Financial Management and Analysis

The assignment provided involves analyzing a company's financial management and performance. It requires calculating the breakeven point, which is the point where total cost and total revenue are equal. Additionally, it involves determining the sales unit, which is the number of units sold to break even. The study also discusses various concepts such as fixed costs, variable costs, contribution, and cash conversion cycle. A detailed analysis of the company's financial performance is conducted, including the calculation of return on capital employed and current cash conversion cycle. The assignment emphasizes the importance of managing and reducing the level of debt amount to maintain a better profitability position.

Running Head: Finance in hospitality industry
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Project Report: Finance in hospitality industry

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Task 1:
a. 5 source of services in hospitality industry:
Following are few sources of findings which could be used by the hospitality industry
to raise the funds:
1. Private equity and angels
2. Debt finance
3. Personal finances
4. Enterprise investment scheme
5. Equity crow funding.
b. Income generation method:
Following are few methods, on the basis of which the revenue of the company could
be enhanced:
Methods Advantages Disadvantages
Discounts 1. It would attract the
customers.
2. Income would be
higher.
3. Even in off season,
company would be
able to reach at
BEP.
1. Total profitability
level would be
lower.
2. Not a good option
for niche hotels.
3. Discounts can only
be given in the off
season.
Occupancy and room
rates
1. The lower room
rate would make
more influence on
the guest.
2. Even in off season,
1. Not a good option
for niche hotels.
2. Discounts can only
be given in the off

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company would be
able to reach at
BEP.
3. Income of the hotel
would be higher.
season.
3. Marketing cost
would be higher.
Food and beverages 1. Income of the hotel
would be higher.
2. Good taste of food
would attract the
customers.
3. Goodwill of the
hotel would be
enhanced.
1. Extra fixed cost
would be occurred.
2. Marketing cost
would be higher.
3. Depends on the taste
of the food and
choices.
c. Financial management in hospitality industry:
The main key decision maker in the hospitality industry is financial manager in context
of finance. Finance manager evaluates all the financial transaction and performance of the
company and make the new financial strategies on the basis of that. A financial manager is
required to analyze every single factor related to financial position and performance of the
company so that it becomes easy for them to make financial strategy for the business.
d. Product or service costing:
Following are few factors which must be considered by the companies which
evaluating the cost:
1. Customers
2. Profit
3. Positioning
4. Competitors.
e. Gross profit margin or net profit margin:

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Gross profit is calculated by deducting the cost of sales from total sales whereas net
profit is calculated after deducting all the expenses of a particular period from total sales.
Following is the formula to calculate the gross profit margin and net profit margin:
Gross profit margin = (Gross profit / sales) *100
Net profit margin = (Net profit / sales) *100
The profit margin of XYZ is as follows:
Calculation of profit margin
Sales
€
25,310.70
Less: production cost
€
17,360.00
Profit
€
7,950.70
Profit margin (profit /
sales) 31.41%
f. Sources of finance:
Irish government could evaluate the following sources for the resorts:
1. Private equity and angels
2. Debt finance
3. Government funds
4. Enterprise investment scheme
5. Equity crow funding (Damodran, 2011).
According to the study and evaluation, it is suggested to the company to consider the
private equity and equity crow funding for the resorts.
g. Generating income from holiday resort:
The evaluation on the hospitality industry of the company briefs that the income could
be generated by resort through many sources. The hotel, food and the adventures are the main
sources of the company. These should be the main focus of the management of the resort.

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h. Different income of sources:
There are various other different sources for a resort to generate the profits. Holiday
resort of Irish government could generate the income through following the below methods:
1. Inside water park
2. Restaurant, nightclubs and bars
3. Retail shops
4. Family entertainment canter
5. Multipurpose theatre
6. A day spa
7. Coffee shops and eateries etc.
All these methods would help the resort to attract more guests and enhance the revenue
of the resort.

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Task 2:
a. Vat and its purpose:
VAT stands for value added taxes. It is a type of consumption tax which is collected
incrementally and it directly bases on the value of a service or product at every stage of
distribution and production. VAT is collected by the government of the country and it is an
indirect tax form. The main purpose of VAT is to collect the tax amount on indirect activities
and income of a business or individual.
b. Main challenges in hospitality industry:
Stocktaking is a procedure to calculate the total amount of stock which is held by an
organization. Various issues are faced by the hotels to measure the stocktaking. Some of them
are as follows:
Lack of objectivity and confidentiality
Risk of accidents
Higher cost due to payment of overtime
Lack of necessary know-how
Lack of knowledge
Risk of getting wrong results
Failure to detect some losses etc (Brigham & Ehrhardt, 2013)
c. Corporation tax:
Corporation tax is company tax which is directly imposed by the government of a
country on total income or capital of a business. These taxes are levied either at national level
or local level.
Ireland is an attractive place for the companies because of lower corporate tax. The
corporate tax of Ireland is 12% only (IDA Ireland, 2018).
d. Examples of cost:
Cost Examples Suggestions
Direct cost Direct Material These costs could be

