Finance and Funding in Travel and Tourism: A Financial Analysis Report

This report provides a comprehensive analysis of finance and funding within the travel and tourism sector, focusing on Merlin Entertainment Plc and The Restaurant Group Plc. It examines the significance of cost and volume in managing financials, pricing strategies, and factors affecting profitability. The report also interprets financial accounts using various ratios and analyzes funding sources for project development. Management accounting information and its role in decision-making are assessed, offering a detailed overview of financial management practices in the tourism industry. Desklib offers a wide array of solved assignments and past papers for students.

FINANCE AND FUNDING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Explaining significance of costs and volume for managing financials within Merlin
Entertainment Plc...................................................................................................................1
1.2 Analysis of those strategies which are adopted by the travel and tourism firms in order to
determine effective selling prices...........................................................................................2
1.3 Description of factors affecting to the level of profitability of Merlin Entertainment Plc4
TASK 2............................................................................................................................................5
2.1 Explanation of various kinds of management accounting information which used by
Merlin Plc...............................................................................................................................5
2.2 Assessing management accounting information as a tool of decision making within Merlin
Entertainment Plc...................................................................................................................5
TASK 3............................................................................................................................................5
3.1 Interpreting financial accounts of The Restaurant Group Plc (TRG) with the help of
various financial ratios...........................................................................................................5
TASK 4..........................................................................................................................................10
4.1 Analysing sources which provide fund to the company in order to develop projects....10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................13

INDEX OF TABLES
Table 1: Calculation of Ratios for The Restaurant Group...............................................................5
ILLUSTRATION INDEX
Illustration 1: Comparison of Current Ratio....................................................................................7
Illustration 2: Comparison of Debt Equity Ratio.............................................................................8
Illustration 3: Comparison of Capital Gearing Ratio.......................................................................9
Illustration 4: Comparison of ROCE.............................................................................................10

INTRODUCTION
In the corporations, there are several types of industries playing major role and one of the
mostly frequent is like travel and tourism sector. It is one of the fastest developing segment and
contribute in the growth rate of economy to a great extent. Moreover, finance plays crucial role
in every company for operating in the market and expanding business. The present study is based
on Merlin Entertainment Plc (MEP) which operates in the travel and tourism industry and
provides services across 23 countries in the world. The current project focuses on strategies
which are used to make pricing decisions and importance of the cost volume analysis within
cited company. Further, aspects which influence the cited organisation's profitability are also
explained over here. Beside this, different management accounting information described in this
study which are supportive in terms of taking business decisions. Moreover, financial
performance of The Restaurant Group Plc is measured and analysed in proper manner by
considering the financial ratios. At the end of report, sources and tools are identified which allow
businesses in order to raise fund within workplace.
TASK 1
1.1 Explaining significance of costs and volume for managing financials within Merlin
Entertainment Plc
Cost is one of the very sensitive factor and having crucial place within working
environment of the business. Those expenses which are incurred by the firm for producing
products and services are known as cost. Further, on the basis of this specific aspect management
of Merlin Entertainment Plc (MEP) is capable to make different decisions. There are several
kinds and categories of costs included in travel and tourism sector which are fixed, variable,
direct, indirect, production etc (Baker and Corcoran, 2012). Further, significance of the costs as
well as volume of output of products and services within the working environment of Merlin Plc
is as follows:
Cost allocation: With help of all the costing and expenses, the firm can determine that in
which ways financial resources should be allotted to different cost centres. If cost allocation
system is not effective in the firm then it will hamper overall functioning of business which is a
sign of reducing productivity. In addition to this, the firm must allocate the expenses in proper
ways which helps to decline total cost of production and prices as well. Ultimately, Merlin Plc is
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able to enhance its final outcome and profit which leads to increase its business performance in
the travel and tourism segment.
Cost management: In any company, controlling over the expenses and managing it in a
proper way is one of the very important place. When expenses are highly and properly managed
by the Merlin Plc then it can improve its profit situation in the industry (Eagles, 2014). Further,
analysis of respective system is highly essential at the workplace to manage and reduce total
costs. It supports the firm in order to decline and overcome expenses burden of the company
which will be helpful in terms of gaining more profit.
Break-even analysis: When a firm neither generate profits nor incur losses, such a
position is called the break-even point. In short, it is identified as a situation of no profit no loss
where all the expenses are covered. Moreover, in order to make analysis of the BEP and derive
prices for selling tourism services the cost volume is highly important. In regard to this,
management able to know that which kind of strategies have to made for financials in order to
boost up the profit and raise business performance in the overall market segment. Through CVP
Merlin Plc determines the highest value of contribution which supports to take effective
investment decisions (Morrison, 2013). Along with this, when services are produced after
considering BEP then chances of stock remaining and cost increasing will be resolved properly.
