Finance and Funding in the Travel and Tourism Sector Assignment Report

This report provides a comprehensive analysis of finance and funding within the travel and tourism sector. It begins by exploring the importance of cost and volume in financial management, examining techniques such as CPV and break-even analysis within the context of Merlin Entertainment Plc. The report then delves into pricing methods, including cost-plus, market-led, and cost-led approaches, with examples from companies like EasyJet and Titan Travel. Furthermore, it identifies key factors influencing profit in the travel and tourism business, such as seasonal variations, political and economic environments, social trends, and the importance of planning. The report also touches upon management accounting information, the financial accounts of The Restaurant Group (TRG), and sources and distribution of funding for capital projects, illustrated with a poster for the Cross Railway project. This report provides valuable insights into the financial strategies and challenges within the travel and tourism industry.

FINANCE AND FUNDING IN THE TRAVEL
AND TOURISM SECTOR

TABLE OF CONTENTS
Introduction......................................................................................................................................3
Task 1...............................................................................................................................................3
1.1 Importance of costs and volume in financial management....................................................3
1.2 Pricing methods used in the travel and tourism sector..........................................................5
1.3 Factors that influence profit of travel and tourism business..................................................7
Task 2...............................................................................................................................................9
2.1 Different types of management accounting information.......................................................9
2.2 Use of management accounting information as a decisions making tool..............................9
Task 3...............................................................................................................................................9
3.1 Financial accounts of The Restaurant Group (TRG).............................................................9
Task 4.............................................................................................................................................11
4.1 Sources and distribution of funding for the development of capital projects......................11
Conclusion.....................................................................................................................................13
References......................................................................................................................................14
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INTRODUCTION
Finance is an integral part that supports organizations in accomplishing their objectives.
Proper planning, controlling and monitoring are only possible when management of funds in the
firms are strong. Present report is based on different case studies. Merlin Entertainment is the
UK based firm that is operating in more than 23 countries across the world. Assignment will
discuss the importance of cost in financial management of travel and tourism business. Also,
several factors that influence the profit of entities will be highlighted in this report (Zhou-Grundy
and Turner, 2014). Different types of management accounting information that are used in the
Merlin Entertainment Plc will be covered in this assignment as well. The Restaurant Group
(TRG) plc is the leading brand that is working in hospitality industry. Financial performance of
TRG will be illustrated in this study. Poster will also be created for Cross Railway project in
which sources and distribution of funding for the development of capital project will be
highlighted (Costa and et.al, 2016).
TASK 1
1.1 Importance of costs and volume in financial management
Cost can be explained as the total expenditure of organizations that are incurred for
producing products and for satisfying the needs of customers. For better functioning of the
business, it is essential to maintain the cost (Bao, 2014). Travel and tourism is the big industry
where companies have to concentrate on traveler's needs. Travel needs of customers can get
changed any time so to meet the expectations of consumers, firms have to modify their
operations accordingly. As Merlin Entertainment Plc is engaged in the entertainment sector,
there are several costs which are necessary to bear by the cited firm. CPV analysis is the model
that supports cited firm in knowing its expenditure and volume. If expenditures are high then
profit may get reduced to a great extent (Cárdenas-García, Sánchez-Rivero and Pulido-
Fernández, 2015). There are several techniques such as Break-even analysis, cost volume profit,
etc. through which importance of cost and volume can be analyzed significantly. CPV analysis
can assist Merlin Entertainment Plc in gaining knowledge about level of sales for generating the
desired profit.
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 Fixed costs: As Merlin Entertainment Plc is operating in the entertainment field so fixed
cost of firm are like salaries paid to employees, utility bills, membership fees, banking
services, etc (Whitford and Ruhanen, 2016). Entity has to invest the amount in these
activities to run business smoothly. But it is necessary to look upon the total cost of
expenditures, if operational cost is high then overall profit can get reduced to a great
extent. On the other hand, if Merlin Entertainment Plc pays timely to its staff members
then they would be satisfied and they will perform better that can enhance the profit of
organization. By forecasting the total cost and sales, finance manager of the company
will be able to make effective decisions for controlling the cost so that revenues can be
increased (Arabska and Terziev, 2015).
