Travel and Tourism Industry of UK : Report
Added on 2020-01-23
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FIANANCIAL ANALSIS ANDMANAGEMENT
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................3Choice of company and justification for its inclusion................................................................3Identification of key events and announcements........................................................................4Changes in key financial trends..................................................................................................6Ratio analysis of Thomas cook...................................................................................................8Recommendation and conclusion..................................................................................................19REFRENCES.................................................................................................................................20APPENDIX....................................................................................................................................22INDEX OF TABLESTable 1: Ratios of Thomas cook......................................................................................................8ILLUSTRATION INDEXIllustration 1: Gross profit ratio of Thomas cook............................................................................6Illustration 2: Net profit ratio of Thomas cook................................................................................7Illustration 3: Gross profit ratio of Thomas cook............................................................................9Illustration 4: Net profit ratio of Thomas cook..............................................................................10Illustration 5: Operating profit ratio of Thomas cook....................................................................11Illustration 6: Current ratio of Thomas cook.................................................................................12Illustration 7: Quick ratio of Thomas cook....................................................................................13Illustration 8: Assets turnover ratio of Thomas cook.....................................................................14Illustration 9: Inventory turnover ratio of Thomas cook...............................................................14Illustration 10: Receivable turnover ratio of Thomas cook...........................................................16Illustration 11: Debt equity ratio of Thomas cook.........................................................................17Illustration 12: EPS of Thomas cook.............................................................................................17Illustration 13: PE ratio of Thomas cook.......................................................................................18Illustration 14: Dividend yield ratio of Thomas cook....................................................................19
INTRODUCTIONRatio analysis is a one of the most important technique that is used to measure firmperformance. In financial analysis firms are evaluated on the basis of various parameters. In thisreport Thomas cook which operates in the travel and tourism industry of UK is taken in toconsideration and is analyzed deeply by using different type of ratios. Justification for selectionof the firm is given in the report. After doing entire analysis and study of the firm somerecommendations are given in the report. Along with this conclusion is also derived at end of thereport.Choice of company and justification for its inclusionThomas cook is taken into consideration for the financial analysis of a company and it iscurrently operating across the globe. In many nations like India, China and UK, it is operating itsbusiness. In UK and Ireland, it is employing 9,262 employees. Thomas cook is taken for researchbecause it is one of the leading firms in the UK which is operating in the travel and tourismindustry. From past few years, it has been observed that its profitability has been shrinkingconsistently. This report is prepared to identify the factors due to which firm is not performingwell even it has good image among the public. Travel and tourism industry covers 9% of the UKGDP. . In past years, firm profitability was negative in value (Chen and Gupta, 2011). Thesecond factor that is taken into consideration while selecting Thomas cook is that travel andtourism industry is growing at a rapid pace approx 9% and instead of that, this firm is strugglingfor its survival and fast growth rate. Hence, it is very important to identify the reasons that areresponsible for very slow growth of firm in the industry. If there is slow growth rate of in caseof small or medium sized firm then to some extent it can assumed that that poor economiccondition of the nation is the main reason behind same. Thomas cook is the largest travel andtourism firm in the UK so it can be said that firm’s growth rate must be in alignment to theindustry growth rate. But this is not happening and firm is nowhere nearby to industry in terms ofgrowth rate which is a matter of concern for its top managers (Miller and Jones, 2010). In pastyears, firm’s top managers taken many decisions but results show that same were ineffective forthe firm in terms of growth rate. Ratio analysis method will be used to evaluate the performanceof firm. This will help in evaluating the business performance from various sides. This techniquewill also aid in assessing several strong and weak points in context of business. Thus, by this,
