Tourism Business Plan and Financial Analysis

This assignment focuses on developing a comprehensive business plan for a hypothetical tourism venture. Students are tasked with outlining operational models, identifying target markets, and conducting a thorough financial analysis. The plan includes calculating central costs, net finance costs, and the break-even point using provided data and financial ratios. Additionally, students must research and propose suitable funding sources for the proposed tourism business.

Finance And Funding In The Travel
And Tourism Sector
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TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
1.1 ................................................................................................................................................3
1.2.................................................................................................................................................6
1.3 ................................................................................................................................................8
TASK 2..........................................................................................................................................11
2.1...............................................................................................................................................11
2.2...............................................................................................................................................17
TASK 3..........................................................................................................................................21
3.1...............................................................................................................................................21
TASK 4..........................................................................................................................................24
4.1...............................................................................................................................................24
CONCLUSION..............................................................................................................................25
REFERENCES..............................................................................................................................27
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INTRODUCTION
Finance and funding the most important department of organization which handle
different operations and activities related to management. It facilitates to access cost effective
sources of finance and focuses upon reducing cost of production of the business in the
marketplace. It proves to be effective for company to deliver good quality of services to large
number of buyers in affordable prices. Present report is based on case study of Merlin
Entertainments plc which is based on United Kingdom. This is operating its business in 115
attraction across 23 countries. The major business segments included in this organizations are;
LEGOLAND Parks, Midway attraction and Resort Theme Parks. Furthermore, importance of
cost and volume in financial management of travel and tourism sector has been explained. In
addition to this, pricing methods used in the same sector are analyzed by taking examples of
three different types of businesses. Moreover, factors affecting profitability of travel and tourism
sector has also been analyzed. Moreover, ratio analysis has been done in order to assess the
performance of cited organization and implement appropriate strategies for improvement of the
same. In addition to this, capital project as new theme park has also been taken and accordingly
sources of finance as well as distribution are selected. Apart from this, different types of
management accounting information are explained to represent the financial information related
to particular financial year.
TASK 1
1.1
Cost is very important element for setting price of products offered by corporation. This
help business to add margin on products and services to so as to enhance overall rate of return.
However, generally cost is considered as money used for production of goods and services. It
proves to be effective to cater need of personnel and ensure their well being (Acton, 2013). The
main purpose of cost is the assess the actual price of product and services in to ensure consistent
flow of production. The importance of cost and volume in financial management can be assessed
in the following manner- Direct cost-It is the cost which is incurred while producing effective tour packages. For
example, all the operation cost of production Merlin Entertainment will be considered
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under direct cost. This cost is very important which general include direct labour,
material and other related aspect. However, fuel and gas and other inputs of product plays
important role in considering this cost (Allen and Economy, 2011). Though, direct cost is
considered in every business for assessing its direct impact on margin as well as
production. The occurrence of direct cost is based upon sales of tour packages and actual
cost incurred to render services. According to the case study Merlin entertainment occur
different kind of cost such as fuel for bus, wages for bus tour and room cleaning, national
park permits as well as meals whilst on tour. Apart from this, direct labour and material
involved in rendered services are considered as direct cost of Merlin entertainment. Indirect cost-It is another type of cost which includes indirect material, labour etc.
However, other cost related to stationary and office suppliers as well as overheads are
included by management of Merlin entertainment to ascertain price of services rendered.
At the same time, other factors such as energy cost, fuel charges and cleaning as well as
repair cost are also considered by cited corporation. Here, indirect cost for Merlin
Entertainment will be considered for setting actual price of product and accordingly take
decision related to selecting of effective strategy for enhancing sales turnover (Cesarotti,
Silvio and Introna, 2009).
 Fixed cost-This cost remain fixed for Merlin entertainment and does not vary as per the
increase and decrease in number of total tourists (Elmassri and Harris, 2011). Here,
lighting, rent and rates come under fixed cost which generally remain constant. This also
consists of other kind of method under which some of part of cost remain fixed and some
remain variable. According to the given case study, Merlin entertainment occur different
kind of fixed cost such as accounting and legal fee, depreciation, insurance and other
business as well as premises cost. On the other hand, salaries and rent are also included
in the same. However, some of the aspects tend to varies after reaching at certain
proportion. For example, fixed amount of electricity's bills is paid whether it is use or not.
In this manner, fixed cost remain same for the business in case Merlin entertainment
serve one customer or 100 at a time. This cost is usually added while calculating cost of
services because it does not vary in accordance with number of tourists or tour packages.
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5
2011 2012 2013 2014 2015
0
5
10
15
20
25
30
35
40
Central cost
Illustration 1: Central cost

