Finance and Funding: Analysis of the Travel and Tourism Sector

This report provides a comprehensive analysis of finance and funding within the travel and tourism sector. It begins by examining the importance of cost, volume, and profits for financial management, using Carnival Corporation & plc as a case study. The report then explores various pricing techni...Read More

Finance and Funding in
Travel and Tourism
Sector

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
1.1 Importance of cost, volume and profits for financial management of Carnival Corporation
& plc.......................................................................................................................................3
1.2 Pricing techniques which are used in travel and tourism sector.......................................6
1.3 Factors that influence profit in travel and tourism businesses.........................................7
TASK 2............................................................................................................................................8
2.1 Different types of management accounting information..................................................8
2.2 Use of investment appraisal techniques as decision making tools.................................12
TASK 3..........................................................................................................................................14
3.1 Interpretation of financial accounts of The Fulham Shore plc.......................................14
TASK 4..........................................................................................................................................18
Leaflet...................................................................................................................................18
CONCLUSION..............................................................................................................................18
REFERENCES..............................................................................................................................20

INTRODUCTION
Finance is a term which describe study of money, investments and financial instruments
that categorises in public, corporate and personal finance. Funding is an act of money which is
contributed by business owner for buying shares for company (Ambrose, 2012). In travel and
tourism, their financial assistance is made on heritage hotels, restaurants, food courts, pubs,
travel agents, etc. This report is based on Carnival Corporation which is British- American
company and world largest travel leisure company. Relevant importance of cost and volume with
different cruise brands of Carnival Corporation are addressed in this context. This report is going
to determine management accounting information in context to travel and tourism company
Fulham Shore plc. An organisation interprets financial accounts of Fulham Shore plc and analyse
sources and distribution of funding of capital projects.
TASK 1
1.1 Importance of cost, volume and profits for financial management of Carnival Corporation &
plc
Carnival Corporation & plc is a world largest travel leisure company with having 100
vessel fleet across 10 cruise line brands. It is a merger of Carnival Corporation and Carnival plc
which functioning as one entity. It is the only company which is listed in world on both S& P
500 and FTSE 100 indices. Company provides quintessential holiday experience which based on
guest capacity. Organisation is focusing on innovative design and wide array with choices in
dining, entertainment and amenities. Travel and tourism industry provides an attractive profit in
business scenario. Their major growth in industry seen in weekends and holidays. Travel and
tourism industry are working through various aspects related with finance are define below:
Cost
Cost is a major part of travel and tourism that occur in tour packages of customers. Cost
estimation helps in achieving growth in Carnival Corporation & plc. In travel and tourism
business, cost is helpful in organising trip and providing relevant packages to customers.
Direct cost – A direct cost is mainly defined as overall attributes included in production
process of particular good and services. But sometimes, direct cost is considered as variable also

in the case of inconsistent as well fluctuate in amount. For instance, salary paid by Carnival
Corporation & plc to their employees are consider as direct cost.
Indirect cost – It is the cost which not directly occur while doing any activity of Carnival
Corporation & plc. Indirect cost may be fixed as well as variable both. Indirect cost are
advertising expenses, security, computing, maintenance and so on.
Fixed cost – It is that cost or expense which does not change with the increasing or
decreasing in the number of goods and services sold and produced. For Carnival Corporation &
plc it can be a beneficial term that assist them in offering appropriate cost to direct customers.
Variable cost – It is the corporate expense which are change or alter in proportion along
with producing specific output. This cost increment and decrement are depending on Carnival
Corporation & plc's production volume.
Importance of costs
In travel and tourism sector cost help its owner in making decisions for enhancing
sustainable growth and profitability. This is a systematic process which is adopted by business
organisation. As a Trainee Business advisor, an organisation always focusses on cost by
maintaining quality of product and service. Cost reduction: It is an effective system in an organisation which increases profits.
Travel and tourism sector are removing unwarranted expenses on product and services of
Carnival Corporation & plc. As a Trainee Business Advisor, this approach increases
overall profits with reducing overheads. Decision-making: Decision making denotes as a process which is made by choices that
identify, gather information and assess resolution. In context to travel and tourism
industry, manager make thoughtful decisions with relevant information and define
alternatives. Decisions are made in regarding with prospects to competitors for achieving
sustainable growth (Donaldson, 2013).
Volume
Volume is defined as a quantity which enclosed by the capacity of travellers as approx.
2500 to 3000 members. It defines level of production in quantity terms. Carnival corporation &
plc is measuring terms of volume by trips taken, nights away etc. and value is defined by
expenditure.
Importance of volume

