Finance and Funding in Travel and Tourism: EUROCARIB Tours Report

This report provides a comprehensive analysis of finance and funding within the travel and tourism sector, using EUROCARIB Tours as a case study. It delves into the concept of Cost-Volume-Profit (CVP) analysis, exploring its importance and application in determining break-even points and making financial decisions. The report examines various pricing methods, including marginal cost pricing, break-even pricing, mark-up pricing, and bundle pricing, and analyzes their suitability for EUROCARIB. It identifies factors impacting profit, such as oil prices, service quality, and transportation costs. Furthermore, the report discusses different types of management accounting information, including budget reports, financial statements, variance analysis, and job cost reports, and their role in improving company performance. Investment appraisal techniques are also explored. The report also addresses the sources of funding, providing a complete financial overview for the development of a new hotel.

Finance and Funding in the
Travel and Tourism
Sector

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1.1. Concept of CVP..................................................................................................................1
P 1.2. Analysis of pricing method................................................................................................2
M1 Analyses of suitable Pricing method.....................................................................................3
P 1.3. Factors that have impact on profit.....................................................................................3
D1. Desire profit..........................................................................................................................4
TASK 2............................................................................................................................................5
P 2.1 Various types of management accounting information......................................................5
M2. Variance analysis aid in improving the performance of company.......................................6
2.2 Investment appraisal techniques............................................................................................6
TASK 3............................................................................................................................................7
P3.1 Financial statements of travel and tourism company..........................................................7
M3. Appropriate Management Approaches.................................................................................8
D2. Whether the company is financially stable in the long term on the basis of ratios...............8
TASK 4............................................................................................................................................9
P 4.1 Different sources of funding for development of new hotel...............................................9
CONCLUSION..............................................................................................................................10
REFERENCES................................................................................................................................1
APPENDIX......................................................................................................................................3

INTRODUCTION
In present era, every sector require fund and ways to utilise those funds that help in
execution of different business operation (Lu and Yu, 2014). Financing or funding is related to
delivering of funds or money that help in performing business activities, making investment or
purchase something. In travel and tourism industry companies require fund to run their daily
activities and execute their existing services. To better understand the concept in context of
travel and tourism industry the EUROCARIB Tours is selected. It is located in London that is
focusing on Caribbean holidays.
In this assignment, the concept of CVP analysis is explained, pricing method is discussed
for selected company and factors that affect the profit of company. Report shows various
management accounting information and a ranges of investment techniques that help in
improving performance. Ratios for profitability, liquidity and investment have been discussed.
The report discuss sources and distribution of funding that help in development of new hotel.
TASK 1
P1.1. Concept of CVP.
CVP (cost volume profit) is defined as the process of analysing cost at different level that
might have impact on the volume of operating revenues of EUROCARIB. This approach also
help to ascertain the BEP (Break even point) for different cost structure and sales volume. It
deals with the impacts on operating income due to changes in fixed costs and variable costs of
sales mix of two products and selling price of unit. CVP concept have certain assumption made
inside this operation such sales price per unit is unvarying. For example
BEV
Sales 700000
Fixed cost 120000
Contribution 450000
BEP 0.2
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Sales Contribution BEP
0
100000
200000
300000
400000
500000
600000
700000
800000
Importance of CVP.
Cost volume profit analysis help internal manager of company to make effective shot
term economic decision related to the sales volume and cost of product. This analysis defines the
connection among sales, price and cost of product (Ozanne, Biggs and Kurowski, 2014). CVP is
also important part of financial management of EUROCARIB, as it help to determine the total
expenses that is going to be occurred within the complete tour. It support to recognise sales
volume for company and other cost that is being implemented in providing services to tourist.
Thus, as a result after ascertaining the cost and sales volume manager of EUROCARIB can
make financial decision. The CVP analysis benefits to figure out the changes in fixed and
variable cost of company, sales volume and price that might affect the profit of a year. With the
help of CVP analysis manager of CVP are able to know fixed and variable cost and ascertain
ways to minimise these cost to expand profit margin. For example, management of
EUROCARIB can make effective decision to hedged low fuel price so when fuel price are
higher the company can get a huge benefit to save amount. This will help company to earn more
profit and expand their business by providing services to large number of tourist.