 Variable cost-It is well know fact that some of the expenditure keep on increasing with
number of customers or tourists (Grieve, 2013). Owing to this, company need to take care
of cost incurred in each segment and accordingly decision related to the same can be
taken. This type of cost consists of different aspects such as wages and salaries of staff
who are driving or doing work related to cleaning. Apart from this, cost of food and
beverages as well as telephone charges are also involved. Therefore, variable cost varies
in accordance with changes in volume of sales. Thus, it is considered as indirect cost
which tend to increase price of services paid by tourists.
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2011 2012 2013 2014 2015
0
20
40
60
80
100
120
140
Net finance cost
Illustration 2: Net finance cost

According to the above mentioned graph, cost of sales is 193 m pound whereas rent of
the corporation was 596. In the same manner, rent was 87. This is showing that cost of is
appropriate with respective to profitability. It is because profitability is 1278 whereas cost of
sales was just 193. In this manner, corporation can easily generate greater rate of return.
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Volume in financial management
Volume in financial management is another important aspect which is considered by
management in order to determine the actual situation of business in the marketplace. Here,
company can get information related to volume by finding break-even point. This break even
point is calculated with the help of cost benefit analysis.
(Source:Break-Even Analysis and Forecasting, 2015)
Under this company identify what is the total cost and what is the total profit generated
by the same (Kierulff and Petersen, 2009). Owing to this, company need to ensure
compliance of all related work and accordingly all related objectives can be achieved in
particular time. It reflects that business can be conducted in an effectual manner with
assessment of potential profit derived from several tourist activities of Merlin Entertainment.
For example, above mentioned diagram is showing that profit and cost and income of
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Illustration 3: Break-even point