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Direct Labour
Direct Expenses
reduced by the company
through reducing the level
of scrap.
Indirect cost Indirect Labour
Indirect Material
Indirect expenses
These costs could be
reduced by the company
through focusing on the
extra expenses of the
company.
Fixed cost Plant and equipments
Building
Machineries
Wages to employees
Advertising cost
Payroll
Fixed cost could not be
reduced by the company.
Though, the companies
could utilize them on fullest.
Variable cost Flower arrangements
Guest room amenities
Banquet HVAC costs
Food, beverages, housing
keeping ((Brigham &
Michael, 2013)
Variable costs could be
controlled by the comapny
through using some new
technology.
e. Calculations:
1. Breakeven point:
Calculation of breakeven point
Per unit Total
Selling price € 8.00 € 3,20,000.00
Less:

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Direct Material € 3.00 € 1,20,000.00
Direct Labour € 1.10 € 44,000.00
Variable cost € 0.70 € 5,600.00
Contribution
(Sales - variable
cost) € 3.20 € 1,50,400.00
Fixed cost € 65,000.00
Breakeven point
(Fixed cost /
contribution) 20312.5 € 1,62,500.00
2. Profit calculation:
Profit (Sales - Break even sales)
€
1,57,500.00
3. Sales units:
Calculation of sales unit on the basis of desired profit
Per unit Total
Selling price
€
8.00
€
3,20,000.00
Less:
Direct Material
€
3.00
€
1,20,000.00
Direct Labour
€
1.10
€
44,000.00
Variable cost
€
0.70
€
5,600.00
Contribution (Sales -
variable cost)
€
3.20
€
1,50,400.00
Fixed cost
€
65,000.00
BEP 20312.5
€
1,62,500.00
Desired Profit
€
50,000.00

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Sales units to
achieve the desired
profit (Desired
profit / contribution
+ sales units) 35937.5
€
2,87,500.00
4. Limitations:
Cost volume profit analysis explains about the approximate results only. It is based on
many assumptions such as total sales and total cost is linear to each other.
f. Pricing strategies:
Hotel Cocana could use the penetration pricing strategies. This pricing strategy explains
that the initial pricing must be set low and with the time, the price of the product or the
service should be higher. It makes it easy for the hotel to grab more customers and make
loyal customers.
g. Stock and cash flow controlling techniques:
The stock and the cash flow would be controlled by the comapny through following
some methods such as LIFO, FIFO, better credit policies etc. In case of souvenir shop, it is
recommended to use the weighted average method to control the stock and better cash
conversion cycle should be maintained for better cash flows.
Task 3:
a. Explanation:
Name Explanation
Trial Balance Trial balance is a statement of all
financial transaction of a company. It
bases on the double entry account book.
Sole trader Sole trader is a form of business. It is run
by an individual.
Trading account Trading account is a statement to evaluate

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the gross profit of the company.
Profit and loss account It is one of the final financial statements
which explain about the financial position
of the company.
Balance sheet It is one of the final financial statements
which explain about the financial
performance of the company.
Assets Assets are the property and the resources
which are owned by a company.
Liabilities Liabilities include all the debt amount of
a company.
Expenses Expenses stand for all the cost which is
incurred for something (Bromwich &
Bhimani, 2005).
b. Financial consultant:
Trial balance is a statement of all financial transaction of a company. It bases on the
double entry account book. Structure of trial balance is as follows:
(Web's Solution's Bank Account)
DR CR
10
00
Assets
101
0
Cash (Web's Solution's Bank
Account)
$
12,065.00
110
0
Accounts Receivable $
6,520.00
150
0
Supplies $
150.00
155
0
Prepaid Insurance -
200
0
Equipment $
1,800.00
210 Land $

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0 20,000.00
30
00
Liabilities
31
00
Accounts payable $
1,850.00
330
0
Unearned Revenue $
4,500.00
340
0
Unearned Rent $
240.00
400
0
Equity
410
0
Owner's Capital 25000
420
0
Withdrawals 2000
500
0
Revenues
510
0
Service Revenue 17990
700
0
Expenses
705
0
Rent Expense $
680.00
710
0
Phone Expenses $
310.00
715
0
Electric Expenses $
225.00
720
0
Salary Expenses $
3,100.00
725
0
Internet Expenses $
150.00
730
0
Advertising Expense $
180.00
735
0
Insurance Expenses $
2,400.00
$
49,580.00
$
49,580.00
Further, budgetary control process is a procedure to evaluate and predict the future
performance of an organization. These procedures evaluate the future sales, expense, profits
etc of the company and make it easy for the manager of the company to make future
strategies and better decisions about the future performance of the company.

