Finance and Funding in the Travel and Tourism Industry Report

This report provides a comprehensive analysis of finance and funding within the travel and tourism sector. It begins by examining the importance of cost and volume in financial management, using Carnival Plc as a case study, and explores various pricing methods. The report then delves into the different types of management accounting information and its role in decision-making. A significant portion is dedicated to interpreting the financial accounts of The Fulham Shore Plc. Finally, the report concludes by investigating the sources and distribution of funding for the development of capital projects related to the tourism sector. The report covers various aspects including cost analysis, pricing strategies, financial statement interpretation, and funding mechanisms, providing a holistic view of financial management in the travel and tourism industry.

Finance and Funding
Travel and Tourism Sector

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1 ........................................................................................................................................1
1.1 Importance of cost and volume in financial management of T&T sector:...........................1
1.2 Pricing methods used in travel and tourism sector: .........................................................3
1.3 Factors influencing profits of travel and tourism business:..................................................4
TASK 2............................................................................................................................................6
2.1 Different types of management accounting information:.....................................................6
2.2 Use of management accounting information as a decision making tool:..............................7
TASK 3............................................................................................................................................7
3.1 Interpretation of financial accounts of The Fulham Shore Plc.............................................7
TASK 4..........................................................................................................................................12
4.1 Sources and distribution of funding for development of capital projects related to tourism
sector.........................................................................................................................................12
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................16

INTRODUCTION
For any company engaged in tourism sector, significant emphasis should be required on
finance and funding requirements to run business operations efficiently and in effective manner.
Finance means get money from various sources and use this money for business purposes for
running of a business. Financing and funding are used in business to get money from different
sources and applied them in required areas of business in optimum way. This report explains the
importance of finance and funding activities in the context of travel and tourism sector. This
report is divided in four task and for each task, there is a different scenario is given. First task
defines importance of cost and volume, various pricing method used and factors which influence
various profits by taking Carnival Plc for this purpose . Second one describes the different types
of management accounting information which is used by company, third task provides
interpretation of financial statements of Fulham Shore Plc. The last task defines sources, from
where funds are received and their distribution for development of capital projects of tourism
sector.
TASK 1
1.1 Importance of cost and volume in financial management of T&T sector:
For understanding this, a company named Carnival Plc is taken. The details about this
company is as:
Carnival Plc: Carnival Corporation & plc is a UK based travel, tourism and cruise operator
company, currently the world's largest travel leisure company, with a combined fleet of over 100
vessels across 10 cruise line brands. Company is planning a holiday trip to a resort lasting one
month for its tourists. The company will also book a floor of a hotel at a resort to accommodate
its tourists.
While conducting this tour, various aspects relating to financial management relating to
this is considered by Carnival Plc to make profits from this tour. For this, organisation should
have a knowledge of following terms which are: Cost: Cost for any company is important part to evaluate because it has a huge impact
on the profitability of company running in this sector like Carnival Plc (Evans,
Stonehouse and Campbell, 2012). For conducting any tour, firstly company should
estimate the cost which is incurred for this tour so that it can modify its plan
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accordingly to make tour profitable and it is also good for Carnival to have cost
estimation to know whether tour is profitable or not. Cost can be classified as follows:
 fixed cost: it is a cost which is stay fixed when changes occur in the volume of
activity, in other words, it remains fixed irrespective of volume of activity (Jucan
and Jucan, 2013).
 Variable cost: it is a cost which vary according to volume of activity.
 Direct cost: it is a cost which is incurred and can be specified directly in the product
or cost centre.
 Indirect cost: It is a cost which is not directly accountable and specified in the
product or cost centre but it is occurred. It may be either fixed or variable.
 Volume: In context of tourism sector, it can be defined as how many times Carnival
Plc is provided travel services to target customers services. In other words, it refers to
quantity of services, which an organisation serves to target customers. Cost and various
budget are allocated to volume of product or service. Carnival Plc has been providing
its services around the globe. There are various tools and technique which is used by
organization to compute the ideal volume tours and travel package that helps it to make
high amount of profits (Kimbu and Ngoasong, 2013).
Importance of cost in context of this industry are as follows:
Cost reduction:
For any organisation like Carnival Plc in tourism sector, cost estimation for tour plans
should be done, it is very beneficial for the company to do this to reduce the cost of tours and as
a result enhance the profitability of company.
