Financial Analysis & Funding in the Travel and Tourism Sector

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This report provides a comprehensive financial analysis of a tours and travel business, focusing on cost-volume-profit (CVP) analysis, pricing strategies, and ratio analysis. It evaluates the effectiveness of implemented pricing strategies and the overall financial performance of the Akaglo Tours Company (ATC). The report covers various aspects, including the imperativeness of cost and volume in financial management, different types of management accounting information, and the use of investment appraisal techniques. It also interprets travel and tourism financial accounts through ratio analysis and discusses sources and distribution of funding for capital projects. The analysis includes computations of profit, assessment of factors affecting profitability, and recommendations for improving financial performance. This document is available on Desklib, a platform offering study tools and resources for students.
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Tours and travel business
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Tours and travel business
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Table of Contents
Introduction................................................................................................................................3
Task-1.........................................................................................................................................4
P1.1 Explain the imperativeness of cost, volume in financial management of travel and tours
industry using Tours and travel business?.................................................................................4
P1.2 Analysing the pricing methods of The Akaglo Tours Company (ATC)...........................5
P1.3 Analysing the factors affecting the profit of ATC on the holiday trip?.............................6
Task-2.........................................................................................................................................9
P2.1 Explain the different types of management accounting information that could be used in
ATC?..........................................................................................................................................9
P2.1 Assess the use of investment appraisal techniques as decision-making tools in ATC?....9
Task-3.......................................................................................................................................11
P3.1 Interpret travel and tourism financial accounts................................................................11
Ratio formula...........................................................................................................................14
Power point presentation..........................................................................................................15
Final results..........................................................................................................................17
Task-4.......................................................................................................................................19
P.4.1 Analyse sources and distribution of funding for the development of capital projects
associated with tourism........................................................................................................19
Conclusion................................................................................................................................20
References................................................................................................................................21
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Introduction
In this report, pricing strategy, ratio analysis tool and cost-volume-profit analysis have
been taken into consideration. The main focus of this company to evaluate the whether the
pricing strategy implemented and financial performance of ATC company is effective or not.
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Task-1
P1.1 Explain the imperativeness of cost, volume in financial management of travel and
tours industry using Tours and travel business?
In order to determine the tours and travel packages, cost plays an imprint role. The
cost of the tours and travel packages is accompanied by the direct, indirect, variable and fixed
cost.
Direct cost Indirect cost Variable cost Fixed cost
The cost which is directly
related to the tour
expenses.
Example- payment to
labour and staffs
The cost which is not
directly related but as
much important as direct
cost.
Example- Payment for
advertisement.
It is the cost which varies
with the changes in total
revenue of the company.
Example- tours operation
units
It is the cost which is
fixed in nature and
does not vary with the
increased units.
Example- Supply chain
cost
Lighting and contract
expenses.
CPV analysis of ATC
It establishes the relationship between cost-volume and profit of the company.
The CPV analysis is used to lower down the cost of tour packages and
increase the return on capital employed (Chen, Tsai, & Liu, 2018).
Importance of cost in the financial management decision making
It helps in determining the break-even point of the business.
It assists in reducing the overall price of the tours and travel packages.
It is also used to pre-determine the profit of the business.
Importance of volume or tours and travel packages units in the financial management
decision making
It is used to determine the contribution per units of the total sales units.
It helps in determination of the margin of safety of the business.
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P1.2 Analysing the pricing methods of The Akaglo Tours Company (ATC)
The pricing strategy is used to increase the overall profitability of the company. There are
several pricing strategies which are given as below.
Market leading pricing strategy
Penetration pricing strategy- This strategy is used to penetrate the market with the low
price of tours and travel packages.
Price skimming strategy- This pricing skimming strategy is used by branded tours and
Travel Company to sell its high-quality packages at the high price.
Profit-oriented pricing strategy
Rival based pricing Client’s based pricing
In this pricing strategy, the price of the tours and travel
packages is set as per the rivals offering (Dalata,
Carnival, TUI group)
This pricing strategy is followed to increase the
overall market share by keeping the price of the tours
and travel low.
Return based pricing strategy
This pricing strategy is used to earn the stipulated profit from the business.
Costing based pricing
This pricing strategy is followed to sell the tours and travel operations at very low cost.
However, there are several companies which have followed different pricing strategy (Jacob,
2017).
Name of the company Price setting methods
Carnival Corporation Customer-based pricing
Dalata Penetration strategy
TUI Skimming strategy
Other small tours operators Cost leading pricing strategy
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P1.3 Analysing the factors affecting the profit of ATC on the holiday trip?
With the changes in economic, there are several factors which may impact the profit of ATC.
Economic factor
The GDP rate of the UK has increased by 2.47% which shows strong value creation of the
UK currency value on the international level. The increased inflation rate and strong
purchasing power of the people in UK is the positive indicator for the growth the tourism
busienss in UK (Taylor, 2017).