firm will be able to know the internal factors that are responsible for the slow growth of it. Thiscompany is chosen because its profitability was low and it will help in understanding the extentto which business environment puts negative impact on the firm’s profitability. It will also aid inunderstanding the internal factors and the roles played by same in the firm’s growth rate. Hence,it can be said that this ratio will to large extent help in identifying the factors to which firms mustgive due importance. Analysis of Thomas cook will also support in identifying the factors thatindirectly put their large impact on the firm’s financial performance. Identification of key events and announcementsThere are many events and announcements that put their impact on the firm’sperformance. These events will also affect the firm’s future performance in its business.Information about some of the events related to the firm is extracted from the Chairman reportsection of Thomas cook annual report.Signing of £ 800 million financing facility in May- As per the company’s annual report,it signed documents to obtain debt of £ 800 million from the market. Firm will use thisamount for funding its operations (Melnikov, 2011). Apart from this, debt amount willalso be used to open new branches of the firm in different nations of the world.Especially, in the nations where there are number of tourist destinations. This will put apositive impact on the firm earnings because in past years, firm did not earn good amountof profit in the business. Getting a huge debt from the market will help the firm inexpanding its business at a rapid pace.Commencement of joint venture with Chinese firm, Fosun- China is one of the largestmarkets in Asia in terms of travel and tourism. Every year large number of foreign peoplecome in China to visit places like Great wall of mentioned nation etc. Firm’s decision toexpand its business in China is good and it will also positively affect the business. Fosunhas become a joint strategic partner of Thomas cook and purchased 4% shareholding inthe firm. This received amount will be used by the firm to expand business in othernations of the world. Thus, this decision will positively affect the business firm.Exit of Greece from Euro-zone- Exit of Greece from Euro-zone was one of the majorincidents that badly affected the business firm (Ziegler, 2012). Greece is one of the mostfavorite tourist destinations in the Europe. Due to poor economic conditions, debt burdenand inflation rate were always high. Exit of Greece from Euro-zone has led to strong
currency fluctuation in the nation. This has affected revenue of the firm from Europeregion. It can be said that this event has negatively impacted the business firm. Unrest in Europe (Refugee) - Due to attacks in Syria and Iraq, there have availability ofrefugees in European nations and it is creating environment of tension among the generalpublic. This is the reason due to which many people who like to visit the tourist place arerefraining from doing so (Greiner and Wang, 2010). This event also negatively affects thefirm’s profitability. Hence, unrest in Europe create problem for the firm. Poor conditionsin Europe are also badly affecting the firm’s profitability.Terrorist attack on Tunisia- Terrorist attacks in Tunisia are also affecting the firm tosome extent. It was unfortunate event for the firm when terrorist attack happened in theTunisia’s firm and as per its annual report, 15,000 of its customers were repatriatedovernight from the mentioned nation. Thus, firm keeps its customer’s life safe in theforeign nation. It can be said that this event was not good for the firm. However byactively taking action its rescue people and create its good image among them. Hence, itcan be said that firm takes good decision and surely, it positively affects the businessfirm.
Changes in key financial trendsIn order to analyze firm performance and trend in which it is performingcharting of firmgross profit data is done. It can be seen from the charts that gross profit ratio of the firm isdeclining consistently which is matter of concern for the firm. Gross profit is a profit that iscomputed by deducting all direct expenses from the revenue. Firm gross profit is declining andelevation in cost is its one of the main reason. It can be seen that due to poor economicconditions inflation rate is high. Hence, cost of tour is high and it can be said that due to thisreason firm is not earning sufficient amount of profit in its business (Bangake and Eggoh, 2011).Poor economic conditions if the nations is one of the basic reason which is responsible fordecline in the firm profitability. However, management makes efforts in order to elevate itsperformance but due to unfavorable economic conditions strategies are not generating sufficientamount of return for the firm. Unrest in European nations is another reason which is creatingproblems for the firm. From trend it can be seen that gross profit of the firm is decliningconsistently and no reverse trend is occurring in the chart pattern. This is strongly indicating theconsistent poor conditions of Euro-zone is one the primary reason responsible for poorperformance of the firm.Gross Profit Ratio16001700180019002000210022001772186820202075209820152014201320122011Illustration 1: Gross profit ratio of Thomas cook
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