Finance and Funding in TTM: Analysis and Report on Akaglo Tours

This report provides a comprehensive analysis of financial management principles and practices within the travel and tourism sector, specifically focusing on Akaglo Tours. It begins by examining the concept of Cost-Volume-Profit (CVP) analysis and its significance in financial management, followed by an assessment of various pricing methods that can be employed by the company. The report then delves into management accounting information, exploring different types and their application, along with an evaluation of investment appraisal techniques as decision-making tools. Furthermore, it includes an interpretation of financial statements through ratio analysis, providing insights into the company's performance. Finally, the report assesses various funding sources that Akaglo Tours could utilize for developing new hotels or expanding its operations. The report covers financial planning, analysis, and strategic decision-making within the context of a travel company.

Finance and Funding in TTM

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
a. Examining the concept of CVP analysis and assessing its importance in financial
management.................................................................................................................................3
b. Presenting pricing methods which can be used by Akaglo Tours company...........................5
TASK 2............................................................................................................................................7
a. Explaining different types of management accounting information which can be used by
ATC.............................................................................................................................................7
b. Assessing the use of investment appraisal techniques as a decision making tool...................8
TASK 3..........................................................................................................................................10
a. Interpreting financial statements of TUI travel through ratio analysis..................................10
TASK 4..........................................................................................................................................14
a. Assessing funding sources which can be undertaken by the company for developing new
hotel...........................................................................................................................................14
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
In the current times, travel and tourism sector is growing with the very high pace. Now,
with the motive to make the vacations memorable individuals prefer to contract travel companies
which in turn provides them with attractive tour packages. In UK, there are several companies
which involved in planning specific packages as per the wants and expectation of customers. The
present report is based on Akaglo Tours Company which is planning to offer excusive summer
holiday trips to the customers. In this, report will provide deeper insight about the aspects of
financial management. Besides this, it also depicts the manner through which prices of the travel
packages can be determined by ATC. Report also entails how investment appraisal tools and
techniques aid in decision making aspects. Further, it also highlights the extent to which
profitability, liquidity and solvency position of the company is good. In this, internal and
external funding sources will also be described which firm can use for the new establishment.
TASK 1
a. Examining the concept of CVP analysis and assessing its importance in financial management
In the context of ATC, cost, volume and profit assessment is highly significant which
makes vital contribution in the aspect of financial management.
Cost: It implies for the sum of expenses incurred by the firm for offering travel packages
to the customers. Hence, ATC can distinguish expenses in terms of fixed, and variable and
thereby would become able to determine overall cost level.
Fixed cost: Expenses which are not affected from the number of units produced or
offered considered as fixed cost (Bulgurcu, 2012). Main examples of fixed cost in the context of
ATC include salaries of personnel etc.
Variable cost: Unlike fixed, variable cost affects from the number of units produced or
services offered to the customers. Hence, according to the units variable costs are affected to a
great extent. Variable expenses include insurance, electricity expenses etc.
Total cost: Fixed + Variable

(Source: Variable cost, 2018)
Volume: It has assessed from evaluation that volume plays a vital role in financial
management. Moreover, when firm offers services to the large number of customers then it gets
high economies of scale (Hall and Page, 2014). In this, by doing BEP analysis, ATC can assess
the number of customers which it needs to serve for attaining the situation of no profit no loss
BEP Graph
`
(Source: Break-even point analysis, 2018)
Profit: High volume and low cost positively contributes in the profit margin generated
by the firm. High economies of scale offer cost advantages to the firm and thereby enhances
profit level. In addition to this, using BEP tool business entity of ATC can identify the number of
tourists to whom travel packages need to be offered for getting the desired level of profit margin.