 Variable costs: Apart from the fixed costs, Merlin Entertainment Plc. is having variable
costs as well such as tax, visa costs, etc. Changes in any expenditure can put a direct
impact on the sales of corporation. To match with the standards, cited firm needs to
invest some amount for improving transportation facilities and have to hire skilled people
in the organization (Ghaderi, Mat Som and Henderson, 2015). By analyzing the variable
cost, cited firm will be able to make effective financial decisions.
Break-even analysis is another method that can support Merlin Entertainment Plc in
determining the sales against cost. Volume and cost are two important elements in travel and
tourism sector with the help of CPV and break-even analysis techniques. Manager of cited firm
will be able to gather relevant information through which individuals can make effective
decisions for the welfare of company (Briones, Yusay and Valdez, 2017). These tools can
support Merlin Entertainment Plc in planning the business operations and taking future
decisions. With the help of CPV analysis, organization can be able to determine its capacity to
satisfy the needs of consumers against investments.
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Illustration 1: Break even analysis
§
1.2 Pricing methods used in the travel and tourism sector
Travel and tourism is one of the leading and growing sector that contributes well in the
economic development of country. For earning expected profit, it is necessary to keep the price
of travel packages nominal and affordable. Pricing of travel packages depends upon the quality
services, brand image, accommodation facilities, location, etc (Bhat, Bhatta and Shumais, 2014).
By managing all these factors well, company can set its prices and earn reasonable profit on their
investments. Several methods of pricing are discussed as below:
Cost plus pricing:
It is an effective tool and used by many organizations for deciding their selling prices.
Finance manager of Merlin Entertainment Plc uses this method to finalize its travel prices. It is
the method in which all costs are added by the manager and then it is divided with the total units
produced (Gardiner, King and Wilkins, 2013).
For instance
Fixed cost= 1000
Accommodation= 500
Total cost=1000+500=1500
If markup cost is 20% then
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=800*20/100
=300
Selling price= total cost+ mark up
Selling price=1500+300
Selling price= 1800
So, by this example, it can be said that if Merlin Entertainment Plc sets selling price to be
1800 then it would be able to get profit up to 20%.
Market-led pricing:
It is another method of deciding selling prices. In this, finance managers of the
organizations keep prices of products high in the seasonal time (Divisekera, 2016). But in the off
season, they reduce their prices so that they can attract more travelers towards the brand. This is
an appropriate method through which companies can recover its cost and earn desired profit
percentage. It is an essential technique of meeting break-even point in the travel and tourism
sector. It is the tool in which finance managers set prices as per penetration and skimming
methods. In penetration, they keep the prices lower so that number of customers can get
enhanced whereas in the skimming, they keep higher price because they are at the leading
position in market (Khan and Rasheed, 2016). It helps in gaining competitive advantage and
attracting more consumers. By this way, entities can increase their revenues.
Cost-led method:
It is another method of calculating prices in the travel and tourism sector. In this,
companies put their emphasis on the cost of production and services. By calculating the cost,
companies can set their selling prices of travel packages (Stauvermann and Kumar, 2017).
Marginal cost pricing
When fixed cost is too high then organizations can use this method to take its pricing
decisions.
MC= Total costs/ Quality
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It is the simple process in which if demands of travelers are high or they want additional
services then companies can enhance their prices (Lawton and Weaver, 2015). This robust
margin is added in the actual price.
Return on investment method
It is another method that is used by the organizations for setting their prices. Decisions
completely depend upon the overall return on investment. In this, firms focus on the expectations
of stakeholders such as employees, competitors, etc (Lane and Kastenholz, 2015). Entities
calculate their production cost and add their margin in it so that they can get the desired profit
percentage. By this way, corporations can get higher return on their investments.
For instance: Hand Sea Life is the biggest competitor of Merlin Entertainment Plc as both
are operating in the same field. Merlin Entertainment Plc is using the cost plus pricing method
for setting their selling prices (Pasquinelli and Bellini, 2017). Titan travel is another firm which
is operating in the tourism industry and it is using cost-led pricing method. However, Hand Sea
Life is using return on investment pricing tool for deciding the selling prices of travel packages.
Merlin Entertainment Plc calculates the entire costs and add its desired profit percentage in it. On
the contrary, Hand Sea Life just looks upon the stakeholder's benefits and set its prices in such a
manner that it can get maximum returns on its investments (Sin and Minca, 2014). Both the
methods are equally important and can help in increasing the profit of organization. EasyJet is
another company that is using market-led pricing technique and company keeps high price of
products in the season time.