Economies of scale: Apart from the above aspects, cost volume analysis is highly
supportive in order to measure and meet with the economies of scale at the workplace. In the
workplace when level of output and or finished goods are higher and total cost of production is
lower, then is known as economies of scale. When it achieved by the Merlin Plc then it can be
said that, performance of the firm is better within travel and tourism industry (WisCombe, 2016).
When total costs associated with the firm’s operations are lower and output is higher in
comparison to expected, then mentioned scale and criteria can be achieved by the firm.
1.2 Analysis of those strategies which are adopted by the travel and tourism firms in order to
determine effective selling prices
In the business, pricing aspect has the important place because on this profit level of the
firm is depended. When price charged by the firm is higher, then people will purchase services of
Merlin Plc at lower quantity which is sign of revenue declining. Ultimately profit of the entity
along with the performance affects in negative ways within relevant market sector (Smith,
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Whitehead and Williams, 2013). Further, by considering different kinds of strategies and
methods, the management of Merlin Entertainment Plc determines pricing decisions which are
explained below:
Cost based: The method where at the initially management analyse all the costs and
make total of them and then take pricing decision is called as cost based pricing method. Hence,
summation of overall associated costs is made and then units of products and services which
manufactured are calculated within workplace. On the basis of these two viz, total cost and
production units price is determined (Hall and Page, 2014). In this, total cost is divided by the
units which are manufactured in the firm are taken and on the basis of that pricing decision is
taken by Merlin Plc. For example: if production is 1000 units and total expenses are 250000
GBP, where cost of per service will be 250 GBP (250000/1000). Further, after taking base of the
unit cost, selling price is determined within Merlin Plc for charging from the customers.
Market based: In the market, several kinds of conditions and problems incur by which
prices of the products and services also affect up to the higher level. In this, Merlin Plc analyse
market situation where number of aspects are included which are such as demand, supply, rivals,
substitute services etc. Along with this, future market trend is also forecasted up to certain
criteria and after these all decision to charge prices from customers are taken (Pricing Strategies,
2016). If the market will give positive response in terms of demand then prices will be
undertaken at higher value. Hence, it is effective and beneficial method of pricing for Merlin
business organisation.
Cost plus pricing: At this particular tool of price determination basic two concepts or
values are included which are such as cost per unit and desired profit. When cost of each service
and estimated profit both are higher, then price as well and vice-versa. Under this respective
method, in expense of each and every product level of agreed profit is supposed to add and then
whatever value derives is charged as price (Kimbu and Ngoasong, 2013). For example: if cost
associated to manufacture one unit is 250 GBP and Merlin Plc want to charge profit is like
16.5%. Further, price of tour services will be worth of 250 + 16.5% = 291.25 or 291 GBP.
Competition based: The tool or method in which only competitors are analysed and
taken into consideration as well as other business aspects are ignored. After making analysis of
those prices which are charged by the rivals of Merlin Plc and operating in the travel and tourism
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sector. When price level of competitors is higher in the market for specific tour product, in this
case Merlin will charge lower than rival's price (North, Baldock and Ullah, 2013). For example:
for the US tour rival has price is worth of 15000 GBP then Merlin will determine lower than
15000 GBP like 14500 or 14000 GBP etc. It is highly beneficial in terms of attracting more
customers and switch all towards the Merlin Plc. Major competitors of Merlin Entertainment Plc
are such as TUI group, ClubCorp, RoomKey PMS etc. which create competition environment for
it.
Absorption: The pricing method in which overall costs which incurred in the company
are considered whether they are direct, indirect, fixed or variable is known as absorption
technique. Any kind of cost is not left in this method and due to considering all the expenses
level of price little higher as compare to other techniques. Here actual price is determined as well
as profit also which helps to make effective analysis of the business performance.
Marginal: In addition to above all the methods, other is marginal in which basically two
types of costs are considered which are such as direct and variable (Fraser, Bhaumik and Wright,
2015). Due to incurring few numbers of expenses cost comes at lower which lead to charge low
prices in comparison to other mentioned methods or strategies of pricing.