company matches at certain point which tend to serves as the break even. It would be
affected with the volume of sales turnover and accordingly profitability will be enhanced.
Apart from this, economies of scale reflects that company performs in well manner and
cost of offering tourist services is reducing to a great extent. On the the contrary, business
need to ensure that cost of services /tour packages goes down and output enhances in order to
meet the purpose of business and create competitive edge of the business. In this manner,
Merlin Entertainment adopt effective strategies and aspect in order to ensure effective
management.
Apart from this, focus is laid upon situation of no profit and no loss so that accordingly
appropriate strategies can be adopted (Ledgerwood and White, 2006). This proves to be
effective to create competitive edge of the business because here firm start implement
different strategies to increase sales turnover,. However, little modification is made under
pricing strategies and creating psychological effect among buyers. It would be effective for
business to assess the impact of volume of production on different activities like cost and
profitability. Owing to this, contribution is calculated through which management of business
assess detail information related to cost and profit generated through particular aspect (Nga
and Yien, 2013). Under this, some of the assumption are considered by the business wherein
focus is laid upon constant selling price of services and relationship of cost is perfectly
known.
1.2
There are different types of pricing methods adopted by the business in order to recover
cost of production and deliver good quality of services to large number of buyers. The selection
of appropriate pricing strategies is based upon requirement or nature of business. Owing to this,
all businesses put effort to select the right price strategy and then take decision related to the
same. These pricing strategies are explained as follows- Cost-led method-Cost led pricing is the most effective aspect during past era for
calculating price of tourist services. Under this, main emphasis is laid on cost incurred in
production and services in order to manage overall rate of return in the business (Pavlatos
and Paggios, 2009). It is considered as very popular within travel and tourism sector as it
very easy to understand and apply. In this manner, it is effect for corporation to set price
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of product and services because relatively less time is taken to accumulate data and
calculate cost of Merlin Entertainment to determine sales price of its product. Cost plus pricing method -This is the most effective aspect to cover the production under
which corporate like Thomas cook set price of services by focusing upon total cost and
margin upon the same. For example, 30% margin is set on services in order to determine
success of the business and cater need of the same by adopting effective strategies. It
facilitates companies to increase sales turnover (Tauringana and Afrifa, 2013). However,
some time Thomas Cook applies different alternatives to create psychological effect
among user. In this regard, customers are provided discount during off season and sales is
generated by influencing their purchase decision. Furthermore, Merlin Entertainment also
uses such kind of pricing method through which margin of profit is enhanced in
accordance with demand of products and services. For example, in case demand of
services higher then company can easily increase the ratio of profitability. Break-even pricing- It is another kind of price method which is generally adopted by
different firms like Merlin Entertainment, Thomas cook and British Airways. The reason
behind the same is no profit and no loss situation under which company come to know
that how much amount of profit is needed to ensure growth of business. In this regard,
British Airways can use such kind of strategy for the purpose of increase customer base
by offering them good quality of services in a affordable price (Airey and et.al., 2015).
The main reason behind applying such kind of method is sell the assets or services on the
basis of cost incur to render the same. On the other hand, break pricing is most effective
under which companies can change their pricing strategies by observing the one of
competitors. It proves to be effective to create good image of the Merlin Entertainment
because cost can be recovered easily and customers are retained for longer time span.
Owing to this, all business try to adopt such kind of pricing method under which it
becomes easy to enhance price of services and services at any point of time. Marginal costing method-Marginal costing reflects cost of every additional units. Such
kind of pricing method seems to be a bit complex where businesses may face issue in
extracting higher amount of profitability (Eagles, 2014). Owing to this, it becomes easy
for corporation apply other methods which aids to determine right price strategy and
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determine higher rate of return from the fund. Moreover, British Airways might select
such kind of strategy at certain point of time through which overall operating cost will be
recovered and return will be generated.
 Return on investment method -This is another type of method under which company
decide about the effective price. However, decision related to price is taken on the basis
of return on investment. This facilitates corporation to meet expectations of all related
stakeholders such as employees, shareholders, competitors and others. In this regard,
business need to set the cost of product and percentage of return will be calculated so as
to add the margin in the similar manner (Jaafar and et.al., 2011). Return on investment
type of method proves to be effective to cater need of personnel and accomplish their
purpose in an effectual manner. It can be critically evaluated that personnel working in
the respective department should be aware of right manner to calculate the cost. It aids to
enhance overall rate of return and set right price of tourism packages or services.
1.3
Profit is the amount of incurred by firm other cost of products and services. Generally,
ratio of profitability is based upon selection of pricing strategy so that accordingly business can
apply the same. These different factors are explained as follows- Seasonal variation-The profitability of travel and tourism business like Merlin
Entertainment changes as per the seasonal variation (Li, Blake and Cooper, 2010). This is
because during off season company believes to promote sales by offering discount to
customers. It has direct impact on sales turnover and accordingly profitability is get
affected. The following detail reflects that sales volume of business affect in accordance
with season. Here, Merlin Entertainments might face issue during the season of
December and Jan due to winter. In this particular season some buyers may not prefer to
go for visit. However, in other season visitors will be higher and accordingly corporation
will get good rate of return. It indicates that during off-season, Merlin Entertainment will
change its pricing method such as introduction of discount and special offer. It would be
effective to attract more buyers during off-season also. In addition to this, during the
summer season of 2015 sales turnover of business increased by 2.3% which reflected that
strong performance of company in Midway Asia in Midway, mainland China.
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Furthermore, during June 2014 visitation was declined to a great extent. On the other
hand, May month also suffered loss of profit worth 16.5% due to higher variable cost
(Financial Reports, 2017).
The aforementioned graph is showing that variation in its rate of return because during
wk1-18 it was 24% which was reduced in the next wk 19-26 by 17% Therefore, revenue for H1
is 41% in H2 it was 59%. It shows that seasonal variation is there in Merlin Entertainment. Social environment-This is another important factor which must be considered by
business. Under this, changing preferences of buyers can be taken into account for the
purpose of meeting expectation of large number of customers (Pocock and Phua, 2011).
However, company need to change its existing strategies and expenses are incurred over
marketing activities. It would be appropriate for meeting expectation of large number of
buyers. For example, individual or couple would like to prefer other destinations whereas
families focuses upon upon other kind of destinations such as cultural and heritage
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beauty. This prove to be effective to cater need of business and up with changing scenario
in an effectual manner. According to case study Merlin Entertainment need to update the
its prices in accordance with changing preferences of buyers. For example, during
normal season people like to buyer tour packages frequently. It can be critically evaluated
that, changing preferences of buyers might affect price decision of Merlin Entertainment.
For example, visitors prefer to book ticket via online with the one offering discount. Bad debts-It is another component which directly affect performance of the business.
Under this business shed light on setting short collection period through which debtors
are not provided enough time. This would be effective to collect overall credit amount
and ensure smooth operation (Sheldon and Dwyer, 2010). In short it will not increase the
bad debts of business and accordingly better performance of the same can be maintained.
Furthermore, high ratio of bad debt will negativity affect business by lowering down
business operation. This reflects that corporation should cope up with changing scenario
and deliver good quality of services to large number of buyers. Therefore, high debt ratio
indicates poor performance of the Merlin Entertainment which in turn firm cannot be able
to offer services in a affordable price. Owing to this, Merlin Entertainment will not go for
the option of credit sales and accordingly set moderate price of product and services so as
to recover the cost in relatively less time span. Hence, lower or no bad debts situation
facilitates to maintain good performance of Merlin Entertainment. Staff-It is the most important factor which directly affect profitability specially in case of
travel and tourism business. For this purpose, Merlin Entertainment focuses upon
enhancing skills and knowledge of personnel by offering them good learning and
increasing their expertise so they can easily cope up with changing scenario (von der
Weppen and Cochrane, 2012). It enables company to cater need of company and
accordingly competitive edge of Merlin Entertainment can be created. However, there as
28000 employees working in company as of 2016. Similarly, PLUS 25% discount are
provided for employees of company for retail shops along with 20 free entry tokens for
workforce and family as well as friends. Furthermore, 5 million pound spent by company
for workforce benefit. Hence, total fund of 5 million pound can be deducted from the
profitability which tend to reduce the same but ensure long run growth of business. Apart
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from this, staff should be skilled and competent so that accordingly they can achieve long
run success. In addition to this, personnel play important role in attracting more buyers
and assessing their expectations so that accordingly current strategies to render services
can be modified. In this manner, inclusion of competent personnel make it possible to
increase profitability of business as customers' expectations are met effectively. Political environment-Under this company need to focus upon current political situation.
For example, Brexit the current policy of UK to exclude from UK is the important aspect
which might have direct impact on purchasing power of buyers. This is because
uncertainties will be increased and accordingly propensity to save money will be
increased among buyers (Wong, Mistilis and Dwyer, 2011). This issue might affect
overall rate of return of the business as buyers found it costly to prefer services of Merlin
Entertainment. This is because currency value went down and in the same manner
profitability goes down. However, with the passage of time, it can be in positive manner
also because country will work on the basis of single currency as earlier some countries
of UK was opting the Euro and some pound. Hence, it can be both positive or negative
but long term impact will be positive on entire business. In addition to this, changing
political parties will have direct impact on trade policies and other regulation imposed in
arrival and departure of buyers. For example, government can change the VISA policy
with strict regulation through which it becomes typical for visitors to purchase their
holiday package. It is because some people might like to visit country with relatively low
restriction and easy booking or immigration procedure. In this manner, profitability is get
affected in term of low purchasing power of consumers and restriction of visitors in
country. Therefore, Merlin Entertainment keeps into account the same policies so as to
ensure better function and performance of the business.
 Economic environment-It is the most crucial factor which affect rate of return of the
company to a great extent. This happens because of several factors such as recession and
inflation in the market (Acton, 2013). For instance inflation reduces money value because
of higher prices of air travel and other related facilities which has direct impact on
tourism services or profitability of Merlin Entertainment. In the same manner, situation of
recession create unemployment due to higher rates through which general community
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suffer a lot. It shows that income of business is negatively affected due to inflation and
recession.
(Source:United Kingdom Inflation Rate, 2017)
Owing to this, company need to change pricing strategies so as to attract more buyers, However,
these actions are taken by business by increasing tax and interest rate. However, increasing tax
and interest enhances indirect expenses of the business and reduces overall rate of return to a
great extent. For example, in case tax rate is increased then visitors will not be able to save their
money and would not like to invest in activities like tour packages etc. For this purpose, Merlin
Entertainment conduct analysis of external as well as internal environment and accordingly take
right strategies. Furthermore, above mentioned graph is showing that inflation rate is rising
through which business has to pay higher cost of finance. Owing to this, management of Merlin
Entertainment might raise the price of tour packages which then affecting purchase decision of
buyers. Hence, continuous increase in the inflation rate affect business performance in a negative
manner.
 Current trend-This is another important factor influencing profitability of the business.
In current era companies shift their focus upon using updated technologies (Allen and
Economy, 2011). This kind of strategies are applied to improve the business scenario and
reduce cost of production. It can be critically evaluated that if Merlin Entertainment does
15