Decision-making:
By taking more emphasis to Cost analysis, an organisation like Carnival Plc can assess its
performances and accordingly, take decision for the improvement of company. Important
decision like making plans & strategies for achievement of goals and objectives. Therefore,
analysis of cost is important for an organisation working in tour and travel sector.
Increasing performance of managers:
Cost analysis is helpful for the improving the performance of managers. By the help of
data which is collected through cost analysis, it can be used by these managers to take
meaningful decisions about the current & future business activities.
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Importance of volume analysis are as follows:
BEP analysis:
By using this analytical tool, a Carnival Plc can find level of volume of activity at which
it has no profit and no loss. This analysis is helpful for company to set the target volume of
activity at which it has optimised profits and has least cost. Break-even analysis is useful in
studying the relation between the variable cost, fixed cost and revenue. If a company has low
fixed costs, then it has low break-even point to compensate the its cost (Thakran and Verma,
2013). For an example, a company has a fixed cost of Rs. zero will automatically have broken
even upon the first sale of its product.
Economies of scale:
In the tourism industry, It can be said that it defines the relationship between quality of
service produce and cost of such production in context of tourism industry. In respect of Carnival
Plc company, economies of scale is all about maximising service volume with standard quality
and providing advantages through reducing the cost. By ensuring best quality, an organisation
can achieve its economies of scale through increasing its volume.
Dis-economies of scale:
In long run, it is seen that no company can achieve its economies of scale due to
unfavourable condition such as lowering operational efficiencies, higher level of operational
waste due to lack of proper coordination and mismatch between optimum level of output
between different operations. This condition is called as dis-economies of scale which is just
opposite of economies of scale. By volume analysis, Carnival Plc can decide its volume of
operation in future references at which it faces the problem of dis economies of scale and
accordingly take measures for the survival of company.
1.2 Pricing methods used in travel and tourism sector:
Decisions about which pricing method can used by tourism company is very crucial
decision as it ultimately effects the profitability of the organisation. There are various pricing
methods which can be adopted by the tourism enterprise which are discussed as follows:
 Cost plus pricing method: In this pricing method, price of products or services
is decided which is over and above its cost, in other words, a fixed percentage is
added in the cost to decide the price. This is very easy method to understand and
apply in the find pricing of services provided by tourism industry's company like
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Carnival Plc. Carnival cruise lines which is one of the brand of Carnival Plc is
adopted this method because it is most suitable for this brand (Jucan and Jucan,
2013).
 Market oriented pricing method: In this method, price is decided by market
forces, it can be high or low as per market conditions that prevails in the market
by competitors. The pricing of a services is entirely depended on the market and
competition which is exist in the market. Such pricing method is used by the
Holland America line cruise brand of Carnival Plc.
 Marginal costing pricing method: In this method, companies in this sector like
Carnival Plc. has taken only relevant cost in consideration of decision of pricing
of services provided by this company. Cost which is already incurred (historical
cost) and the cost (sunk cost) which is to be incurred in future but obligation is
decided in past is not considered relevant in deciding pricing of services provided
by the Carnival Plc. and this method is used by the Princess Cruises brand of this
company (Vogel, 2016).
 Absorption costing pricing method: In this method, all cost whether it is
incurred in past or is to be incurred in future in respect of providing services to
target customers is to be considered in price of these services. Seabourn is the
cruise brand of Carnival Plc and this brand uses this method to calculate the
pricing of services provided by it.
1.3 Factors influencing profits of travel and tourism business:
For understanding the factors which affect the profits of this sector, firstly, what is the
meaning of profit should be under-stable which is:
Profit: It is the positive amount which is remaining for a business after all cost and expenses
have been deducted from total sales. Profit is one of the most vital measurements in evaluating
the health and success of a business. However, profits can vary and should be considered with
other factors which affects this.
There are large numbers of factors that present in the market which effects the profit of
travel and tourism firm like Carnival Plc. A business should take into account these factors and
these factors are discussed in detail as follows:
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 Social environment: For any company in this sector like Carnival Plc, it should be
considered the various conditions that are existed in the society in which company works.
Place. This is necessary because social environment has a major influence on the
profitability of any organisation. This company has a complex business in nature and has
various cruise brands and large customer is targeted by company. Due to this, there is a
quick changes in target customers choices and preferences, as a result, services provided
by Carnival Plc is require a continuously change according to social need of customers.