Volume is the number of shares which lead with overall activity of security market. It is
an amount or quantity which is an indicator of business and uses to confirm a scenario. This
provide investor an idea about price action by buying and selling security. Major aspects of
volume are:
BEP analysis: Break-even analysis is a technique which is widely used by production
and management accountants. This analysis tool is determined by level of company product and
service which is more profitable in travel and tourism industry. As a Trainee Business Advisor,
Carnival Corporation & plc is comparing variable and fixed costs with sales revenue in order to
determine sales volume which makes neither profit nor loss.
Economies of scale: It denote as a competitive advantage which having large entities
over smaller ones. In context to travel and tourism, company optimises variable cost per units
with respect to operational efficiency and sustainable growth (El-Gohary, 2016).
Diseconomies of scale: This is an opposite of economies of scale which faces condition
in relation to performance and generate profits. This arises conditions like high competition,
compromises, low performance with respect to quality services of Carnival Corporation & plc
and therefore is important for financial management of firm.
BEV
Sales 800000
Fixed cost 120000
Contribution 600000
BEP 0.2

Sales Contribution BEP
0
100000
200000
300000
400000
500000
600000
700000
800000
900000
BEP Analysis
Column H Column H
1.2 Pricing techniques which are used in travel and tourism sector
In travel and tourism industry, services are offered to customers by considering budget
and destination where they want to visit. There are various attractive packages which are offered
to customers in order to provide quality services. Trainee Business Advisor, uses systematic
technique which determine package price which are offered to customer for creating long term
relation. Carnival Corporation is maintaining quality services by providing best pricing packages
for making customer effective and joy full journey (Engeset and Elvekrok, 2015). Pricing
method is an effective approach for determining cost for tour packages. Their having various
pricing technique which is discussed below.
Cost based pricing:
This pricing method fixes selling price as per profit percentage. Carnival Corporation &
plc is making calculation for final sales price of product as per manufacturing costs. In travel and
tourism industry their having fixed amount and percentage of total product cost which added in
profit.
Demand based pricing: This pricing method refer to a price of product which is finalised
by demand. Company used to prefer high prices whereas demand of product is less and low
prices are charged to attract wide range of customers. For example, organisation can change low
amount on Carnival cruise for relaxation charges as well as ticket entry fees for specific event.

Competition- based pricing: This refers to a method in which prices are consider as per
competitors in market. For example, Carnival Corporation & plc tourism company is charging
higher, lower or equal prices on accommodation services as per competitors.
Cost plus pricing method: This method is useful in determining prices within a simplest
form. It is a most common method which is used in manufacturing organisation. For example,
ABC company bears total cost 100 per unit for producing product and add 70 per unit price of
product as a profit. In this case determine final price of product is 170.
1.3 Factors that influence profit in travel and tourism businesses
Travel and Tourism is dealing primarily with a factor and encouraging people to go and
visit desire location. As a Trainee Business Advisor, company is driving several factors which
increases profit margins. There are various aspects which enhances profit in an organisation are
define below (Fayos-Sola, 2012).
Seasonal variations – These kinds of aspects are based on climate suitability that
influence tourist's decision making. Some visitors prefer to visit countries during the winter
season at this situation it is hard for travel and tourism organisation to sustain in the market with
active profit in other seasons. These kinds of factors can influence business profitability as well
as its sale.
Political environment - Political environmental factors directly affect business
operations and its functions in effective manner. Travel and tourism industry is highly dependent
on political stability of a nation. Incidents relating to corruption, terrorism make a huge negative
impact on popularity of a tourist destination. For example, countries like Syria are getting
vanished from travel plans of many people because of the presence of ISIS terrorist organisation.
Current trends - This factor affect the decision making and profitability of tour and
travel company such as if there is trend of Italian cuisine but respective hotel or restaurant is
offering other type of dishes. In this case they will not able to satisfy their customers wants and
needs and reduce the footfall which directly impact on profit and growth of the hotel.
Lack of trained Staff – In an organisation employees are considered as a strength who
helps in managing customer's experience properly. Thus, untrained staff member can impact
negatively upon the decision making of tourists. Therefore, it is required for carnival corporation
& plc to provide appropriate training to their staff members.
Competitors:

