Finance and Funding Report: Unit 2, Travel and Tourism Management, HND

This report delves into the critical aspects of finance and funding within the travel and tourism sector. It examines the importance of cost and volume management, exploring fixed and variable costs, and their impact on business decisions, with a focus on Merlin Entertainment. The report analyzes various pricing methods, including cost-plus pricing, and considers factors like competition, target markets, and break-even analysis. It further interprets financial statements and investigates diverse funding sources and their distribution, culminating in a comprehensive understanding of financial management within the industry. The report also covers the factors that affect the profitability of a business, including political and economic factors, and seasonal variations, providing a holistic view of financial planning and strategy in travel and tourism.

Finance and Funding

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Importance of volume and cost in management of finance..............................................1
1.2 Different pricing methods that will be used in travel and tourism sector........................2
1.3 Factors by which profits of business will be affected......................................................4
TASK 2............................................................................................................................................5
2.1 & 2.2 Covered in PPT......................................................................................................5
TASK 3..........................................................................................................................................10
3.1 Interpretation of financial statements.............................................................................10
TASK 4..........................................................................................................................................16
4.1 Various sources and distribution of funds......................................................................16
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................18

INTRODUCTION
Finance is the major requirement that is required to be taken into consideration so that
business can be carried out in the most effective and efficient manner (Evans, Stonehouse and
Campbell, 2012). For this there are various sources from which funds can be obtained and this is
an important decision that is to be made. For this the cost that will be involved in this will be
analysed. Various pricing methods that will be used in travel and tourism sector will be
considered in this report. The various management accounting information that can be used in
the process of decision making will also be described below. For this purpose the financial
accounts will be required to be interpreted with the help of various tools available. Also a poster
will be made in relation to development of capital project in which the distribution of funds will
be presented.
TASK 1
1.1 Importance of volume and cost in management of finance.
In the management of finance cost and volume plays an important role and so is the case
with merlin entertainments. With the help of them the finance that is required will be identified
and then various sources will be considered in relation to it (Swarbrooke and Horner, 2001). In a
business there are various cost that are to be incurred and for that it is necessary that all of them
should be properly analysed. Basically cost is categorised into two parts which are fixed and
variable costs. Fixed cost are those on which there will be no impact of the level of activities
undertaken but variable cost is the one which will be affected with the change in scale of
business. For the identification of cost it will be needed that volume be recognised which will be
including the number of units that are produced by the organisation in a specified period of time.
Between the cost and the volume there exist a direct relation which means that the cost will be
increased with the increase in the the volume and decrease with reduction in production.
In merlin entertainment funds will be required so that all the cost that is incurred can be
met and the activities can be carried out without any hindrance. As the company deals with the
attraction and resorts so in there will lot of cost that will be spend in order to attract large number
of customers. As the prices are increasing in the economy so the overall cost of the company will
be also be enhancing and the company will have to arrange for that. In travel and tourism the
cost in relation to the accommodation and travel will also be increasing so less people will be
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willing to visit different places and in order to attract them it will be needed that merlin
entertainment should undertake some promotional activities and offer such packages which will
be affordable for the public.
As in the competition the chances of loss in the number of customers increase so it should
be taken care off, that the burden of the increase in cost should not be transferred to the
customers and such steps should be taken by which the cost will be reduced so the need of funds
will also be declined. In order to meet the expenses and expand the business funds will be
required which will have to taken from the external sources such as banks and they will be
charging interest in them and also the available finance will be difficult to be allocated among
various departments which will further increase the complexity of the process. So in order to
achieve success it will be relevant for the merlin Plc to consider the impact of both cost and
volume as they both are highly connected with each other (Eagles, 2002). By them the
profitability will be affected to great extent and so it will be very much necessary to take all the
decisions in relation to them by taking into notice all the factors that will be affecting cost and
volume.
In this CVP analysis will be required to be undertaken in which it is identified that how
the income of the company will be affected by the change in the cost and volume. It can be said
that finance will be affected as profit is the amount that is used by the company for the
operations. Another technique which can be used in this is will be the break even profit or loss.
In this break even point will be calculated which is the unit at which there will be no loss and no
profit. So by it the level will be identified at which the company should maintain itself in order to
earn the required amount of profits. So by this it can be said that volume and cost and profit all
are related to one another and will have to be taken into consideration by the merlin
entertainment.
1.2 Different pricing methods that will be used in travel and tourism sector.
In travel and tourism business it is very important that the price in relation to the various
packages should be set in the most appropriate manner so that the maximum profits can be
earned by the merlin entertainment. For the purpose of setting a price it will be required that
fixed and variable costs should be taken into consideration. In fixed cost the expenses will not be
changed and the major expense in it will be in relation to purchase of fixed assets required in
business.