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Notes to the accounts brief that how the amount has been calculated and the relevant
information about the figure. Notes to account should be evaluated by the company to
measure and evaluate the performance of the company.
c. Calculations:
Material Cost Variances Variances
Direct Material Price
Variance
(actual quantity * Standard price) - (actual
quantity * Actual price)
€
6,600
Direct Material Usage
Variance
(Standard quantity * standard price) - (Actual
quantity * standard price)
€ -
31,200
Labour Variances
Direct Labour rate
Variance
(actual hours * Standard rate) - (actual hours *
Actual rate)
€ -
8,040
Direct Labour efficiency
Variance
(standard hours * standard rate)- (actual hours *
standard rate)
€ -
7,920
(Arnold, 2013)
These material variances have taken place due to lower material price and huge product
requirement. On the other hand, labour variances have taken place due to high labour cost as
well as lower labour hours. It explains that the company is required to focus on the labour
cost as well as material requirement to manage and reduce the level of cost.

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Task 4:
a. Financial ratios:
Ratio Calculations 2003 2002
Profitability Ratios:
Return on Capital employed
Operating profit /
€
5,750
€
6,515
Capital employed (total assets - current
liabilities)
€
47,505
€
34,912
Answer: % 12.10% 18.66%
Gross Profit Margin
Gross profit /
€
33,092
€
28,800
Sales Revenue (note used operating revenue)
€
2,05,157
€
1,82,530
Answer: 16.1% 15.8%
Asset Efficiency Ratios
Trade payable payment period ratio
Accounts payable/
€
17,048
€
13,585
Cost of sales
€
1,72,065
€
1,53,730
Answer: (note the above needs to be x 365) 36.16 32.25
Inventory Turnover (days)
Average Inventory /
€
12,482
€
11,862
Cost of Sales
#
days
€
1,72,065
€
1,53,730
Answer: (note the above needs to be x 365) 26.48 28.16
Receivables Turnover (days)
Average trade debtors /
€
32,287
€
28,410
Sales revenue (note used operating revenue)
#
days
€
2,05,157
€
1,82,530
Answer: (note the above needs to be x 365) 57.44 56.81
b. Recommendation on financial strategies:

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The above analysis on financial statement briefs that the gross profit margin of the
company has been enhanced but on the other hand, return on capital employed of the
company has been lower. It briefs that the profitability position of the company has been
better but it is required for the company to reduce the level of debt amount so that the better
position could be maintained.
Further, it explains that the current cash conversion cycle of the company is quite
higher and it is required for the company to manage and reduce the level of cash conversion
cycle.
Task 5:
a. Explanation:
Name Explanation
Fixed cost Fixed cost is the total cost which is not
affected by the total sales volume of a
company.
Variable cost Variable cost is the cost which gets
affected by the changes in the sales
volume of a company.
Breakeven point It is the point where total cost of a
company and the total revenue of the
company are equal.
Sales revenue Total amount from sales is known as
sales revenue.
Contribution Contribution is the amount which is got
by deducting the variable cost from sales
revenue (Brealey, Myers & Marcus,
2007).

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b. Breakeven point:
a) Calculation of breakeven point
Per unit
Selling price
€
8.00
Less:
Variable cost
€
4.50
Contribution (Sales -
variable cost)
€
3.50
Fixed cost
€
65,000.00
Breakeven point (Fixed
cost / contribution) 18571
c. Calculation of sales unit:
b) Calculation of breakeven point
Per unit
Selling price
€
2.00
Less:
Variable cost
€
0.50
Contribution (Sales -
variable cost)
€
1.50
Fixed cost
€
2,50,000.00
Breakeven point (Fixed
cost / contribution) 166667

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References:
Arnold, G., (2013). Corporate financial management. Pearson Higher Ed.
Brealey, R., Myers, S.C. & Marcus, A.J., (2007). FundamentalsofCorporate Finance. Mc
Graw Hill, New York.
Brigham, E.F. & Ehrhardt, M.C., (2013). Financial management: Theory & practice.
Cengage Learning.
Brigham, F., & Michael C. (2013). Financial management: Theory & practice. Cengage
Learning.
Bromwich, M. & Bhimani, A., (2005). Management accounting: Pathways to progress. Cima
publishing.
Damodaran, A. (2011). Applied corporate finance. 3rd edition, John Wiley & sons, USA
IDA Ireland. (2018). Corporate Tax. (Online). Retrieved as on 14th April 2018 from
https://www.idaireland.com/invest-in-ireland/ireland-corporate-tax.