1.3 Description of factors affecting to the level of profitability of Merlin Entertainment Plc
There are several kinds of factors and elements play in the market and affect to the profit
earning capability of the firm. Further, such affecting aspects are described as below:
 Seasonal variations: In the peak season of holidays, more number of customers purchase
services of Merlin Plc but in off season and engaged schedule people not want to go for
tour. In off seasonality, selling and revenue reduced up to the higher level by which
management of Merlin Plc cannot generate profit. Moreover, for the travel and tourism
businesses it is one of the widely affected factor. In this, at summer, demand of tour
products and hospitality services is high where Merlin Entertainment will charge higher
prices. The company arrange tour at the Legoland, Theme park etc. at the weekend etc.
Apart from this, at the time of winter, demand is lower where management of Merlin
charges the lowest price which lead to attract more customers. Henceforth, the
profitability aspect will remain effective and not goes in negative direction.
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PESTEL ANALYSIS:
 Economic environment: Other factor is regarding to the economic condition of people
or community as it is highly affected on the profitability (Van Staveren, 2013). When
economic condition of people is strong then they will always ready to purchase tour
products and services which helps to generate more revenue and vice-versa. Hence, in
this respective way economic environment of the country affects to the Merlin Plc in
terms of earning profit.
 Political environment: Rules, regulations and policies of the country highly affects to
the business in terms of both positive and negative manner. Government of UK if make
modifications in the tax rate and increase them, then Merlin Plc needs to pay more
amount of taxation as compare to previous times. Due to this, indirect expenses will
increase which will be paid from operating profit generated. Ultimately, cited company
cannot earn more amount of profit which lead to decline performance of it in travel and
tourism segment (Reinhardt and Riddiough, 2014). On the other hand side, if government
reduce the tax rate then it helps to Merlin Plc in terms of increasing profitability.
 Social environment: Under this kind of environment, culture, behaviour, age group,
income level etc. demographic factors of the people affects to the Merlin Entertainment
Plc. As the level of income increases of the customers then they demand higher quality of
the goods and services. Therefore, the management of Merlin Entertainment needs to
make modifications and changes in the existing tour products which lead to increase cost.
Henceforth, overall profitability of the company in travel and tourism affects in negative
direction.
 Technological factors: Now-a-days, in the technology several kinds of innovations and
updates come which are adopted by the Merlin Entertainment company. When it uses
innovative techniques then has to pay more amount and give training to the employees in
order to run the software (Drehmann and Nikolaou, 2013). Due to this, total cost of the
company affects in adverse direction which create impact on the profit generation
capability.
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 Environmental elements: For the travel and tourism businesses, environment is one of
the most affecting factors by which income generation capacity influenced up to the
higher level. In the environment, if condition of flood occurs then tourists and customers
will not like to go for tour. Therefore, due to declining in demand, the Merlin
Entertainment unable to generate profit.
 Legal factors: Under this aspect, different legal rules and regulations included which are
like taxation, visa related issues etc. When government of UK make changes in tax rat
and increases then Merlin Entertainment company has to pay higher amount from the
profit generated (Eagles, 2014). Further, indirect expenses will increase which lead to
decline total net profit of Merlin firm at the end of year.
TASK 2
2.1 Explanation of various kinds of management accounting information which used by Merlin
Plc
Covered in power point presentation
2.2 Assessing management accounting information as a tool of decision making within Merlin
Entertainment Plc
Covered in power point presentation
TASK 3
3.1 Interpreting financial accounts of The Restaurant Group Plc (TRG) with the help of various
financial ratios
Table 1: Calculation of Ratios for The Restaurant Group
Particulars Formula 2014-15 (GBP in
Millions)
2015-16 (GBP
in Millions)
Increase /
Decrease
Current Assets Current Assets /
Current liabilities
38 50 12
Current Liabilities 136 140 4
Current Ratio 0.28 0.36 0.078
Quick Assets Quick assets /
Current liabilities
17 28 11.000
Current Liabilities 136 140 4.000
Quick Asset Ratio 0.125 0.2 0.075
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COGS COGS / Average
inventory
81.49 99.6 18.110
Average Inventory 1.33 1.345 0.015
Stock turnover Ratio 61.27 74.05 12.781
Debt Debt / Equity 6.52 8.97 2.450
Equity 60.58 49.61 -10.970
Debt Equity Ratio 0.11 0.18 0.073
Net sales Net sales / Fixed
Assets
685 711 26.000
Fixed assets 430 372 -58.000
Fixed Asset turnover
ratio 1.59 1.91 0.318
Long term liabilities Long term
liabilities / Capital
employed
48 73 25.000
Capital employed 332 282 -50.000
Capital gearing ratio 0.14 0.26 0.114
Operating profits Operating profit /
Capital employed
89 -38 -127.000
Capital employed 332 282 -50.000
Return on capital
employed 0.27 -0.13 -0.403
Administration cost Administration
expenses / sales
38 33 -5.000
Sales 685 711 26.000
Administration cost to
sales 0.055 0.046 -0.009
Ratio analysis helps in analysing the financial statements of the company in a better
manner. It helps in assessing operating and financial aspects of the entity (Brochet, Jagolinzer
and Riedl, 2013). Financial performance can be evaluated by calculating multiple ratios, such as,
efficiency, liquidity, profitability and solvency. In the above table, ratio for The Restaurant
Group Plc have been calculated in order to assess the financial condition of then company. The
trend of these ratios helps in understanding the strength and weakness of the organization which
helps in better financial decision making.