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In variable cost there will expenses that are incurred by merlin entertainment in day to
day conduction of various activities in business (Sharpley, 2006). After ascertaining both the
costs they will be added and then it will be needed that total cost that will be calculated will be
divided among the total customers who will be availing the services of the company. The cost
that will be determined on per person basis will be used by merlin entertainment in the process of
calculation of the price that will be charged in form of package. In order to determine the price
some amount of commission will be added to the cost. There is a method which has been made
in relation to calculation of the price which is cost plus price in which a fixed percent is required
to be added to the amount of cost and the derived value will be the price that will be charged
from the customers. As in this something is added to the cost in order to arrive at the price this
method is known as cost plus price. also there are various factors that will be considered which
are explained here under:
Competition: In the tourism business the level of competition that is faced by the company is
high and so it is necessary that the price that is charged by them should be taken into
consideration so that it can be used in the process of fixation of price. The package price should
be such by which competition can be dealt with in the most effective manner and it should be
noted that whole focus should not be on the cost. So it is very important that the strategy the is
used by competitor should also be considered so that the best price can be fixed which will be
providing benefit to both the company as well as customers. There are various competitors in the
market with whom merlin will have to deal and they include Club corp and Royal orchids hotel.
Target market: In this method a target market is selected in which the expansion will be carried
out and for that the needs of the customers of that market will be identified and then the package
will be developed on that basis and price will be set at that level which the customers of that
market are willing to or will be able to pay. There can be any sector which can be selected as
target market and this may include the children or the families.
Demand in market: In this if the demand in the market is more and customers are willing to pay
for the services of merlin entertainment then it can charge any amount. But it should be noted
that it the chance for the company to increase its sales even more and for that the price should be
set at reduced level by which more number of customers will be attracted and company will have
the opportunity to earn more. An example of this can be that the demand will be low in winter
season and high in simmer season because most of the visitors travel at that time.
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Break even analysis: In the fixation of price it should be noted that in order to deal with the
competitors the price should not be too low as by that the cost will not be recovered and
company will have to suffer losses (Hausmann, 2007). For this break even analysis is the best
technique that can be used as by this that amount will be determined at which the merlin
entertainment will not be making any profit or loss. The amount that will be determined will be
used to fix the price at which required profits can be earned.
Cost plus pricing: This is another method in which certain percentage of profit will be added to
the cost of the product. Then that will be the price that will be charged from the customers.
In addition to them there are various other methods that can be used which includes
marginal and absorption costing, top down method and return on investment. Merlin
entertainment can also use them so that it can ascertain the most appropriate price and by that the
overall profitability of the company will be improved.
1.3 Factors by which profits of business will be affected.
Profit is the main motive behind every business for which it is carried out. This is the
amount that is earned by merlin entertainment after deduction of all the cost that have been
incurred. In relation to it there are various factors by which it will be affected and it is necessary
to consider then so that any adverse impact can be avoided. In travel and tourism sector there are
various business that are carried out which includes restaurants, hotels, travel agencies and they
all will be required to earn profits. The major factors that will be have to be considered are:
 Political factors: In this the factors in relation to government are considered (Morgan,
2004). It means that if the company will be having support of government then it will be
able to generate revenue. In order to maintain the attraction merlin entertainment will be
required to ensure that the vision of museum and other places is ensured so that more
people will visit and if it is not done then profits will be affected.
 Economic environment: As the economy is growing so there will be need that all the
factors should be considered as lot of funds are required which will be arranged from the
external sources and in them interest cost will be incurred. By this the profit will be
affected as if more interest will be paid then profits will be reduced so it is necessary that
the borrowings should be maintained at appropriate level.
 Seasonal variations: In travel and tourism it is the most important aspect that should be
noted as in peak season the number of visitors will be more and in non peak season there
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will be less visitors. So by them profits of the merlin entertainment will be affected. As
there will be lees customers so company will be able to earn less amount of profits.
 Technological factors: The profits of the company will also be affected by the
technology this is because in the changing environment there are various technologies
which keeps on coming and it will be needed that they shall be incorporated in the
business so that by using them the sales of the company can be increased.
TASK 2
2.1 & 2.2 Covered in PPT
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TASK 3
3.1 Interpretation of financial statements.
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Particulars 2015 2016
Current ratio 0.28 0.36
Acid test ratio 0.23 0.32
Return on capital employed 32.44% 111.84%
Net Gearing ratio 11.18% 15.12%
Net profit Ratio 14.24% 40.75%
Working Notes:
1. Current ratio represents the difference between current assets and current liabilities. This
reflects the relationship between them. In 2015, company's current ratio is 0.28 and in 2016, it
goes increase to 0.36.