1.3 Factors that influence profit of travel and tourism business
Profit maximization is the prime aim of organization, they increase their revenues by
selling products and services in the market. Financial earning of the companies are termed ad
profit of the entities. There are several factors that influence the revenues of the Merlin
Entertainment Plc to great ext net (Return on Invested Capital (ROIC), 2017). These are
discussed as below: Seasonal variation: It is the main factor that influence the business of the company to
great extent. Winter is the season in which Merlin Entertainment Plc gets high profit. In
this season, people take interest in traveling and they buy travel packages from the cited
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firm. Apart from this wedding etc. many other time period in which number of selling of
the products are higher as compare to normal season. It is factor due to this over all profit
of cited firm get affected as in peak time, it earns good profit whereas in off time it earns
normal profit (Methods of Pricing: Cost-Oriented Method and Market-Oriented Method,
2016). Political environment: Government regulations, tax rates, trading rules, visa polices can
get changed any time. That affects the overall profit of the Merlin Entertainment Plc to
great extent. If authorities make restriction in the trade agreements then number of
customers will get reduced that will affect the sales volume and directly or indirectly
profit will get influenced (Lawton and Weaver, 2015). Economic environment:Recession, inflation, fluctuation in interest rates, changes in
exchange rates can impact on the profit of the cited firm. As if there is inflation then
people will have to pay more mount for travel packages, whereas if there is recession
then purchasing power of the customers will get affected. By this way people will not
take much interest in the traveling and that would reduce the profit of the company (Khan
and Rasheed, 2016). On other hand if purchasing power of the consumers are good then
they will be able to spend much amount in travel thus profit of the Merlin Entertainment
Plc will get increased immediately. Social environment: It includes taste, culture, belief etc. which impact on the overall
profit of the Merlin Entertainment Plc. Due to these factors, customer's mind get
influenced and they change their decisions of buying travel package from particular
brand. Merlin Entertainment Plc needs to focus on it to get higher profit. It should design
travel packages according to the preference of users so that they take interest and get
attracted towards the organization (Bhat, Bhatta and Shumais, 2014). Current trends: Merlin Entertainment Plc is the leading brand and offering quality
services to customers. It has to look upon the trends and demands of customers all the
time. By this way it would be able to design such products which can meet with the
trends. That would help in increasing profit of the company to great extent (Whitford and
Ruhanen, 2016).
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 Planning: If planning of the Merlin Entertainment Plc is not appropriate then overall
profit of the cited firm can get influenced. For constant earning profit, it is necessary that
finance manager plan properly and allocate sufficient resources in each activity so that
consumers can get attracted towards the brand (Arabska and Terziev, 2015). Staffing: That is another factor that influence the entire profit of the Merlin
Entertainment Plc. If cited firm hires incapable employees those who are not having skills
to meet with the consumer's demands then they would not be able to satisfy them. That
will reduce number of customers and by this way profit of the company can get
influenced (Bhat, Bhatta and Shumais, 2014).
 Bad debts: It is another factor due to this profit of the cited firm can get influenced. If
amount which is not recovered is high then this loss will reduce the profit of the
corporation (Arabska and Terziev, 2015).
TASK 2
2.1 Different types of management accounting information
Covered in PPT
2.2 Use of management accounting information as a decisions making tool
Covered in PPT
TASK 3
3.1 Financial accounts of The Restaurant Group (TRG)
Financial performance of the company can be analyzed with the help of ratio comparison.
Income statement, balance sheet, trading account, cash flow statements etc. are some important
records which help to identify the economic performance of the organization. Current, acid test,
gearing, net profit, gross profit etc. are necessary ratios through which actual performance of the
entity can be measured (Return on Invested Capital (ROIC), 2017).
Ratios formula 2014 2015
Gross margin
ratio
Gross
profit/turnover*-
100
17.93 18.51
Net margin % Net profit/
turnover
10.55 10.05
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Asset turn over
ratio
Net sales/Average
total sales
1.54 1.54
Return on assets
%
Net
income/Average
total assets
16.28% 15.44%
Return on
invested capital%
(Net operating
profit after tax-
NOPAT)/(Investe
d capital-IC)
24.69% 23.20%
Current ratio Current assets/
current liabilities
24% 28%
Quick ratio Current assets-
Stock/ current
liability
0.08 0.12
Inventory turn
over%
COGS/inventory 98.22% 93.71%
Profitability ratio
It is the ratio that is used by the entities to identify their profit and revenues. Gross profit
ratio of TRG shows that company is growing well, as n the year 2014 its gross margin profit was
17.93%, whereas in the 2015 it has increased to 18.51% (Methods of Pricing: Cost-Oriented
Method and Market-Oriented Method, 2016). Net profit has been reduced in the year 2015, as in
2014 it was 10.55% whereas in 2015 it reached to 10.05%. So it can be said that expenditures of
the TRG group are too high so it needs to make effective control over it.