not make use of updated technologies like social media then it may not be able approach
potential buyers. This is because current trend of using such kind of strategies are
increasing at rapid speed. The current trend in travel and tourism sector of UK reflects
continued growth of Chinese market and youngsters generally prefer to have adventurous
journey. At the same time, unique and untouched places are referred by visitors so that
accordingly Merlin Entertainment need to update current strategies (Fuggle, 2015).
TASK 2
2.1
Types of management accounting information used in Merlin Entertainment business:-
Merlin Entertainment plc is an entertainment company of UK. It is wide spread has three
divisions of its business. As a management employee of the business, manages financial system
and practices would like to express types of management accounting information uses in the
organization. Management accounting information focuses on internal managers and useful for
decision makers. It is a useful term to get financial data to managers on basis of which managers
take decisions and make further planning structure (Wooller, 2014). There are different kinds of
management accounting information uses in Merlin Entertainment can segments as:- Forecasting:- This tool includes in planning structure. Aim of forecasting is to try to
determine the result of further operations through trend analysis. On behalf of analysis,
further decision takes place related to investment, revenue, sales, calculations etc. For
example; if general revenue growth remains 12% per year so according to forecast model
yearly growth rate will also remains as 12% (Mutch, 2016). Budgeting:- Budgeting is a vital technique of financial success. Merlin Entertainment
creates budget makes easy to take any decision through predict size of income and
expenses about the structure of allocation in monetary terms. On the basis of budgeting,
future costs and liabilities are made (Gatti, 2013). By analyzing past liability and cost
trends, we take decision to invest and gain financially. For example, If the material cost
average of last 10% year over years over year, then similar to 10% will be used to make
the budget for further year. Variance analysis and cost accounting:- It is a process to predict comparison of the
actual expenses with budgets expenses. If correction seems necessary then variations are
16