P 1.2. Analysis of pricing method.
Price is defined as a value which help in purchasing a valuable product or services
according to the needs and requirements. In business world, it is a worth that a buyer is willing to
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pay or a seller is willing to accept when they sell some thing.. As companies apply different price
strategies that aid in attracting large number of consumer. In general, companies find it difficult
to select best price strategies that result in profit maximisation. For tour and travel company,
price of services are crucial factor which support in expanding business (Turner, 2014). Like if
customer find prices suitable they will be going to utilise the services provided by company and
if prices are higher they move to alternative. So in order to expand business and enhance
customer base EUROCARIB would maintain economic price and focus to deliver quality
services to their new customer or existing tourist. There are various pricing method that are
described below:
Marginal cost pricing: This process is related to setting of price of product that is equal
to excess expenses involved while producing an additional unit of output.
Break even Pricing: This pricing method is related to fix a price where a company will
face the condition of nor profit nor loss. Therefore each company wants to cross its break even
point that help in achieving profit margin.
Mark Up Pricing: It is the ratio among the cost of product and services and their selling
price. This strategy are used to predict cost that can be made with sensible quality.
Bundle pricing: This price strategy is related to setting of lower rate for the goods and
services that are being offered to customer. This help in selling of complimentary products.
So, EUROCARIB could attain their break even if 20 tourist travel through air plane so
this will be the BEP point of company. But there are 30 tourist wants to travel through air plane
that would bring 500 pound for EUROCARIB. Thus it help to ascertain the price which is equal
to 50 pound. That is needed to charged from each tourist.
M1 Analyses of suitable Pricing method.
EUROCARIB may uses various pricing method such as marginal costing that help to
determine the cost of additional unit. Break even in order to figure out the actual cost that is
being charged by every tourist on trip this is the best appropriate method for company. Other
pricing method like mark up pricing and bundled pricing that can be used in future to find out the
suitable prices for company.
P 1.3. Factors that have impact on profit.
Profit is the main objective for every company. So manager of company tries make profit
at any cost and remove the element that could hinder the performance of company. There are
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different elements that can influence profit in EUROCARIB. This help them to overcome all the
relevant expenses that company have spend on producing different services. So, in today's world
no company could survive without making sufficient profit in long run (Taylor and Francis.Wey,
2015). For a travel and tourism company like EUROCARIB there are different factors that may
influence the profit for a year that are defined below:
Oil prices:
It is very usual that high cost of oil could influence demand that result to decrease profit
of company. If there is high oil price then EUROCARIB have to increase the fair prices of
tickets that would make customer to think before going for a trip. So high oil prices can influence
the profit for company.
Services:
Customer are always looking for best services from tourism companies that satisfy them
most. So EUROCARIB focus to supply superior services to its traveller who are preparing for a
summer holiday trip to a Caribbean Holiday Resort (Dwyer, 2017). If not then customer may
move to alternative that could reduce the profit for EUROCARIB.
Transportation:
Transportation may be one factor that could influence the revenue of company. In case if
tourist are charged higher price for travelling then they will move to other company. As tourist
consider this additional cost to be useless. This will have a direct impact on the profit of
EUROCARIB.
So from the above mention factors, it can be ascertain that profit of EUROCARIB must
be reduces. Therefore manager of company should try different method to control these factors
in order to increase profit.
D1. Desire profit
Particular Amount
Number of tourist 90
Sale prices per
tourist 144000
Less: variable
charges 36000
Contribution 108000
Fixed cost 120000
Total number of -12000
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profit
TASK 2
P 2.1 Various types of management accounting information.