b. Presenting pricing methods which can be used by Akaglo Tours company
Pricing decision is highly prominent in the context of ATC which in turn enables firm to
get enough profit margins and recover cost or expenses incurred. There are several methods
which can be used by ATC for taking pricing decisions.
 Cost plus pricing: By using cost plus pricing method ATC can suitable price for the tour
packages offered. On the basis of such pricing strategy ATC firstly need to determine
unit cost and then need to add mark-up or profit margin which it wants to earn from each
customer (Long and Shi, 2017). For instance: cost of travel package pertaining to per
customer accounts for £7500 respectively. Further, business unit wants to get 20% profit
margin by offering travel package to each customer. On the basis of this, selling price can
be determined in the following manner:
Particulars Formula Figures
Cost of travel package per
customer
7500
Profit margin 20%
Price Unit cost + (cost * profit %) 7500 + (7500 * 20%) = 9000
GBP
On the basis of above evaluation, by charging 9000 GBP from each customer firm would
become able to get profit margin of 1500 GBP or 20% on cost.
 Competitive or market based pricing: In the current times, individuals select tourist firm
which offers travel packages at suitable prices. Now, customers compare each and every
aspect such as price, quality etc while taking decision in relation to tour operator (Yuan,
2009). Thus, by setting prices in line with the competitors ATC can influence decision
making of customers more effectually.
 Penetration pricing: On the basis of such pricing strategy, initially firm should set lower
prices for the offerings. This in turn offers opportunity to the firm in relation to building
brand loyalty through offering quality services at lower price level (Kireyev, Kumar and
Ofek, 2017). In accordance with this strategy, once loyalty has been built thereafter ATC
can generate enough profit by charging optimal prices. However, initially emphasis needs
to be placed on setting down lower prices.

c. Analyzing factors which have an impact profit margin of ATC
In travel & tourism sector, there are numerous factors which closely influence profit
margin of business units including ATC such as:
 Seasonal variations: Individuals prefer to visit different places during holidays and
specific season when weather is pleasant. Hence, seasonality trends or variations highly
impact growth and firm’s profitability. During non-peak season for enticing sales firm
make focus on offering special discounts to the customers. Thus, discounting aspects
influence profitability.
 Changing trends and customers preferences: Through evaluation, it has identified that
now taste and preferences of customers are changing with the very high pace. Now,
visitors prefer to deal with the firm which provide them with attractive tour packages and
make their holidays memorable (Bekaert and Hodrick, 2017). Hence, non-compliance
with the changing trends has significant impact on the customer’s decision making and
thereby sales as well as margin of firm.
 Bad debt: In ATC, level of bad debt has influence on organizational profitability. For
enhancing sales ATC focuses on offering travel packages to other institutions or firm on
credit basis. Hence, default which is made by the debtors in repayment has an impact on
organizational profit margin.
 Lack of effective planning and competent staff: Competent planning is the key of
organizational growth and success. In the case of ineffective planning ATC would not
become able to make optimum use of financial resources and thereby get profit margin.
In the service sector, skills and abilities of personnel have greater impact on the
satisfaction level of customers (Drehmann and Nikolaou, 2013). Hence, profitability of
ATC will be affected negatively in the case of having less skilled as well as competent
staff.
D1
Particulars Figures (in £)
Fixed cost 500000
Desired profit margin 100000

Selling price per unit 7500
Variable cost per unit 1250
Contribution 6250
Number of tourists need to be served for getting
desired profit margin
(500000 + 100000) / 6250
= 90
From analysis, it has identified that ATC should offer tour or travel packages to 90
customers or tourists for attaining the profit of £100000 significantly.
TASK 2
a. Explaining different types of management accounting information which can be used by ATC
There are several types of management accounting information which business entity of
ATC can undertake for the purpose of decision making:
 Variance analysis: Business entity can take appropriate action for performance
improvement and growth by taking into account the results of variance analysis. Under
variance analysis, actual performance is compared with the standard figures for assessing
or finding deviations (Eagles, 2014). Hence, through using the deficiencies assessed and
relative causes ATC can conduct training session, set realistic standards for the upcoming
period etc. By keeping all such aspects in mind it can be depicted that management
accounting tools aid in decision making to a great extent.
 Budgeting: ATC can develop competent and appropriate financial plan by employing
budgeting techniques such as incremental, zero base etc. In the context of ATC, ZBB is
highly effectual which helps in setting realistic budgeting framework (Barr and
McClellan, 2018). Moreover, under ZBB, emphasis is placed on evaluating business
activities related to the concerned period and cost level. Thus, considering ZBB, ATC can
set appropriate monetary plan for the concerned period.
 Financial statement analysis: Business unit can perform ratio analysis more effectually
using balance sheet, income and cash flow statement. Through this, ATC would become
able to get information about profitability, liquidity, solvency and efficiency. Through
such management accounting tool ATC can assess whether performance of the firm has