But sometimes, it is not possible for an enterprises to change itself according to the
society requirements (Wanhill, 2013).
 Economic environment: This is another major factor due to which a company in tourism
sector like Carnival Plc. can either achieve more profit or can be suffered losses or low
profits. Economic environment consists of external factors in a business market and the
broader economy that can influence a business. This factor can be divided into two parts,
one is microeconomic environment which affects business decision making of individual
firm and other is macroeconomic environment which affects an entire economy and all of
its participants such as interest rates changes,taxes,inflation in the economy etc.
 Political environment: This is other factor that affects the profits of Carnival Plc
working in tourism sector. This includes the action taken by the government which affect
the daily business activities of Carnival Plc. For example one of the brand of this
company which is Holland America Line has has a operated in 100+ countries, therefore,
it has considered the different political environment which is existed in country to
country for optimise its profits.
 Poor Planning: This factor has also a major effect on the profitability of company, if
there is no planning or a plan is not so effective then it can causes company to suffer
losses or have low profits. As a result, staff shall not be able to do the business operations
in efficient manner. Carnival Plc should make a strong and effective plan for all its cruise
brand to make higher profits.
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TASK 2
2.1 Different types of management accounting information:
Management accounting information is very useful for decision making of managers in
the company, it provides financial data relevant to Fulham Shore Plc's manager's operations in
an effort to make sound business decisions. These different type of management accounting
information which are useful for Fulham Shore Plc are as follows:
 Financial statements: It contains financial performance of the company for specified
period of time. With help of financial statements, managers of Fulham shore Plc can
use this in taking key decision in various areas. These statements includes balance
sheet,income statement, cash flow statement etc. which provides profitability, liquidity
& stability position of the company (Lunt, Mannion and Exworthy, 2013).
 Budgets: Budget is very useful accounting information which is used by the managers
of Fulham Shore Plc. With the help of this, a company can modify its plan accordingly
for future perspective to make desired profit and achieve its desired goals & objectives
in near future. It can be used for the purpose of setting criterion and standards as well as
to identify the feasibility of set targets by the tourism enterprises as a tool of
management accounting. By making budgets for future periods, it can instruct its staff
and employees to do work for attainment of desired results as stated in budgets.
 Variance analysis: Variance analysis is used by the managers of a company operated in
this sector such as Fulham Shore Plc. to assess the reasons of differences between
actual performance and budgeted performances and make plans accordingly to
minimise these differences (Assaf and Josiassen, 2012).
 Cost allocation report: This is very important for Fulham Shore Plc to identify the
various cost during the business activities. It helps company to allocate the cost at right
place so that operations can be done in optimise manner and can be identify that
whether there is any excess cost incurred or not.
2.2 Use of management accounting information as a decision making tool:
The various management accounting information is very useful for company to make
key decision for benefits of company working in tourism industry like Fulham Shore Plc. The
major aim of Fulham Shore Plc is to provide the quality services to the customers as well as to
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achieve good profits. The management accounting information is helpful for making decision
about the development of new products as well as expansion of business. By the help of this
information, a company can identify the area where it can reduce its expenses without affecting
the profits of the company. Budgets provides us key information so that Fulham Shore Plc can
make its decisions over the future courses of actions and by the help of variances it can identify
the ways to cut down the variance in actual and budgeted figures (Page, Song and Wu, 2012). In
other words, by calculating variance, a company can control its unproductive activities so that
profits cannot be minimised.
With the help of management accounting information, a company can make necessary
adjustments in its working style (process) so that it helps company in achieving its overall
objectives and goals. This management accounting information includes various things such as
budgets, financial statements, variance analysis etc. that helps company in various area of
working of operations. Some of the basic decision making tools are described underneath:
Payback period:
This technique support company for assessing various investment so that accurate
decision regarding different decision. Methods is mainly used to examine particular cash flows
that help to generate maximum profit for company. This aid to form impressive financial
decisions, if NPV is more than zero then task is financially practicable.
Forecasting:
With the support of this tool management are able to effective for the improvement of
company performance and profitability. Forecasting tool support in effective planning, budgeting
for the development and financial growths. The manager of Fulham shore plc are able to improve
plans which are beneficial in handling and regulatory different project so that profitability can be
increased at a particular time frame.
