost
£
1,12,500.00
Total cost
£
6,12,500.00
Net profit
£
62,500.00
If ATC wants to earn £ 1, 00, 00 profits then it should not accept this project.

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Task-2
P2.1 Explain the different types of management accounting information that could be
used in ATC?
The below-given information shows the type of management accounting information of the
ATC.
Balance Sheet- It shows the resources and liabilities of the company (Jacob, 2017).
Cash flow statement- It reveals the inflow and outflow of cash in the business in the
particular year.
Budget- It is prepared with a view to estimating the future income and expenses of the
company. It assists in the arrangement of the funds and capital.
Variance analysis- It is described as quantitative analysis which is used to identify the gap
between actual and expected results (Jacob, 2017).
Implementation of the variance analysis to improve the existing performance
 Identify the gap in actual and expected results and assist management to identify the
improvement area.
 Reduce the amount of blockage of capital in the business.
 Prepare ATC to arrange the required capital in the business.
P2.1 Assess the use of investment appraisal techniques as decision-making tools in
ATC?
Investment appraisal tools assist in identifying and evaluating the available project and give
an idea of the project whether it should be accepted or not.
Net present value- It shows the positive present value of cash inflow over its present value of
cash outflow (Zhang, Cullen, & Kilpatrick, 2017).

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IRR- It reflects the % of the internal rate of return at which ATC will have zero net present
value.
Payback period- It divulges the period which will be required to collect the infused capital in
the business.
This above-given tool could be used by ATC tour and travel company to accept the particular
project. For instance, if a one tour package gives NPV of £ 1, 00,000 and other one give £
890000 then the first project should be accepted by company (Chen, Tsai, & Liu, (2018).

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Task-3
P3.1 Interpret travel and tourism financial accounts
The below-shown table reflects the financial accounts of the tours and travel operations
(Dhar, 2018).
Particulars 2017 2016
Current assets 98,771 1,62,278
Inventories / Stock 1,817 1,349
Current liabilities 68,821 56,238
Prepaid expenses 5,266 3,315
Average Inventory 1583 971
Sales revenue 2,90,551 2,25,673
Cost of sold (1,09,864) (86,907)
Credit Purchases
Gross profit 1,80,687 1,38,766
Net sales 2,90,551 2,25,673
Net profit 34,923 21,626
Capital employed 9,16,555 8,05,098
Interest (11,496) (10,363)
Total assets 9,85,376 8,61,336
Variable cost bearing capital 6,41,673 5,46,729
Fixed cost bearing capital 2,64,681 2,50,168
Administrative expenses 10 0
Computed
ratio
Applicable
formula 2016 2015
Discussion
Current ratio Current 1.435 2.886 This ratio shows that ATC

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assets /
Current
liabilities
corporation has decreased its liquidity
position by decreasing the overall
investment in the current asset
(Ozturk, et al. 2017).
Acid Test
Ratio
Current
assets –
(stock +
prepaid
expenses) /
Current
liabilities
1.332 2.803
The quick ratio has also decreased by
1 point which shows that company is
investing fewer amounts in its
operating assets.
Stock turnover
ratio
Cost of goods
sold /
Average
Inventory
(69.
40)
(89.
50)
The stock turnover has gone down by
20 points in 2016 as compared to last
year data. It shows that company has
reduced its amount blockage in its
tours and travel packages.
Gross profit
ratio
Gross profit /
net sales X
100
62.19% 61.49%
This ratio divulges that company has
decreased its overall gross profit by
1% in 2017 which is 1% lower as
compared to last year data. It shows
the positive indicator for the growth
of the business (Vogel, 2016).
Net profit ratio Net profit /
net sales X
100
12.02% 9.58% This ratio shows that profit of the
company is increasing by 3% in 2017.
It reveals that company has been
increasing its overall profit by

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increasing its overall turnover (Zhang,
2015).
Return on
capital
employed
Net
profit/capital
employed
X100
3.81% 2.69%
The return on capital employed by the
company is not high. It has increased
by 1% since last one year. It divulges
that company has efficiently used its
assets of the company.
Return on total
assets
Net profit
after tax /
total assets X
100
3.54% 2.51%
The return on total assets of the
company has increased by 1% which
is the good indicator. It has efficiently
used its total assets to infer good
return.
Capital gearing
ratio
Variable cost
bearing
capital / fixed
cost bearing
capital
2.424 2.185
The gearing ratio shows company’s
ability to cover up its variable cost by
increasing its EBIT. It shows that
company is meeting its interest
expenses.
Administrative
expenses ratio
Interest
expenses /
Operating
profit X 100
-
20.67%
-
28.04%
The administrative ratio of the
company has decreased to 20% which
shows that company has reduced its
variable expenses ratio by decreasing
its overall operating profit.