checked and corrected (Mohanty and et. al., 2012). If positive difference occurs then it
considers like decision made was correct and produces increasing in production in try to
increase profit margin of the organization. Ratio analysis:- Ratio analysis considers as completed at the end of each financial period
in different periods as- monthly, quarterly and yearly for determining the Merlin
Entertainer's capacity to pay long term and short term debts. This analysis refers the
arrangement of team whether the organization operates within complete guide helpful to
promote profitability (Baumol and et. al., 2012). Accounting for decision making:- Management accounting information's decision
making tool plays great role to make decisions on behalf of financial data and
information of statement profit and loss statement and balance sheet. Efficient managerial
accounting takes risk out of decision making and analyses past trends are able to create a
frame of the future and is useful for planning structure for future strategies. Investment appraisal:- It is a useful tool to decide a particular investment is worthwhile
or not. It watch out at cost of investing, for example, in a new organization this processes. Cash-flow forecasts:- It looks at future flows of costs and gaining. Merlin Entertainment
uses this tool to plan expenses and makes decisions on things on which business needs to
borrow (Lapavitsas, 2012). Business strategy:- Strategic decisions are major decision takes at largest stage of proper
management planning. It is useful technique to predict direction of Merlin Entertainment
over further months and years. It is beneficial to identify and key information and also to
analyses information on the basis of analyzing.
 Analysis of statement of changes in Equity:- By analyzing dividend payments, share
capital issued, net profit as well as net loss, Merlin Entertainment takes decision of behalf
of organisation's position in financial terms (Finnerty, 2013).
The following financial statement consists of income statement, cash flow and balance
sheet. It is helpful to extract key financial information related to particular corporation. With the
help of income statement, management of business come to know about profitability for the
particular year and cost of operation. On the other hand, balance keeps record related to assets
and liabilities so as to provide detail information to related stakeholders. Moreover, cash flow
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statement is prepared for getting information related total income of the Merlin Entertainment. In
this manner, different financial statements are used for taking decision related to forecasting and
assessing liquidity as well as solvency of Merlin Entertainment.
(Source:Key Financial Data, 2015)
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19

20

Thus, These are kinds of management accounting information on which, managers take decision
for future planning structure and analyses differences between estimated and actual gain of the
entity. The aforementioned financial statements reflects that current performance of Merlin
Entertainment is not good. However, it was better in the previous year because total assets was
higher in the same. In addition to this, revenue of business has been increased in the current year
but no significant difference is observed. Hence, current performance of corporation is not up to
the mark.
2.2
Merlin entertainment plc is a leading entertainment based company that [provides superior
quality services for its clients. Operations of the enterprise has been spread in 23 countries and
large number of consumers are rendered accommodations, rides and shows. In addition to this
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Resort Theme park is also operated by corporation in which entertainment services are offered to
clients (Bandy, 2014). It is vital for management of organization to make effective strategies and
action plans for executing desired operations of business in successful manner. It is also required
that before taking decisions of business appropriate data and information should be collected so
that proper plans can be made for business. Moreover management accounting can also be used
as a effective tool for taking decisions of business in effectual mode. Management accounting is
explained as system under which quantitative methods are used for assessing price of services
and commodities offered by the enterprise (Mutch, 2016). In this method various methodologies
and procedures are used for calculating price of products that have been offered by the
enterprise. There are various types of accounting information that supports in taking decisions
for business and formulating strategies.
 Diverse range of information are included in management accounting and it is as
described- Budget :- it is a statement which is used in business and various kinds of details are
included under it. Cash inflow and cash outflow statements are included in budgets and
overall expenditure of organization is included in it. Analysis of details mentioned in
budget will support in deciding cost of commodities and services that have been offered
by Merlin entertainment plc.
 Break even analysis :- it is a effective method under which it is assessed by management
that what should be number of goods and services that can be offered for recovering the
investment done in the business (Wooller, 2014). Long term and short term objectives
can be set for achieving the break even point. Once the sales of the corporation will reach
at break even point then profits are started earning by business. Break even analysis can
be used by Merlin entertainment for setting margin on cost. It would be effective for
corporation to increase overall rate of return so as to deliver good quality of services to
large number of buyers. Furthermore, break even is applied for assessing the situation of
no profit and no loss. This in turn management of Merlin entertainment can interpret the
business situation effectively.
 Variance analysis :- This is used for comparing actual expenses of corporation with the
estimated expenses and on the basis of that it can be identified that firm is performing as
22

per the set targets and objectives. Furthermore, Merlin Entertainment uses variance
analysis for assessing the difference between actual and expected results. It proves to be
effective for management to take appropriate action with regard to unfavourable variance.
For example, in case labour variance is lower then business might take strategy to impart
learning among personnel to resolve their issues related to work.
 There are some other ratios also which are used in management accounting and it is vital
that this ratios should be properly analyzed so that decisions for business can be taken in
effective manner. Profitability ratio defines about financial revenues gained by business
and profits gained by firm in a set time interval are described under it (Gatti, 2013). In
addition to this efficiency and activity ratio are also used which describes about
capabilities of business for paying their debts and left expenditures. In these ratios it is
estimated that debts of the organization can be paid by selling assets of the organization.
Furthermore cash flow forecast is also done in management accounting by making use of
cash outflow and cash inflow statements. For example, Merlin entertainment can
calculate current ratio to assess its ability to meet short term obligation. It case current
ratio reflects less favourable results then management put efforts to access cost effective
sources of finance. In addition to this, debt equity ratio shows that how effective Merlin
entertainment is performing in travel and tourism sector of nation. Moreover, earning per
share reflects that how much return is being provided for shareholders.
There are many advantages for using management accounting information as a tool for
taking decisions of business.
 Comparison with trends :- it supports in determining cost for entertainment services that
are offered by organization (Mohanty and et. al., 2012). Trends running in entertainment
industry can be assessed and on the basis of that manager of the company can take
effective decisions for gaining competitive advantage for business.
 Forecasting :- appropriate forecasting can be done about performance of business and
actual outcomes can be compare by set targets which will support in comparing the
performance of business. For instance, historical data are used to assess the trend of sales
of Merlin entertainment.
23