Sensitivity analysis:
It is consider to be a examine of the Fulham Shore plc record and report that support to
determine uncertainness in end product of a numerical model or system. This provide assistance
which assist in making judgement about use of different sources. Therefore it aid in many
uncertain in the company that further used to make investments.
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TASK 3
3.1 Interpretation of financial accounts of The Fulham Shore Plc
Financial Accounts:
Financial accounts means balances of company's profits, debts, investments, cash flows
etc. which is used by the banks, investors etc. for measuring the performance of the company.
For interpretation of financial accounts various methods are used like cash flow statements,
trading accounts, profit and loss account and balance sheet. The above financial statements of the
The Fulham Shore Plc are as follows:
Income Statement of The Fulham Shore Plc for the year ended 25th March, 2018
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Balance Sheet of The Fulham Shore Plc as at 25th March, 2018
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Cash
Flow of The Fulham Shore Plc for the year ended 25th March, 2018
Measurement of financial performance:
Interpretation of financial account can be done by using ratio analysis:
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(1) Current Ratio: Current Assets / Current Liabilities
2017-18 2016-17
5503 / 12007 3925 / 14045
0.46 0.28
Current ratio means defines the relationship between the current assets and liabilities. It is
also known as working capital ratio. The ideal current ratio is 2:1. The Fulham Shore Plc has a
current ratio of 0.46:1 in the year 2017-18 and 0.28:1 in the year 2016-17 which indicate
improvement in current ratio in the year 2017-18 but still it is less than ideal current ratio
prevailing in the travel and tourism sector. Therefore company have to increase its current assets
or reduce its current liabilities.
(2) Quick Ratio: Quick Assets / Current Liabilities
2017-18 2016-17
4013 / 12007 2873 / 14045
0.33 0.2
Quick ratio is more rigorous than current ratio to test the liquidity. The ideal quick ratio is
1:1. Company having current ratio of 0.33:1 in the year 2017-18 and 0.2:1 in the year 2016-17,
which is below than standard quick ratio in both the year. Therefore, The Fulham Shore Plc have
to improve its quick ratio to compete in the industry.
(3) Return on capital employed: Earning before interest and tax / capital employed *100
2017-18 2016-17
142 / 53231 * 100 1507 / 46913 * 100
0.27% 3.21%
Return on capital employed measures the profitability and the efficiency with the capital
employed by the company. The Fulham Shore Plc has very poor return on capital employed that
is of 0.27% in 2017-18 and of 3.21% in 2016-17. Therefore they have to reduce its operating
expense or increase its revenue.
(4) Gross Profit Ratio: Gross Profit / Sales * 100
2017-18 2016-17
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22656 / 54695 *100 17888 / 40441 * 100
41.42% 44.23%
Gross Profit Ratio indicate the percentage of gross profit in terms of sales. Company
must maintain or increase its gross profit ratio as compare to last year(s). Presently company is
having gross profit ratio of 41.42% in 2017-18 and of 44.23% in 2016-17. Therefore company
have take concern on this matter to improve its gross profit ratio.
(5) Net Profit Margin Ratio: Net Profit / Sales * 100
2017-18 2016-17
-565 / 54695 *100 969 / 40441 * 100
-1.03% 2.40%
Net Profit Ratio indicate the percentage of net profit in terms of sales. Presently company
is having net profit ratio of -1.03% in the year 2017-18 which is considered as very poor
performance of the company. Therefore The Fulham Shore Plc and its management must take
immediate concern to reduce its expenses and increase its revenue.
(6) Return on Equity: Profit after tax / Net worth *100
2017-18 2016-17
-565 / 37632 * 100 969 / 38648 *100
-1.50% 2.51%
Return on equity means owners earning. 15-20% of return on equity is considered as
ideal and The Fulham Shore Plc has -1.50% return on equity in the year 2017-18 and 2.51% in
the year 2015-16. Performance of the company decline in the year 2017-18.
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TASK 4
4.1 Sources and distribution of funding for development of capital projects related to tourism
sector
CONCLUSION
From the above report it is concluded that cost and volume analysis shall be useful in
financial management for tourism sector to achieve higher profits. The pricing methods used by
the company in tourism sector has a significant impact on the success of the business. It is also
concluded that management accounting information plays a vital role in making key decisions.
For any company operated in tourism sector, it should have various analytical tools to interpret
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the financial statements. Right Sources and distribution of funding for capital projects is
necessary for its development.
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REFERENCES
Books and Journals
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