Appropriate information helps in making of effective decision that in improvement of
companies performance. So management accounting information is centred at internal director
and judgement makers. This help to deliver financial information to the management of
EUROCARIB, that support to make valuable decision so profit, performance etc. can be
increased. Manager of company could also make effective polices such as sales, expenses, cost
etc. In general, there are various types of management accounting information that is followed in
EUROCARIB that are discussed below:
Budgets report: In general, manager prepare budgets to control cost related to
production of product and services. They are able to ascertain the best activities or services that
will support in achieving of EUROCARIB goals. With the help of budget manager of
EUROCARIB analyse the variances, examine profit etc.
Financial Statements: With the aid of financial statements manager of EUROCARIB
make informed decision on the basis of accounting information. So manager of company can
make decision on the areas where future investment decision can be made.
Variance analysis: It is used by manager of company to evaluate the actual fluctuation in
result as compared to targeted outcome. With this investigation manager are able to compare the
regular budget with existent budget and if they discover difference in the cost then they can take
action accordingly (Wynn, 2017). For Instance, EUROCARIB designing a trip for Europe for 15
person group, so the estimated plan is 20000 pound. But in real the total amount occurred was
15000 pound, so there is approving variance of 5000 pound for organisation. Basic formula for
variance analyse is
Actual cost- budget cost.
Job cost report: With the help of job coast report manager of EUROCARIB are able to
check the profitability of the different services that are provided by company. Therefore manager
of company are able to determine the services that make higher profit and improve those services
that may lead to loss.
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M2. Variance analysis aid in improving the performance of company.
As discussed above variance analysis helps to find out the differences between the actual
and estimated budgets. With the help of this analysis companies are able to maintain and control
over the different project and operation of business. In this, manager of EUROCARIB, looks at
the real cost and sales volume, then they compare the figures with the estimated. In general some
budgets will be met or some will not. So manager make effective decision and take corrective
action if required. Thus for EUROCARIB, variance analysis is significance as it help to improve
performance and generate more revenue. For instance, EUROCARIB is preparing for a trip to
Asian countries for the group of 25 people (Taylor and Francis, 2014). There managers have
estimated cost of trip would be around 86000 pound but the actual cost they occurred 90000
pound. So the difference of 4000 pound is favorable for the company.
2.2 Investment appraisal techniques.
Investment or capital investment appraisal is commonly known as capital budgeting that
is related to making plan to determine the firm investment for both long and short term. The
main objective of this process is to calculate the project, portfolio decision and the other values
that business entity is going to generate (Investment Appraisal Technique, 2015). In
EUROCARIB, manager uses different investment appraisal methods that help in financial value
on profit. This help to justified the cost of company. Some of basic appraisal techniques used by
company to make decision making is defined with the help of an example:
Cash flows amount is million
Year Cash flows PV of 10% Present value
0 -25 1 -25
1 12 0.9090909091 10.9090909091
2 15 0.826446281 12.3966942149
3 10 0.7513148009 7.513148009
4 8 0.6830134554 5.4641076429
Total PV 36.2830407759
NPV 11.2830407759
IRR 31.17%
Payback period 2.4years approx.
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NPV (Net present value): NPV is helpful in determining the actual differences between
the net present value of total cash inflows and cash outflows during an accounting year. This tool
is considering to be an effective tool to make investment decision. For example, a project
requires investment of 25 million for 4 year. The value will be 11 million after four year. Thus it
means that company will not going to earn enough profit in those year. Therefore, EUROCARIB
must go to some other option that will give better result (Zheng and et. al., 2014).
Payback period: It is defined as the total time required to cover the expenses of an
investment. This help manager of company to ascertain whether to make an investment or not in
that particular project.
IRR (Internal rate of return) : This method is used to find out the expected return from
an investment and attractiveness of a project. This basically display the interest rate at which the
net present measure of all the cash flows ( both positive and negative) from a project or
investment equal zero. In case if manager found that required investment is lower than they
might reject the project. For example, EUROCARIB makes an initial investment of 25 million
the total internal rate of return will be 31% at the end of 4 year. So company must made
investment in the project.
TASK 3
P3.1 Financial statements of travel and tourism company.