 Investment :- IT is required that investments should be done for executing desire
functions of business. All the investments related decisions can be taken in an effective
manner by making use of management accounting information. However, Merlin
entertainment can invest in increasing expertise of personnel so as to improve
performance of the business by rendering good quality of services to visitors.
 Raising capital:- Decisions related to forming action plans for raising capitals of business
can be taken in an organized manner by making use of information from management
accounting (Baumol and et. al., 2012). However, Merlin entertainment can uses sources
like issue of equity share, leasing companies and bank loan for raising finance related to
expansion and other activities of tourism.
 New products and services :-Total investments that will be needed to be done for
launching new products and services of the Merlin entertainment and decisions for
determining price and services of business can also be taken in effective mode. Apart
from this, Merlin entertainment can also offer new tour packages in accordance with
preferences of buyers. In this regard, modification can be done in pricing with addition or
more destination or extra facilities.
 Meeting budgets and meeting objectives :- current issues of business can be solved in
effective manner and strategies can be formulated for meeting budgets and meting
objectives of organization (Lapavitsas, 2012). For example, Merlin entertainment target
to increase sales turnover by 30% till the end of 2017 then budget objectives are framed
accordingly. In the same, promotional activities are designed so as to attract more buyers
and increase overall revenue of Merlin entertainment.
Therefore, management accounting information are helpful for corporations like Merlin
entertainment to assess detail information related to particular financial year. This assists
investors to take right decision related to investment by expecting certain rate of return. All the
information are processed through team of experts and decision related to promotion and other
related strategies to improve performance of business is taken. Owing to this, management
accounting information plays important role for creating competitive edge of the business in the
marketplace.
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TASK 3
3.1
As per the scenario, The Restaurant Group (TRG) operates over 470 restaurant and pub
restaurants and have popular brand of Frankie & Benny, Coast to Coast, Brunning and so on. It
also operates a concession division which trade over 50 outlets primary in UK airports. Here,
TRG’s internal financial performance for the year 2014 and 2015 has been examined using ratio
analysis method. Moreover, it also has been compared with its competitor, Whitbread Plc on the
basis of variety of ratios enumerated below:
Ratios Formula 2014 2015 2014 2015
Profitability ratios GBP
million
GBP
million
GBP
million
GBP
million
Turnover 635 685 2294 2608
Gross profit 114 127 1990 2275
Net profit 67 69 328 370
EBIT 80 89 390 499
Total capital
employed
Total assets-current liabilities 245 284
2873 3150
Gross margin Gross profit/turnover*100 17.95% 18.54% 86.75% 87.23%
Net margin Net profit/turnover*100 10.55% 10.07% 14.30% 14.19%
ROCE EBIT/Capital employed*100 32.65% 31.34% 13.57% 15.84%
Liquidity ratio
Current assets 29 38 196 164
Current liabilities 122 136 475 584
Stock 6 6 31 37
CR Current assets/current liabilities 0.24 0.28 0.41 0.28
Quick ratio/acid test
ratio
(Current assets –closing
stock)/Current liabilities
0.19 0.24
0.35 0.22
Efficiency ratio
COGS 521 558 305 333
Debtors 2 2 0 0
Creditors 51 56 423 464
Inventory/stock
turnover ratio
COGS/Inventory 86.83 93
9.84 9.00
Debtors receivable
period
Accounts receivables
/Revenues*365 days
1.15 1.07
0.00 0.00
Creditors payment
period
Accounts payables/COGS*365
days
35.73 36.63
506.21 508.59
Solvency ratio
25