Competitors are those who sell similar products or facilitates same services into the
market. For high competition Carnival Corporation & plc provides cruise such as celebrity
cruises, Royal Caribbean cruises and so on. Whereas for low competition it facilitates
aeroplanes, ship etc. like the small cruise ship collection and also arrange funds for them.
TASK 2
2.1 Different types of management accounting information
Management accounting is focused on internal managers and decision makers that can
used to provide financial data relevant to managers operations in a business decision. This is the
efficient tool used to find out the effective decisions of an industry. Travel and tourism are the
fastest growing industry in service sector throughout the world which have global market
scenarios which can analyse budget report, financial statement, variance analysis and job cost
report.
Budget report: -
A budget report is an internal report which can be used by management of The Fulham
Shore plc to compare estimate budgeted projections with actual performance during a given
period of time that mobilise all resources. The company have to designed the budgeted
performance to actual performance in an accounting period to achieve long term goals.
Financial statement: -
It is a formal records of financial activities and position of a business, person or other
entity of a firm. It can help managers of Fulham Shore plc in making decisions that can make a
financial position of The Fulham shore that can make an organisation fully financial decisions. It
is effective management accounting tool consist of all necessary information like, owners’
equity, liabilities and assets.
Variance analysis: -
The Fulham shore can used to compare actual performance and planned behaviour in
which analysis can used to maintain control over a business. It is a tool of budgetary control by
evaluation of performance variances that can used to manipulate data with actual amount
incurred sold (Halkier, 2014).
Job costing report: -

Job costing report is prepared to identify he cost and revenue that can manipulate
jobseekers into job provider. Managers of The Fulham shore use this to find out profitability and
management decision to find job cost in order to determine needs and objectives of company.
Training package:
Basis of package Requirement
Purpose  To reduce the ineffectiveness in the
nature of employees
 To enhance the competence subject to
handling risk and query
Format  The format will be bifurcated as per the
strength of employees such as medium
low and high
Time of training Morning (9.30 am to 12.00)
Evening (4.00 pm to 6.00 pm)
Income statement:
It is known as core financial statements of company which shows its profit and loss.
Incomes statements generally summarise the incomes and expenditures that are produced within
reporting period. The Fulham shore use this to know about their revenues and expenses over a
period of time.
Cash flow:
It is considered as a amount of cash or cash equivalents which are being transferred into
as well as out of a company. The Fulham shore can utilise this to analyse the inflows and
outflows of cash in given time period.
Financial statements of THE FULHAM SHORE PLC

2.2 Use of investment appraisal techniques as decision making tools
Funds are some amounts of money which are accessible and allocated for a particular
purpose. Capital budgeting is a technique that help in making investment decisions which can
manipulate all data in an organised way. It is used to find investment and financial decisions in
order to make a business in a competitive term.
Accounting rate of return-
The Fulham shore can used to find out investment decisions in order to make all financial
statements that can generate net income of proposed capital investment. It help company to
measure the profitability and viability of a projects. This assist the chosen company to decide
whether to proceeds or not with particular investments.
Forecasting:

It is a decision making tool which is applied by the company. This assist them in
planning, budgeting and estimating upcoming growth. The Fulham shore plc use this techniques
to estimate and make plan so that it can grow in future.
Comparison with trends
Trends change with time and if an organisation analyse them in proper way then they can
predict upcoming changes which can arise in market. It will help them in make correct decision
and management account techniques like Payback period, show correct path of company. This is
a simple technique used for assessing an investment by making length of time it can repay all
amount they will invested. This method can used to compare all cash flows to make a company
make all profits (Mäntyniemi, 2012). This help to make effective financial decisions, if NPV is
greater than zero then project is financially feasible.
Discounted cash flows-
It is a valuation method which is used to estimate value of an investment of The Fulham
shore plc to find values in its cash flows to determine expected value of firm using a discount
rate . It can be used to find out potential investment of a company which can used to maintain all
tasks and make efficiency best in future. This helps company to take decisions about the time
taken to repay projects investments amounts.
Sensitivity analysis-
It is a study of The Fulham shoe plc that is used to find uncertainty in output of a
mathematical model or system which will help in making decisions of different sources that help
in many variables in the company which can used to make investment.
For example: Sensitivity analysis of ABC Ltd. is done for ascertaining the changes cost
and revenue of trip coordinated by firm. Fixed cost of project report £ 150000 and if customers
are more than flows of cash is also more which will be used to cover the cost. if a single
customer is added then it will be £ 2000 and variable cost is £ 600 that means profits are
considered to be sensitive according to the customers (Masiero and Nicolau, 2012).
Strategic decisions: It is considered one of the complex subject to analyse the business
planing. Main objective is to create the effective decisions for making sustainable changes.
Strategic resources also converted in opportunities.
Tactical decisions: this is consider one of the essential aspect in terms of analysing
impact for a particular strategic period.