improved or deteriorated over the time frame. Hence, through analyzing financial
statements and thereby performance ATC can develop sound strategic & policy
framework which makes contribution in the organizational growth.
b. Assessing the use of investment appraisal techniques as a decision making tool
On the basis of given case scenario, ATC wants to improve decision making aspects by
taking into account or employing modern management accounting techniques. Hence,
investment appraisal techniques of management accounting are highly effectual which helps in
evaluating the viability of proposal in monetary terms. Tools of investment appraisal includes
payback, net present value and internal rate of return which helps in assessing whether long term
capital project will aid in the growth of business unit or not.
Payback method of investment appraisal helps in ascertaining time period within which
firm will recoup initial investment. In other words, payback assists in assessing time after which
firm will start making profit (Fraser, Bhaumik and Wright, 2015). However, on the critical note,
it can be stated that payback method avoids time value of money concept which in turn affects its
significance level. Under this, while taking decision business unit should give priority to the
project has less payback period.
Further, NPV method clearly entails return in the monetary form which ATC will
generate over the time frame and initial investment. Such method of investment appraisal has
high level of importance in the modern era as it presents solution considering time value of
money concept. In accordance with this, firm should select and invest money in the project
which offers higher NPV.
Internal rate of return method comes under discounting tools, which helps in identifying
profitability in terms of percentage. On the critical note, it can be presented IRR and NPV tool
does not help in comparing two mutually exclusive projects (Higgins, 2012). Hence, using
investment appraisal tools ATC can select most profitable proposal out of two or more.
For instance: ATC has two investment proposals with the similar initial investment such as
£200000
Payback period

Year
Cash
flows
of
proje
ct A
Cumulat
ive cash
inflows
Cash
flows
of
proje
ct B
Cumulat
ive cash
inflows
1
8000
0 80000
7700
0 77000
2
9500
0 175000
8900
0 166000
3
8800
0 263000
8400
0 250000
4
1050
00 368000
9800
0 348000
5
1200
00 488000
1040
00 452000
Project A: 2 + 25000 / 88000
= 2.3 years
Project B: 2 + 34000 / 84000
= 2.4 years
Computation of NPV
Year
Cash
flows
of
proje
ct A
PV
factor @
10%
Discount
ed cash
flows
Cash
flows
of
proje
ct B
Discount
ed cash
flows
1 80000 0.909 72727.3 77000 70000
2 95000 0.826 78512.4 89000 73553.7
3 88000 0.751 66115.7 84000 63110.4
4
10500
0 0.683 71716.4 98000 66935.3
5
12000
0 0.621 74510.6
10400
0 64575.8
Sum of
present
values 363582 338175
Initial 200000 200000

investme
nt
Net
present
value 163582 138175
Computation of IRR
Year Cash flows of project A Cash flows of project B
0 -200000 -200000
1 80000 77000
2 95000 89000
3 88000 84000
4 105000 98000
5 120000 104000
IRR 36% 33%
Outcome of investment appraisal presents that ATC will get high profit margin by
investing money in project A over B. Moreover, payback period of proposal is less in
comparison to B. Hence, in the case of project A business unit will start to get profit one month
earlier in against to B. Furthermore, NPV and IRR of project A are higher as compared to B.
Thus, by investing money in proposal A, ATC becomes able to get high profit margin over
others. This aspect clearly shows that investment appraisal tools help in taking profitable
decisions.
TASK 3
a. Interpreting financial statements of TUI travel through ratio analysis
Ratio analysis implies for the financial tool which helps in summarizing and evaluating
financial performance from several perspectives such as profitability, liquidity, efficiency as well
as investment (Financial ratio analysis, 2018). In this, for assessing the extent to which financial
position of TUI Group, a leading travel & tourism group, is good ratio analysis has been done.