Liquidity ratio:
It is the ratio which defines the financial health of the company, as whether TRG is able
to meet its liabilities on time or not. Current ratio was in 2014 24% whereas in 2015 it has
increased to 28%. It shows that TRG is able to meet its liabilities and company will be able to
repay its obligations on time. Quick ratio in the year 2014 was 0.08 whereas it has increased in
2015 to 0.12 (Khan and Rasheed, 2016). So it can be interpreted that company has maximized its
repay capabilities from previous year.
Return on assets% was in 2014 16.28%, whereas in 2015 it declined to 15.44%. That
shows that TRG is unable to generate return on its assets. Inventory turn over ratio has been
declined to 98.22% to 93.71%. That shows that assets' management strategy of the company is
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very poor. It should work upon it and should improve it immediately. Asset turn over ratio are
same in both years that shows that company has not increased value of the assets (Lawton and
Weaver, 2015).
From the ratio of return on assets it can be interpreted that assets side is going down that
is why return on it is less as compare to previous year. So manager of TRG needs to make
effective strategies so that it can raise up (Lane and Kastenholz, 2015).
TASK 4
4.1 Sources and distribution of funding for the development of capital projects
Finance is the essential part for running business smoothly. Each organization needs funds so
that it can deliver excellent services and can accomplish its objectives soon. Finance is the life
blood of any business unit, availability of sufficient financial sources can help in smooth
running of operations. If company is not having appropriate capital then cross railway project
can not be completed. There are several sources of fiance available to the business but
authorities need to select most appropriate source of fiance so that it can earn expected profit on
their investment.
Regional development funds:
It is one of the most appropriate source that is used by most of the entities for fulfilling their
financial needs for the project. The main aim of authorities to generate maximum employment
opportunities by raising funds and smooth flow of operations. By this way organizations will be
able to generate impressive income that would help in the economic development of the
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country.
Europeans social funds:
It is another source of finance available for the cross railway project. The main aim of this
developing funds in the organization that to give financial support to the members so that they
can complete the project soon. Companies can take required amount of funds from the
European authorities.
Bank loan:
It is most common used source of fiance. Banks are giving loan to the organization for their
expansion. Cross railway project is one of the highest earning project, by giving loan for this
project financial institutes can support the entities. Interest rates is quit low as compare to other
lending options. Apart from this repayment schedule is easy that can be repaid by the firms
easily without any burden.
Issue of shares:
It is another type of financial source which can fulfill monitory needs of the organization for the
financial project of Cross railway. Companies can offer shares to public for raising their capital.
The generated money will be used by the firms for further development and execution of the
financial project.
Non public funding:
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These are such funds which are funded through debt or equity. That are cheaper as compare to
other financial sources.
It can be concluded that there are number of sources available for the cross railway project but
entities need to select most appropriate source. By looking upon advantage and disadvantage
overall implications of the sources can be measured. By this way authorities can make suitable
decision of selecting financial source.
CONCLUSION
From the above report it can be articulated that funds are the integral part of business and
without having sufficient financial resources companies can not run their business smoothly.
Assignment has discussed case study of Merlin Entertainment Plc, from this study it is found that
cost plus pricing is the best method for the cited firm. By this way it can identify its total cost
and can get desired profit percentage. Different ratios of The restaurant group (TRG) have been
discussed in the above report. By looking upon these ratios it can be said that financial
performance of the TRG is good and increasing but it needs to work upon the assets management
strategies.
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REFERENCES
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Online
Methods of Pricing: Cost-Oriented Method and Market-Oriented Method, 2016. [Online].
Available through: <http://www.yourarticlelibrary.com/marketing/pricing/methods-of-
pricing-cost-oriented-method-and-market-oriented-method/32311/>. [Accessed on 28th
February 2017].
Return on Invested Capital (ROIC), 2017. [Online]. Available through:
<http://www.myaccountingcourse.com/financial-ratios/return-on-invested-capital>.
[Accessed on 28th February 2017].
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