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Current ratio states the position of current assets and current liabilities of the company. It
states the current assets an enterprise owns over the current liabilities. It further reveals that
whether the company will be able to pay-off its current liabilities with the available current
assets or not (Bulgurcu, 2012). The current ratio of the restaurant in 2015 is 0.28 which has
increased to 0.36 in 2016. It shows that there is an increase of 0.078 in current ratio of the
company. However, it is still lower than the ideal ratio, which is, 1.5. It reveals that the entity
may face difficulties inn paying off its short term debts.
Quick asset ratio reveals that whether the company will pay off its short term debts with
the available assets. Quick Assets are the current assets after deducting inventories ans prepaid
expenses. It consists of debtors, bills receivables and other current assets. Quick asset ratio of the
restaurant was 0.125 in 2015, which has increased to 0.2 in 2016. However, there is no
significant increase in the ratio. It is due to significant increase in current liabilities of the
company. The entity may face problems in meeting out its current liabilities with available quick
assets as the ratio is less than the ideal one. Ideal quick ratio must be more than 1 in order to have
enough assets.
Stock turnover ratio is an efficiency ratio which reveals that how many times the entity
have sold and replaced its inventory over a period (Higgins, 2012). The ratio has been increased
by 12.78. It was 61.27 in 2015 which has increased significantly to 74.05 in 2016. It shows that
8
2014-15 (GBP in million) 2015-16 (GBP in million)
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
Current Ratio
Illustration 1: Comparison of Current Ratio

the company has larger sales in 2016 in comparison to the previous period. Restaurant have been
able to effectively sell the inventories it brought.
Debt equity ratios shows that the amount of debt a company is using to finance its asset
in comparison to equity (Weil, Schipper and Francis, 2013). Debt equity ratio has increased from
0.11:1 in 2015 to 0.18:1 in 2016. It is due to increase in the amount of debt and decrease in the
amount of equity. Restaurant have been dependent Marjory on debt which can be bad for its
financial health as it is a compulsory liability on the entity. It is recommended that the
organization should maintain the ratio of debt and equity.
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2014-15 (GBP in million) 2015-16 (GBP in million)
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
0.16
0.18
0.2
Debt Equity Ratio
Illustration 2: Comparison of Debt Equity Ratio

Capital gearing ratio is helpful in assessing the capital structure of the enterprise. It has
increased from 0.14 in 2015 to 0.26 in 2016. It shows that the restaurant is highly geared in
comparison to previous year. The company has to pay more interest on long term liabilities and it
may face problem in providing adequate dividend to its shareholders.
10
2014-15 (GBP in million)
2015-16 (GBP in million)
0
0.05
0.1
0.15
0.2
0.25
0.3
Capital gearing ratio
Illustration 3: Comparison of Capital Gearing Ratio

Return on capital employed reveals the operating profit a company owns over capital
employed. A higher ratio depicts efficient use of finance. There is a significant decrease in
ROCE of the restaurant. It has reduced from 0.27 in 2015 to -0.13 in 2016. It is due to decrease
in operating profits of the enterprise. It shows that the company is required to take decisions
regarding optimum utilization of available finance.
There is no significant change noticed in administration cost to sales ratio. Both the
factors have increased significantly in this case.
TASK 4
4.1 Analysing sources which provide fund to the company in order to develop projects
Tourism fund department: The instrument which supports to the European Union and its
companies in terms of financial is known as Tourism fund department. Merlin Entertainment Plc
company falls under the European, due to which it able to raise its fund from there. It is one of
the widely used source by UK business entities of travel and tourism sector because of having
easy procedure along with the lower financing cost.
Equity shares: Another source to raise finance is like equity in which the Merlin Plc issues its
equity shares in the market which will be purchased by the people who called as shareholders. It
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2014-15 (GBP in million)
2015-16 (GBP in million)
-0.2
-0.15
-0.1
-0.05
0
0.05
0.1
0.15
0.2
0.25
0.3
Return on capital
employed
Illustration 4: Comparison of ROCE

is one of the best, cheaper and effectual kind of source in order to enhance capital for new
project (Stewart, 2014). Further, financing expenses will be in terms of dividend which depends
on the profit condition of the firm. It is international level of the source of funding under which
shareholders from worldwide purchase shares of the Merlin Entertainment company.