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Ratio formula
RATIO Formula 2016 2015
Current ratio Current assets / Current liabilities 1.435 2.886
Acid Test Ratio Current assets – (stock + prepaid expenses) / Current liabilities 1.332 2.803
Stock turnover ratio Cost of goods sold / Average Inventory (69.4
0)
(89.5
0)
Gross profit ratio Gross profit / net sales X 100 62.19% 61.49%
Net profit ratio Net profit / net sales X 100 12.02% 9.58%
Return on capital employed Net profit/capital employed X100 3.81% 2.69%
Return on total assets Net profit after tax / total assets X 100 3.54% 2.51%
Capital gearing ratio Variable cost bearing capital / fixed cost bearing capital 2.424 2.185
Administrative expenses
ratio
Interest expenses / Operating profit X 100 -20.67% -28.04%
PowerPoint presentation
Slide-1
The return on total assets of the company has increased by 1% which is the good indicator. It
has efficiently used its total assets to infer good return (Selinger, 2018).

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Slide-2
It shows that company has increased its efficiency to run the business effectively.
Slide-3

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Slide-4
Slide- 5
Final results
 It is observed that ATC Company has strong liquidity position and
profitability.

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 However, the growth rate of the profitability of the organization is very low
which reflects the negative indicator of the organization (Ozturk, et al. 2017).

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Task-4
P.4.1 Analyse sources and distribution of funding for the development of capital
projects associated with tourism
The funding and distribution of the capital project with the tourism is promoted by the
regional development bodies, UK government and foreign exchange department. There are
several acts which are used by tours and travel government bodies to promote tours and travel
industry such as Setting up of new online business mechanism, developing historical places,
installing online channels and improving the area (Taylor, 2017).
There are several sources of finance available
Equity funding- It is the source of finance in which equity shares are issued to investors for
the particular consideration. In this equity funding, ownership is given to investors in place of
capital (Vovchenko, et al. ).
Debt funding- In this debt funding, bonds and debentures are issued to investors for the
company.
 Government funding or intervention- In this intervention, government support is given as
subsidies and government funding to promote the tours and travel operations.
 Bank Loan and Overdraft: It is the type of facility given by the bank and financial
institutions to their customers. However, in this process, banks create the charge on the assets
while giving the loan to them (Jin, 2017).

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Conclusion
The ATC Company has been growing its business with the drastic rate. However,
with the changes in economic, company has to prepare different attractive tours and travel
plans packages which will attract the high number of clients. The main focus of company
should be to keep the tours and travel packages prices low to increase the overall turnover
and return on capital employed.

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References
Jacob, M. (2017). Entrepreneurships and Startup Programmes: Opportunities in Travel and
Tourism. Atna Journal of Tourism Studies, 12(2), 51-65.
Zhang, B., Cullen, M., & Kilpatrick, T. (2017). Fracture toughness of high performance
concrete subjected to elevated temperatures Part 2 The effects of heating rate, exposure time
and cooling rate. ADVANCES IN CONCRETE CONSTRUCTION, 5(5), 513-537.
Chen, Y. J., Tsai, H., & Liu, Y. F. (2018). Supply chain finance risk management: Payment
default in tourism channels. Tourism Economics, 1354816618762187.
Dhar, S. (2018).Best Small Business Tips and Ideas.
Dhar, S. (2018). Using Owner Financing-For Buying a Home, The New Rule.
Ozturk, Y., Allahyari San, R., Okumus, F., &Rahimi, R. (2017). Travel motivations of
Iranian tourists to Turkey and their satisfaction level with all-inclusive package tours. Journal
of Vacation Marketing, 1356766717725562.
Zhang, J. (2015). A Preliminary Study of Barriers to Bank Financing of Ethnic Chinese
Entrepreneurs in the UK. Open Journal of Social Sciences, 3(07), 105.
Vogel, H. L. (2016). Travel industry economics: A guide for financial analysis. Springer.
Selinger, E. (2018). Ethics and poverty tours.In Culture and civilization (pp. 157-
175).Routledge.
Ozturk, Y., Allahyari San, R., Okumus, F., &Rahimi, R. (2017). Travel motivations of
Iranian tourists to Turkey and their satisfaction level with all-inclusive package tours. Journal
of Vacation Marketing, 1356766717725562.
Vovchenko, N. G., Andreeva, A. V., Orobinskiy, A. S., &Filippov, Y. M. (2017).
Competitive Advantages of Financial Transactions on the Basis of the Blockchain
Technology in Digital Economy. European Research Studies, 20(3B), 193.

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Roberts, R. M., Jones, K. W., Seidl, A., Ek, A., & Smith, H. (2017). Conservation finance
and sustainable tourism: the acceptability of conservation fees to support the
TambopataNational Reserve, Peru. Journal of Sustainable Tourism, 25(10), 1353-1366.
Roberts, R. M., Jones, K. W., Seidl, A., Ek, A., & Smith, H. (2017). Conservation finance
and sustainable tourism: the acceptability of conservation fees to support the Tambopata
National Reserve, Peru. Journal of Sustainable Tourism, 25(10), 1353-1366.
Taylor, N. (2017). 21 The Role of Pioneering Tour Companies. Tourism an
Jin, L. (2017). Marketing Plan Development for Online Travel Agency ToursForFun