Profitability ratio analysis: It helps in assessing profit margin generated by the firm over
the expenses incurred. The main aim behind using such ratio is to identify whether profitability
of the firm has improved over the time frame or not.
Particulars Formula 2017 2016
Gross profit 2000 1907
Net profit 645 1037
Sales revenue 18,535 17,185
GP ratio Gross profit / sales
revenue * 100
10.79% 11.10%
NP ratio Gross profit / sales
revenue * 100
3.5% 6%
Returns on equity 22.97% 45.22%
The above depicted table shows that profitability aspect of TUI Group has decreased over
the time frame. In 2016, GP and NP margin of TUI was 11.10% & 6% respectively. On the other
side, in 2017, gross and net profit margin of TUI Group accounted for 10.79% & 3.5%
significantly. Irrespective of inclining sales pattern or trend TUI failed to generate high and
enough margins. Hence, it can be presented that due to not having effectual control over both
direct as well as indirect expenses TUI travel group failed to get desired level of profit margin.
Hence, for making improvement in the current profitability aspect TUI needs to lay emphasis on
undertaking budgetary control tool and developing competent policy framework.
Liquidity ratio analysis
Particulars Formula 2017 2016
Current assets 4,318 5,326
Current liabilities 6,535 7,220

Stock 110 105
Prepaid expenses 573
Current Ratio Currents Assets/ Current
Liabilities
.66 .74
Quick ratio Current assets – (stock +
prepaid expenses) / current
liabilities
4,318 – (110 +
573) / 6,535
= .56
5,326
-105 / 7,220
= .72
Outcome of ratio analysis shows that current ratio declined from .74 to .66:1 respectively.
In addition to this, quick ratio of TUI implied for .56:1 at the end of accounting period 2017.
Referring overall position it can be mentioned that liquidity aspect of the firm is not good. On the
basis of ideal measure business unit must have 2 current assets in against to 1 obligation. Hence,
considering this, it can be presented that TUI Group was not highly capable in relation to
meeting short term obligations from current assets. Thus, firm needs to make focus on the
maintenance of enough assets as per the level of obligations for improving liquidity position.
Solvency ratio analysis
Particulars Formula 2017 2016
Long-term debt 631 364
Shareholder’s
equity
2940 2675
Debt-equity ratio Long term debt / shareholders
equity
.21 .14
From solvency ratio analysis, it has found that debt-equity position of TUI improved or
inclined from .14 to .21 at the end of FY 2017. According to the ideal ratio, firm should take

resort of 1 debt in against to 2 equities. Currently, dent-equity ratio of TUI Group was far from
the ideal ratio. Thus, for the development of optimal capital structure business organization
needs to make focus on including more debt. In other words, at the time of raising funds
company should keep in mind ideal ratio which helps in balancing cost level and thereby
enhances profit margin.
Efficiency ratio analysis
Particulars Formula 2017 2016
Inventory turnover Cost of goods sold / average
inventory
153.53 127.48
Fixed assets
turnover
Net sales / average fixed assets 4.65 4.68
Assets turnover Sales / average total assets 1.29 1.20
Results of ratio analysis clearly exhibits that inventory of TUI Group are sold and
replaced more frequently. It shows that inventory management of the company is good and
customers prefer to purchase travel packages from TUI travel over others. Further, fixed and
total assets turnover ratio presents that company is using cash, plant & machineries etc more
effectually while carry out business activities. Hence, on the basis of efficiency ratio analysis,
company’s performance can said to be good.
Investment ratio analysis
Particulars Formula 2017 2016
Earnings Per Share 1.10 1.77
Dividends .63 .56