Under this 2015, current ratio represents 38.01/136.4=38.192.
In this 2016, 0.36= 49.81/139.91
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2. Acid test ratio: This is the ratio which reflects the relationship between liquid assets and
current liabilities. Under the given question, this is calculated as liquid assets/current
liabilities.
In 2015, Acid test ratio is 31.61/136.4=0.23
In 2016, Acid test ratio is 44.18/139.91=0.32
3. Return on capital employed: Earnings before interest and tax/capital employed*100
In 2015, Capital employed= 32.44%* 99.60=307.21
In 2016, Capital employed= 111.84%*286.89=256.52
4. Net gearing ratio: This is calculated by using total debt/ shareholder equity.
In 2015, total debt is calculated: 11.18%*81.77= 9.14
In 2016, total debt is calculated: 15.12%*82.09= 12.41
5. Net profit ratio: this is calculated by using net profits/sales*100
In 2015, net sales is =68.89/14.24%=483.7781
In 2016, net sales is= -39.52/40.75%=96.98%
In The restaurant group there are various information that is available with the help of the
financial statements which can be used to draw the interpretation. For this purpose there will be
requirement to calculate various ratios by which the performance of the company can be
evaluated.
Current ratio: With the help of this ratio the level of current assets that are maintained by the
company in comparison to current liabilities will be determined (Nash, Koyabe and Stansbie,
2006). The standard ratio is said to be 2 in this. It is said that if the current assets are twice the
liabilities that it is considered that company is having good position. In the given case the ratio
has increased from 0.28 to 0.36 which means that company is improving its assets position but
then also lot of improvement is still required as it has not reached the standard set.
Quick Ratio: In this the quick asset are compared with the liabilities. These are those assets
which can be converted in cash easily. This ratio was at 0.23 in 2015 and has reached to 0.32 on
1st January 2017 which shows that company is growing and is increasing its cash reserves. By
this it can be interpreted that company will be successful in making its payments of current
liabilities on timely basis. This will result in enhancement of its image in whole market.
Return on capital employed: Capital employed is the amount that is invested in the business
and this ratio shows the amount that has been earned with the help of it. This shows that whether
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the amount has been utilised in the proper manner or not. The return of company has increased
tremendously and this can be seen from the ratio which has raised from 32.44% to 111.84%. It
means that the company is able to utilise its capital in appropriate manner and by that its earnings
have experienced a growth. This is considered as positive factor as now expansion can be carried
out and also various investments can be made.
Gearing ratio: This ratio shows the amount of equity that is maintained in comparison to debts.
It should be noted that it should remain at lower level as high amount of debt is not good for the
company. In the given case it has increased from 11.18% to 15.12% which means that debt of the
company is increasing and this not a good sign and company should control its borrowings. As
the borrowings are increasing so this will lead to rise in interest expenditures. By this overall
development will be affected as less amount will be available to be used for expansion.
Net profit ratio: Net profit is the amount of profit that is earned by the company after deducting
all the expenses. With the help of this ratio the profitability will be determined and it is good
when it will be increasing. The company is earning good amount as its profits are increasing
from 14.24% to 40.75% which is good. As the profits are raising so it can be said that all the
expenses of business are maintained in best manner. Also utilisation is done in such way which
leads to profit increments.
In business it is required that financial performance shall be evaluated and for this there
are various tools which can be used. Ratios are described above and in addition to them we can
use some other also which includes key performance indicators. In this standards are fixed which
are to be followed and by that it will be possible to maintain all the work in most appropriate
manner.
In order to deal with all the problems it can be said that governance is required to be
maintained and in that all the funds can be utilised in proper manner and by that company will be
able to attain more profits and benefits. The position of company is good and it needs
improvement in some areas which are to be made.
It can also be analysed that cash balance of the company is increasing and this can be
ascertained from cash flow statement that is presented above (Chaisawat, 2006). The cash
balance is the main thing that is to be maintained so that investment can be made and profits can
be further increased. So in all it can be said that company is growing and is maintaining its
position in the market and will be achieving further growth.
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TASK 4
4.1 Various sources and distribution of funds.
In the travel and tourism business there will be need of the development of capital
projects in which heritage sites will be developed and also the infrastructure will be required to
be improved and the information regarding them will be provided to the potential customers so
that they can be attracted (Seth, Seth and Bhat, 2003). It will be required that proper promotion
should be carried out with the help of using various media sources that are available. For this
purpose the funds will be needed in large amount and for that it will be necessary that various
sources which are available should be analysed in proper manner so that the most appropriate
one can be selected. The funds can be collected from internal as well as external sources. It will
also be needed that railway facility should be improved so that it becomes convenient for the
people to travel to different places and by that tourism will be promoted.