In UK there are various travel and tourism companies that provide valuable services to
their customer. For analysis Trafalgar is selected which is located in London and provide various
valuable services to tourist such as hotels, transportation, outdoor events at a very suitable rate.
The company is doing well this can be ascertained by analysis the financial performance with the
help of profitability ratios, investment ratios and current ratios.
Current ratio: This ratio basically described the actual cash position of company and the
ability to their holding into cash.
Total Assets Turnover ratio: These ratio are helpful in determining the total sales value
or income generated in relation to the value of assets hold by company. This display the ratio
with which an organization is position its assets in creating revenues.
Return on equity: These ratios are helpful in determining the actual profitability of
business in relation to the values of equity (Becker, 2016).
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Working note:
Current Assets for 2016 = 166158 and Current Liability: 15969
Net sales for 2016 = 109181, Average total assets for both year = 315833+267029/2 = 291431.
Profit for the year 2016 = (511) and net worth (2016) = 192563 and
Profit For the Year 2017 = 9794 and net worth = 239752
From the above, calculated liquidity ratios it has been observed that these ratios depict
the liquidity position of the business entity, as in above ratios the current ratio it shows the ability
of the company. The ideal current ratio is 2:1 and the entity’s ratio is 11.89:1(in 2017) and
10.4:1(in 2016). And the assets turnover ratio depicts the amount of assets with the business to
meet the liabilities, the assets turnover ratio of entity is 0.318 (in 2017) and 0.374 (in 2016).
Besides this, the return on equity ratio depicts the return on the total number of equity shares and
the ratio is 0.048 (in 2017) and 0.0025(in 2016).
M3. Appropriate Management Approaches.
Management help in execution of different activities of EUROCARIB that help in
attainment of predefined goals. This is observed that social system method will aid in developing
understanding about the behavior of people living in community. Thus management of
EUROCARIB uses this system to understand the preferences of customer those are willing to
make a trip. Separated from this, decision approach also help the management to take quality
decisions (Ma and Hassink, 2014).
D2. Whether the company is financially stable in the long term on the basis of ratios.
As calculated above, ratio describe the useful information about the company such as,
current ratio for year 2016 is 10.4 and in year 2017 it raises to 11.89. It means that EUROCARIB
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have good liquidity that will help in achieving the higher income for a particular period. From
the calculation, return on equity have raised up to 0.0408 that is beneficial for company. So it is
observed that equity return has increased that will display the good earning for company. Thus it
is described that company will be having enough amount to run their business.
TASK 4
P 4.1 Different sources of funding for development of new hotel
Recently, EUROCARIB is planning to open new hotel in Caribbean, therefore they must
have the proper knowledge about the condition and other factors. Management is willing to
expand their activities that will support them to collect funds from external and internal sources.
To run hotel approx. cost will be £25 million. There are various internal and external sources of
funding from where EUROCARIB could gather funds. These are described below:
Internal sources: This sources of capital are basically generated from internal business
that help in effective execution of operation. These are described below:
Retained earnings: This is also one of the main internal source of funding within
company. Basically when a company generate positive earning they save a part of surplus as
retained earnings. This is used in developing or managing the valuable project of company.
Owner investment: It is one of the most effective manner to collect or raise fund within
company. The personal saving of owner is used by owner in order to operate business operation.
This internal source is one most economical method that support owner not to pay any amount to
the outsider or repay loan. This will help manager to establish their tour and travel company.
External sources: These sources help to raise capital from outside the company. This
help in making of project effectively work (Sanjeev and Jauhari, 2012). Some of these are
described below:
Bank Loan: Nowadays many bank offer different loan facilities on a specific rate of
interest. This is one of the best external source for company as, it supports in developing new
business. Essentially bank loans are the about appreciable source of financing for scene a new
investment. As main ground for this is, it could be availed easily against the collateral security.
Debenture: This is considering to be an effective method that is used by business entity
in order to raise liabilities from stakeholder by issuing debenture. In return, business entity will
give a return at a specific interest rate to the stakeholder according to liability value.
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