Support from government bodies
The UK government promotes the tours and travel business by providing capital funding to
tours and travel operations for their tourism operations. It increases the overall balance of
trade of the organization at large.
Seasonal based selling
It is analyzed that at the time of high peak season, the tours and travel operators keep their
tour package price high which shows the positive impact on the profit earning capacity of the
company.
Joint venture
Entering into the joint venture with the other companies will increase the overall tours and
traveling operation program and services in the market.
The case study shows that total cost of the tours and travel operation would be £ 6, 12,500.00
Cruise yacht and the beach
chalets
£
5,00,000.00
Meal cost £ 1,12,500.00
Total cost £
6,12,500.00
If this project is accepted then the profit would be £ 62,500.
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Computation of the profit
earned by ATC
Particular Amount
Total sales amount for 90 tourist
£
6,75,000.00
The total cost of the tour
packages
Cruise yacht and the beach
chalets
£
5,00,000.00
Meal cost
£
1,12,500.00
Total cost
£
6,12,500.00
Net profit
£
62,500.00
If ATC wants to earn £ 1, 00, 00 profits then it should not accept this project.
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Task-2
P2.1 Explain the different types of management accounting information that could be
used in ATC?
The below-given information shows the type of management accounting information of the
ATC.
Balance Sheet- It shows the resources and liabilities of the company (Jacob, 2017).
Cash flow statement- It reveals the inflow and outflow of cash in the business in the
particular year.
Budget- It is prepared with a view to estimating the future income and expenses of the
company. It assists in the arrangement of the funds and capital.
Variance analysis- It is described as quantitative analysis which is used to identify the gap
between actual and expected results (Jacob, 2017).
Implementation of the variance analysis to improve the existing performance
Identify the gap in actual and expected results and assist management to identify the
improvement area.
Reduce the amount of blockage of capital in the business.
Prepare ATC to arrange the required capital in the business.
P2.1 Assess the use of investment appraisal techniques as decision-making tools in
ATC?
Investment appraisal tools assist in identifying and evaluating the available project and give
an idea of the project whether it should be accepted or not.
Net present value- It shows the positive present value of cash inflow over its present value of
cash outflow (Zhang, Cullen, & Kilpatrick, 2017).
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IRR- It reflects the % of the internal rate of return at which ATC will have zero net present
value.
Payback period- It divulges the period which will be required to collect the infused capital in
the business.
This above-given tool could be used by ATC tour and travel company to accept the particular
project. For instance, if a one tour package gives NPV of £ 1, 00,000 and other one give £
890000 then the first project should be accepted by company (Chen, Tsai, & Liu, (2018).
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Task-3
P3.1 Interpret travel and tourism financial accounts
The below-shown table reflects the financial accounts of the tours and travel operations
(Dhar, 2018).
Particulars 2017 2016
Current assets 98,771 1,62,278
Inventories / Stock 1,817 1,349
Current liabilities 68,821 56,238
Prepaid expenses 5,266 3,315
Average Inventory 1583 971
Sales revenue 2,90,551 2,25,673
Cost of sold (1,09,864) (86,907)
Credit Purchases
Gross profit 1,80,687 1,38,766
Net sales 2,90,551 2,25,673
Net profit 34,923 21,626
Capital employed 9,16,555 8,05,098
Interest (11,496) (10,363)
Total assets 9,85,376 8,61,336
Variable cost bearing capital 6,41,673 5,46,729
Fixed cost bearing capital 2,64,681 2,50,168
Administrative expenses 10 0
Computed
ratio
Applicable
formula 2016 2015
Discussion
Current ratio Current 1.435 2.886 This ratio shows that ATC
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assets /
Current
liabilities
corporation has decreased its liquidity
position by decreasing the overall
investment in the current asset
(Ozturk, et al. 2017).
Acid Test
Ratio
Current
assets
(stock +
prepaid
expenses) /
Current
liabilities
1.332 2.803
The quick ratio has also decreased by
1 point which shows that company is
investing fewer amounts in its
operating assets.
Stock turnover
ratio
Cost of goods
sold /
Average
Inventory
(69.
40)
(89.
50)
The stock turnover has gone down by
20 points in 2016 as compared to last
year data. It shows that company has
reduced its amount blockage in its
tours and travel packages.
Gross profit
ratio
Gross profit /
net sales X
100
62.19% 61.49%
This ratio divulges that company has
decreased its overall gross profit by
1% in 2017 which is 1% lower as
compared to last year data. It shows
the positive indicator for the growth
of the business (Vogel, 2016).
Net profit ratio Net profit /
net sales X
100
12.02% 9.58% This ratio shows that profit of the
company is increasing by 3% in 2017.
It reveals that company has been
increasing its overall profit by
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