Debt 39 31 433 512
Equity 245 284 3348 3734
Capital gearing (Long-term liabilities/Equity
capital employed
0.16 0.11
0.13 0.14
Profitability ratios are used to evaluate that whether company earned enough return or not
through their daily course of activities.
 Increased gross profit ratio of TRG from 17.95% to 18.54% is a clear indication of more
return on total sales revenue (Tsai and et.al., 2016). However, comparatively, Whitebread
Plc’s gross profit ratio is very high to 87.23% shows that this company is generating
more return on their turnover through effective control over direct cost.
Decreased net profit from 10.55% to 10.07% indicates that this year, TRG acquired less amount
of net yield on their total sales, however, on the contrary to this, Whitebrad’ net margin is higher
to 14.19% because of more sales worth 2608 GBP million and control over routine expenses (
 Kumbirai and Webb, 2010). TRG’s ROCE got decreased to 31.34% whilst Whitebread Plc’s ratio got enhanced to
15.84% shows that it is generating better return on their total capital employed due to
more net yield.
Liquidity ratios are typically used to assess that whether business is able or not to pay their
deferral payments to suppliers on right time.
 TRG’s CR got enhanced to 0.28:1 whereas Whitebread Plc’s ratio got decreased from
0.41 to 0.28. Both the company’s ratio is equal but still, improved ratio is an indicator of
improvement which shows that TRG enhanced its resources to pay suppliers on right
time (Guo and et.al., 2010). But still, it is lower than standard ratio of 2:1 make it
necessary for the business to maximize their inventory, receivables and cash position to
strengthen its creditworthiness. TRG’s quick ratio got improved to 0.24:1 reflects that company maximized its capability
to repay creditors on time. While, Whitebrad Plc’s ratio shows a downward change to
0.22:1 is a sign of less liquidity. Both the company’s ratio are far away from the ideal
ratio of 1:1 necessitates firm to maximize their liquidity position through minimizing
current liability and maximizing nearby assets except inventory.
26

Efficiency/activity ratios are the measures which are used to evaluate that how efficiently
managers are utilizing corporate assets to acquire revenue.
 TRG’s stock turnover ratio rose from 86.83 times to 93 times indicates that firms
managers, executives and directors are using assets in the best possible manner to obtain
more revenue (Petzke, Fuller and Metges, 2010). On the other side, Whitebread Plc’s
ratio got changed from 9.84 times to 9 times and also it is almost 10 times lower than
those of TRG shows poor managerial effort to ensure optimum utilization of stock. TRG’s receivable days got decreased from 1.15 days to 1.07 days, whereas payable days
rose from 35.73 to 36.63 days. This data reflects that managers are trying to manage cash
funds by receiving promptly from the debtors and making delayed payments to the
suppliers (Annual report, 2015). On the contrary to this, Whitebread Plc’s debtors shows
nil balance means managers supplied goods only on cash basis whereas creditors days got
inclined to 508.59 days showing that managers extended credit duration by negotiating
with the suppliers.
Solvency ratios are used to examine that whether entity is able or not to pay their long-term
liabilities as per repayment schedule.
 Decreased debt-to-equity ratio of TRG from 0.16:1 to 0.11 is a sign of less investment
risk. Excessive use of shreholder’s equity worth 284 GBP million and less use of debt
sources worth 31 GBP million are the reason for less risk (Tsai and et.al., 2016). On the
other side, Whitebread Plc’s ratio gone improved from 0.13:1 to 0.14:1 due to rising use
of debt and equity fund (Quick Ratio, 2016). Comparatively, it is lower in TRG
indicating lower investment risk, but the ratio is still far away from the idle ratio of 0.5:1
shows that TRG can gather long-term money from debt as it is comparatively cheaper
source of money and manage their cost of capital.
27

TASK 4
4.1 Aanalyzing sources and distribution of funding for the development of new theme park and
cylce route associated with tourism
In the modern era, finance can be termed as the life blood of every business enterprise. The
project selected for this task is cycle route development where appropriate sources of finance is
important (Wooller, 2014). At present there are wide ranges of financial sources available for
cycle route development project. For this purpose, project can be completed by accessing
appropriate sources of finance (Bandy, 2014). This different sources of finance are explained are
follows- However, it can be argued that one of the most challenging issues which have been
faced by development authorities is linked with selection of suitable sources of finance. Some
sources which can be used are mentioned below as:
 Regional development fund – It can be considered as one of the most popular source
which is taken into consideration for cycle route development project. The main and most
important objective of this project for ease of passengers (Gatti, 2013). It would be
effective for catering their need and giving rich experience to visitors. In this manner,
regional development fund is the most effective aspect so to develop the project in a most
effective manner. Along with this, it also supports in overall economic development of
travel and tourism sector by providing the required amount of finance.
 Europeans social funds – It is another important source from which required amount of
finance can be obtained for cycle route development. The funds have been developed
with the purpose of supporting tourist destination to provide good platform for their
visitors (Mohanty and et. al., 2012). Apart from this, Europeans social funds make it
possible to finance for new project and ensuring development of the same in relatively
less time span (Mutch, 2016).
 Issue of share- It is another effective source of finance which is available for cycle route
development. At this juncture, initial public offering is made available for meeting
generating enough fund for different parties in the business. The money obtained from
issue of share can be used for carrying cycle route development (Baumol and et. al.,
28