Investment ratio assessment clearly exhibits that earnings per share declined from 1.77 to
1.10 at the end of FY 2017. On the contrary to this, dividend per share offered by the company to
its shareholders inclined from .56 to .63 respectively. Hence, it can be mentioned that as per
earnings TUI is offering high returns to the investors or shareholders.
TASK 4
a. Assessing funding sources which can be undertaken by the company for developing new hotel
Given case situation clearly presents that instead of hiring beach chalets for tourists ATC
wants to establish its own hotel in Maldives. For such capital project business unit requires £250
millions. Hence, for meeting monetary requirements in this regard business entity of hotel unit
can undertake several internal and external sources such as:
Internal sources of finance
 Retained earnings: With the motive to deal with the contingent situation ATC lays high
level of emphasis on retaining some amount of profit with itself rather than distribution
whole among the shareholders. Hence, using such retained profit firm can fulfil financial
needs and requirements effectually (Zimmerman and Yahya-Zadeh, 2011). On the critical
note, when firm uses retained profit then it is not in position to provide shareholders with
suitable returns in the form of dividend.
 Sales of unused assets: ATC can enhance funds for hotel establishment by selling of
unused assets. Usually, all the business units have some assets such as building, plant &
machinery etc which not using in the productive activities. Thus, by selling assets on their
scrap value ATC can get finance. Nevertheless, brand image is affected negatively when
firm sells its assets for meeting financial needs or requirements.
External funding sources
 Issue of shares and debentures: By issuing shares and debenture ATC can generate
funds to a great extent. Now, investors prefer to invest money in the shares of the firm
which is highly growing and offering suitable returns. Hence, through offering shares to
both existing and potential shareholders ATC would become able to meet financial

requirements significantly. In this, company offers dividend to the shareholders only
when it earns enough profit. Hence, such funding source does not impose any fixed
monetary burden in front of firm. However, in shares, interference of shareholders
increases in decision making aspect significantly.
 Bank loan: ATC can obtain funds for the capital establishment by taking loan from
financial institution. Interest charged on loan offers high income to the banking unit.
Hence, for generating high income banks are usually ready to offer financial assistance to
the growing and leading companies (Rubin and Babcock, 2013). Thus, by approaching
bank for loan on the basis of collateral security ATC can easily get funds for the
concerned project. Along with this, bank loan source of finance offers relief in tax
brackets. In addition to this, it also helps in repay the amount of loan in the easy form
such as instalments. However, under bank loan, business entity has to make interest
payment irrespective of the generation of profit margin during the concerned time frame.
Hence, at the time of raising funds business entity of ATC should keep in mind all the
benefits and drawbacks associated with the above depicted funding sources. It is advised to ATC
to make focus on enhancing funds through the combination of or undertaking shares and bank
loan source. This in turn helps company in developing optimal capital structure because ideal
framework is the one which contains both debt and equity in the ratio of 1:2. Along with this,
using retained profit sources and others ATC can get funds and become able to construct hotel in
Maldives.
CONCLUSION
By summing up this report, it can be concluded that CVP analysis is highly significant
which in turn makes contribution in the effectual financial management. Besides this, it can be
inferred that ATC can set suitable prices by taking into account cost-plus and competitive pricing
methods. It can be seen in the report that seasonality trend and changes take place in the
customer’s preferences have greater impact on firm’s profitability. Along with this, it has been
articulated that using budgetary control tools and techniques ATC would become able to exert
control over expenses and enhance profit margin. It can be summarized from the evaluation that
using IRR and NPV tool ATC can take suitable decision pertaining to investment. Moreover,

both such tools and techniques present solution by taking into account time value of money
concept. It can be stated from the evaluation that profitability, liquidity and solvency position of
the company is not good during the concerned years.

REFERENCES
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