Financial grants: Those frameworks which provides sum of money or capital to the Merlin
Entertainment Plc in order to develop projects at the local level are known as financial grants.
Further, costs behind providing fund the company taken by it is in the form of taxation and
interest amount.
Regional development fund: In the country, there are development institutes are prepared on
the basis of regions which provides finance to the company. When the firm will raise fund from
there then procedure is very easy and short has to complete by the entity (Sources of Finance,
2017). Along with this, level of costing are also lower in comparison to other sources.
Government funding: Apart from all the above sources, government funding is also highly
effective where any kind of private funding and banks are not involved. In this, government of
the UK provides fund to the Merlin Entertainment for expanding business or undertake new
project. Further, cost imposes in terms of taxation from the firm which take fund or capital from
the government. Government funding is the source which provides capital to the Merlin
Entertainment Plc at the regional and national both level. State government comes at the regional
level while central government included at the national level.
CONCLUSION
It can be summarised from the finance and funding project that, when company manage
the financial resources in proper manner and use cost volume profit analysis at the workplace
then able to earn higher amount of profit. There are several kinds of strategies like cost-led, cost
plus, market-led, marginal, absorption etc. are implemented by the Merlin Plc in terms of
determining effective and fruitful prices of tourism services. Moreover, due to seasonality, bad
debts, planning, economic and political environment etc. profit generation capability of the
Merlin Entertainment Plc affects up to the higher extent. Apart from this, financial statements,
variance analysis, budgets, forecasting etc. the management of Merlin Plc able to effective
business decisions. It can be concluded from financial ratios that, The Restaurant Group Plc
performing poor and in the decreasing trend from the FY 2014-15 to 2015-16. Therefore, it
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needs to use and implement cost management, better pricing and marketing strategies along with
giving discounts on its products which helps to attract more customers and increase financial
performance in the industry. With the help of European social fund, equity shares, bank loan,
government funding etc. Merlin Plc can raise fund for expansion and undertaking new project at
the workplace.
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REFERENCES
Journals and Books
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statement comparability. Contemporary Accounting Research. 30(4). pp. 1373-1400.
Bulgurcu, B. K., 2012. Application of TOPSIS technique for financial performance evaluation of
technology firms in Istanbul stock exchange market. Procedia-Social and Behavioral
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Drehmann, M. and Nikolaou, K., 2013. Funding liquidity risk: definition and measurement.
Journal of Banking & Finance. 37(7). pp. 2173-2182.
Eagles, P. F., 2014. Fiscal implications of moving to tourism finance for parks: Ontario
provincial parks. Managing Leisure. 19(1). pp. 1-17.
Fraser, S., Bhaumik, S. K. and Wright, M., 2015. What do we know about entrepreneurial
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Hall, C. M. and Page, S. J., 2014. The geography of tourism and recreation: Environment, place
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Higgins, R. C., 2012. Analysis for financial management. McGraw-Hill/Irwin.
Kimbu, A. N. and Ngoasong, M. Z., 2013. Centralised decentralisation of tourism development:
a network perspective. Annals of Tourism Research. 40. pp. 235-259.
Morrison, A. M., 2013. Marketing and managing tourism destinations. Routledge.
North, D., Baldock, R. and Ullah, F., 2013. Funding the growth of UK technology-based small
firms since the financial crash: are there breakages in the finance escalator?. Venture
Capital. 15(3). pp. 237-260.
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Reinhardt, D. and Riddiough, S. J., 2014. The two faces of cross-border banking flows: an
investigation into the links between global risk, arms-length funding and internal capital
markets. Bank of England. Quarterly Bulletin. 54(2). pp. 249.
Smith, S. J., Whitehead, C. M. and Williams, P., 2013. A role for equity finance in UK housing
markets. York: Joseph Rowntree Foundation.
Stewart, B., 2014. Sport funding and finance. Routledge.
Van Staveren, I., 2013. Caring finance practices. Journal of Economic Issues. 47(2). pp. 419-426.
Weil, R. L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to
concepts, methods and uses. Cengage Learning.
WisCombe, C., 2016. Finance and funding in the travel sector. Operations Management in the
Travel Industry, p.154.
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<http://www.marketingteacher.com/pricing-strategies/> [Accessed on 17th July 2017].
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