Internal sources: In this the funds will be arranged by the owner by himself and will include the
owners capital and retained earnings and personal savings. This will be that amount that is
reserved by the business so that it can be used in case of emergency. This will be the cheapest
source as in this there will be no additional cost that will be required to be incurred but this
cannot be used in case the large amount of funds will be needed. Retained earnings are that
amount which is saved from the profits of current year and that can be utilised by company in
future period when there is shortage of funds. Also any amount can be brought by the owner and
that is known as owner's capital.
External sources: These are those sources in which the funds are made available by the third
party. There are various methods in this which are debts and borrowings that will be raised from
the banks and financial institutions. For the funds that will be provided bank will be charging the
interest at a fixed rate that will have to be paid on timely basis. Also the funds can be obtained on
the security of assets or by giving any other proper in exchange of the amount. By theses
methods large amount of money can be raised but the methods will be costly in comparison to
the internal sources. As they are obtained from outside so the amount of risk which is related to
them is high. In this debentures can also be issued as by that funds will be raised that can be
utilised for various purposes.
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The manner in which it shall be raised is to be decided after proper analysation and for
that all the merits and demerits in respect of different sources shall be taken into consideration.
By that the source with the help of which funds at least cost are available shall be selected.
Before obtaining the money it will be required to identify the period for which the funds
will be required and then on basis of that best method will be selected which will be most
profitable for the business (Becker, 2016). The acquired funds will then be distributed among
various capital projects that are undertaken by the company so that they can be completed in time
and that too in most effective and efficient manner. By this the projects will be developed in
appropriate manner and new services will be introduced and the objectives that are set in relation
to travel and tourism will be achieved. By this the sector will be experiencing growth as more
funds will be available which will be invested in profitable proposals and by them large number
of visitors will be attracted as they will be getting best facilities and also new services different
from what others are provided by which they will get maximum amount of satisfaction.
CONCLUSION
From the above mentioned report it can be concluded that finance will be required in the
business so that it can be conducted in the efficient manner. In travel and tourism sector there
will be various investments that will have to be made and for that information will be collected
on the basis of which decisions will be made. There are various price strategy that will be used
by the company so that the best price can be set and by that company will be able to increase its
profitability.
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REFERENCES
Books and journals
Becker, E., 2016. Overbooked: the exploding business of travel and tourism. Simon and
Schuster.
Bennett, J. A. and Strydom, J. W. eds., 2001. Introduction to travel and tourism marketing. Juta
and Company Ltd.
Chaisawat, M., 2006. Travel and tourism education in Thailand. Journal of teaching in travel &
tourism. 5(3). pp.197-224.
Dale, G., 2005. BTEC national travel & tourism. Heinemann.
Dwyer, L., 2007. International handbook on the economics of tourism. Edward Elgar Publishing.
Eagles, P. F., 2002. Trends in park tourism: economics, finance and management. Journal of
sustainable tourism. 10(2). pp.132-153.
Evans, N., Stonehouse, G. and Campbell, D., 2012. Strategic management for travel and
tourism. Taylor & Francis.
Hausmann, A., 2007. Cultural tourism: Marketing challenges and opportunities for German
cultural heritage. International Journal of Heritage Studies. 13(2). pp.170-184.
Morgan, M., 2004. From production line to drama school: higher education for the future of
tourism. International Journal of Contemporary Hospitality Management. 16(2). pp.91-
99.
Nash, R., Koyabe, D. and Stansbie, P., 2006. Impact of European Union funding on tourism in
the Grampian Region. International Journal of Tourism Research. 8(4). pp.247-261.
Seth, P. N., Seth, P. N. and Bhat, S. S., 2003. An introduction to travel and tourism. Sterling
Publishers Pvt. Ltd.
Sharpley, R., 2006. Travel and tourism. Sage.
Swarbrooke, J. and Horner, S., 2001. Business travel and tourism. Routledge.
Xu, F., Morgan, M. and Song, P., 2009. Students' travel behaviour: a cross‐cultural comparison
of UK and China. International Journal of Tourism Research. 11(3). pp.255-268.
Online
Travel and Tourism Management . 2017. [Online]. Available through:
<https://www.northampton.ac.uk/study/courses/travel-and-tourism-management-hnd/>.
[Accessed on 17th July 2017].
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