Operational decisions: These decision indicates towards managing the needs and
requirement of business in more strategic manner.
MIS:
It is refers as a system of computer which consists software as well as hardware that
functions as the backbone of firm's operations. The Fulham shore can use this tool to collect
information from various online system, examine the data and reports information as it helps
them to make the effective decisions regarding management.
TASK 3
3.1 Interpretation of financial accounts of The Fulham Shore plc.
Income Statements of Fulham Shore plc
Particulars 2016-17 (£ in
million)
2017-18 (£ in
million)
Revenue 41 55
Cost of revenue 23 32
Gross Profit 18 23
Operating expenses:
Sales, general and administration expenses 13 19
Other operating expenses 1 1
Total Operating expense 15 20
Operating Income 3 2
Interest expense 0 0
Other expense -2 -2
Income before tax 1 0
Provision for income tax 0 0
Net Income 1 -1
Balance Sheet of Fulham Shore plc

2016-17 (£ in
million)
2017-18 (£ in
million)
Assets:
Current Assets:
Cash and cash equivalent 0 0
Receivable 1 1
Prepaid Expense 0 2
Another current asset 2 1
Total Current Assets 4 6
Non-Current Assets:
Property, plant and equipment’s
Gross property, plant and equipment’s 32 41
Accumulated depreciation -5 -9
Net property, plant and equipment’s 27 32
Goodwill 21 21
Intangible assets 7 6
Deferred income taxes 1 0
Other long-term investments 1 1
Total Non-Current Assets 57 60
Total Assets 61 65
Liabilities and Stockholder's Equity
Current Liabilities:
Short term debt 0 0
Accounts payable 7 6
Taxes payable 2 2

Other Current Liabilities 5 5
Total Current Liabilities 14 12
Non-Current Liabilities:
Long term debt 6 12
Deferred taxes liabilities 2 2
Minority interest 0 0
Other noncurrent liabilities 0 1
Total Non-Current Liabilities 8 16
Total liabilities 22 28
Stockholder's Equity:
Common stock 6 6
Additional paid-in capital 7 7
Retained earning 5 4
Accumulated other comprehensive income 21 21
Total Stockholder's Equity 39 38
Total Liabilities and Stockholder's Equity 61 65
Interpretation of financial statement by using ratios
Process of data collection is considered to plan an appropriate model of workflow (Page,
2014). Financial statement analyst view balance sheet, income statements and more documents
for evaluating the financial accounts of The Fulham Shore plc and compute and analyse different
ratios that are mentioned below:
Ratios Formula 2016-17(in
million)
2017-18(in
million)
1. Profitability ratios:

 Gross profit ratios Gross profit/Sales*100 18/41*100
=43.90%
23/55*100
=41.81%
 Net Profit margin ratio Net profit/sales*100 1/41*100
=2.43%
0/55*100
=0%
2. Liquidity ratios:
 Current ratio Current assets/current
liabilities
4/14
=0.28:1
6/12
=0.5:1
 Quick ratio Quick assets/ current
liabilities
Quick assets =
0+1=1
1/14
=0.07:1
Quick assets=
0+1=1
1/12
=0.08:1
3. Investment ratios:
 Return on Equity Net income/ Average
stockholder's equity*100
1/19.5*100
=5%
-1/19*100
=-5%
 Return on Assets Net profit/ Total
assets*100
1/61*100
=1.63%
0/65*100
=0%
Gross profit ratio:
It is the ratios which shows sales percentages and gross profit is earned by the firm.
Organisations have to maintain gross profit ratios. The Fulham Shore plc gross profit ratio is
43.90% in 2016-17 and 41.81% in 2017-18. So, performance of company is not good as
compared to previous year in terms of gross profit ratio.
Net profit margin ratio:
The Fulham Shore plc, net profit ratio is 2.43% in 2016 and 0% in 2017-18 which shows
that company have to increase the sales.
Current ratio:
The Fulham Shore plc, current ratio is 0.28:1 in 2016-17 and 0.5:1 in 2017-18 which is
less than the standard ratio.
Quick ratio:

The Fulham Shore plc, quick ratio is 0.07:1 in 2016-17 and 0.08:1 in 2017-18 that is not
considered as good because 1:1 is a good ratio.
Return on equity:
The Fulham Shore plc, return on equity is 5% in 2016-17 and -5% in 2017-18. its return
on equity is less than previous years.
Return on assets:
The Fulham Shore plc, return on assets is 1.63% in 2016-17 and 0 in 2017-18 which
shows that assets return in 2018 is nil.
TASK 4
Leaflet
CONCLUSION
From this report it is concluded that businesses of travel and tourism is leading rapidly.
Different methods of pricing are utilised which assists them for expansion and some factors are

determine to compute business profits. Many techniques of management accounting are used
which assist in making effective decisions. Income statements and balance sheet are prepared
and interpretations are done on the basis of some ratios like liquidity ratios, profitability ratios
and so on are presented. After analysing some sources and distribution of funding such as
national lottery commission to develop the capital projects.