2012). It is considered as the cost effective source under which different parties invest
their money for development of tourism sector. In addition to this, corporation to need to
ensure that issue of share can be accessed in less time span so as to manage all
operational activities in time.
 Loan from bank – It is a source of finance which is not only used by companies but it is
also used very commonly by general public in the market. In order to arrange adequate
funds or finance for cycle route development, bank loan can be selected as a source of
finance (Lapavitsas, 2012). Furthermore, loan from bank can be received on two different
types of interest rates which are fixed and floating rate of interest. In situations where
government officials and development authorities has opted for fixed rate then they will
need to pay a fixed rate of interest until and unless the loan is repaid. On the other side of
this, if the development authorities take loan then they will have to pay tax on right time
otherwise it may affect their credit rating (Finnerty, 2013).
Sources of finance for New theme park (Private project)
Equity
 Adequate amount of fund will be raised for New theme park through equity. In this
regard IPO will be bring by the firm in the primary market. Through this IPO relevant
amount will be collected from general public and will be invested in development of
theme park. The main source of funding will be trading of shares in the stock market.
Totally 500 million of amount will be raised from the stock market. 80% of the amount
will be invested in the core business activity and remaining amount will be keep aside to
meet working capital needs of projects (Funding sources for charities and non profit
organisations, 2017).
Debenture
 New theme park project can be financed through debenture as it is a long term debt
source of finance. Permission from regulatory authority is necessary to issue debentures
in the market. All debenture holders will be paid fixed rate of interest annually in respect
to value of debentures they hold for specific duration. . Debentures valued at £500
million will be raised from the market by issuing financial instrument to relevant entity.
29

Entire investment money will be received by the stock exchange which will transfer
relevant amount to bank account of Merlin entertainment. 70% will be invested in new
theme park project and 30% amount will be kept aside to meet day to day business
expenditures (Akintoye and Beck, 2009).
NEW THEME PARK AND CYCLE SUPERHIGHWAYS (CYCLE ROUTE
DEVELOPMENT)
The project selected for this task is new theme park and Cycle Superhighways (cycle route
development) where appropriate sources of finance is important
Source of finance for Cycle route development (Public project)
Regional development fund
It can be considered as one of the most popular source which is taken into consideration for Cycle
Superhighways (cycle route development) project. The main and most important objective of this
project for ease of passengers. It would be effective for catering their need and giving rich
experience to visitors. It will generate approximate 600 million pound for Cycle Superhighways
(cycle route development).
Europeans social fund
It is another important source from which required amount of finance can be obtained for Cycle
Superhighways (cycle route development). The funds have been developed with the purpose of
supporting tourist destination to provide good platform for their visitors. Apart from this,
Europeans social funds make it possible to finance for new project and ensuring development of
the same in relatively less time span. However, total 500 million pound will be provided by
European social funds for developing Cycle Superhighways (cycle route development) in London.
30

Loan from bank
It is a source of finance which is not only used by companies but it is also used very commonly by
general public in the market. In order to arrange adequate funds or finance for new theme park and
Cycle Superhighways (cycle route development), bank loan can be selected as a source of finance.
The amount of bank loan can be approximate 450 million pound for the development of new theme
park and Cycle Superhighways (cycle route development)in London
Sources of finance for New theme park (Private project)
Equity
 Adequate amount of fund will be raised for New theme park through equity. In this regard
IPO will be bring by the firm in the primary market. Through this IPO relevant amount
will be collected from general public and will be invested in development of theme park.
The main source of funding will be trading of shares in the stock market. Totally 500
million of amount will be raised from the stock market. 80% of the amount will be
invested in the core business activity and remaining amount will be keep aside to meet
working capital needs of projects (Funding sources for charities and non profit
organisations, 2017).
Debenture
 New theme park project can be financed through debenture as it is a long term debt source
of finance. Permission from regulatory authority is necessary to issue debentures in the
market. All debenture holders will be paid fixed rate of interest annually in respect to value
of debentures they hold for specific duration. . Debentures valued at £500 million will be
raised from the market by issuing financial instrument to relevant entity. Entire investment
money will be received by the stock exchange which will transfer relevant amount to bank
account of Merlin entertainment (Akintoye and Beck, 2009). 70% will be invested in new
theme park project and 30% amount will be kept aside to meet day to day business
expenditures.
31

CONCLUSION
The aforementioned report concludes that finance and funding is the most important for
company to access cost effective sources of fiance through which company can create its
competitive edge in the marketplace. It can also be said that business can select appropriate
pricing strategies so as to recover cost of production and cater need of stakeholders in an
effectual manner. It assists business to focus upon cost structure and accordingly find the
appropriate strategy to offer good quality of services in a affordable price.
However, financial statements can be analyzed effectively with the help of ratio analysis.
This enables corporation to cope up with changing scenario and determine long run success of
the firm with increased rate of return. Moreover, political, economical and technological factors
directly affect profitability of the business and company need to take action in the same manner.
In addition to this, cost effective sources of funding and distribution aids to implement the
development projects and meet expectations of visitors associated with same sector. Moreover,
management accounting information assists business entity to take better decision whereby
company can seek long run growth with increased rate of return.
32

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