Report on Finance and Funding in Travel and Tourism Industry

This report delves into the financial aspects of the travel and tourism industry, focusing on the importance of finance and funding for companies like Merlin Entertainment. It explores the significance of cost and volume in financial management, examining direct and indirect costs, variable and fixed c...Read More

Finance and Funding in
Travel and Tourism

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1.1 cost and volume importance in financial management.......................................................1
P1.2 Various pricing methods used in Travel and tourism.........................................................1
TASK 2............................................................................................................................................2
P2.1 management accounting information its types and uses.....................................................2
P2.2 Management accounting information in Decision making.................................................5
TASK 3............................................................................................................................................6
P3.1 financial performance of The Restaurant Group................................................................6
TASK 4............................................................................................................................................7
P4.1 sources of fund for capital project......................................................................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Travel and tourism is very huge industry like other industries. It has its various functions
and activities for which they require funds. To operate any business funds are most important
part. Therefore like any other industry, travel and tourism industry also requires fund. The
present report is based on funds requirement of Merlin entertainment ltd. The company is an
entertainment service providing company that is located in 23 countries with 115 attractions. The
main three segments of the company are Midway attractions, LEGOLANDS parks and resort and
theme parks. In this report the importance of management accounting information has been
discussed in regarding with travel and tourism industry Taking Merlin as an example. The report
also provides the information about various sources from where company can raise funds for its
capital projects. That is enclosed in ppt and poster. Analysis of Financial performance has also
been conducted with the help of Ratio analysis for the given financial data of The Restaurant
group Plc.
TASK 1
P1.1 cost and volume importance in financial management
Every company from any industry have some costs and volume of its products and
services. Changes in cost and volume of products and services affects the company's operating
incomes and operating expenses (Rani, Yadav and Jain, 2015). For making short term and long
term decision making, costs and volume factors play an important role. This establishes different
relationships like, cost of producing goods and amount of goods sold and profit from selling of
goods. Components of costs and volumes helps the management in giving the insight about
profitability of the goods and services of the company. For Merlin entertainment costs relate to
the expenses that are involved in producing and selling its services and volume refers to the
number and amount of services provided.
Various costs can be classified into
Direct cost: Those costs that are directly related to the services or products of the company are
classified as direct costs. In case of Merlin Entertainment, those workers that operates
different rides, working staff, payment of wages to such kind of staff can be considered as

direct cost. Another example of direct cost in case of Merlin entertainment could be only
that proportion of electricity bill which is associated with the operation of rides.
Indirect cost: indirect cost refers to the cost that cannot be attributable directly to a batch or
group of products and services. These costs relates to the overall activities of an organisation
and cannot be classified to a single activity or batch of activity. In case of Merlin
entertainment, indirect cost could be advertisement expenses, cost of electricity, salary to the
administration staff, and other costs of operations that benefits the company as a whole.
Variable costs: variable cost is a part of direct cost. This includes costs that changes with change
in number or services or the units of products produced. Variable costs remain same on per
unit basis and varies with the total number of amount. Example of variable costs for Merlin
entertainment would be printing cost of entry tickets, direct material for providing better
services to the customers, etc. These costs of Merlin entertainment will change with the
change in number of customers to the Merlin entertainment ltd.
Fixed costs: Those costs of the organisation that remain fixed and does not have an affect of
number of production or services are known as fixed costs. However, the overall proportion
of fixed cost increases when the number of units of services are low and the proportion
decreases when the number of services or the amount of production is high (Ward, and
Forker, 2017). For Merlin entertainment fixed cost could be the salary to the administration
employees, rent of building or rent of land if any, etc.
Volume:
Economies of scale: That point where an increase in a single unit of output provides an
advantage in cost. The affect of economies of scale arises due to the relationship between
cost of overall services and per unit fixed cost. More will be the services, less will be the per
unit fixed cost because fixed cost will be spread out over the number of services. For
example, if the company is operating in rental building, and it expands its one of the activity,
the per unit fixed cost of rent of building will decrease, this will be the situation of
economies of scale for Merlin. Economies of scale can be caused due to both factors,
internal as well as external factors. Internal factors could be reduce in per unit fixed cost due

to management factors or change in technology. And external factors could be the effect of
technology to the overall industry.
Diseconomies of scale: situation of diseconomies of scale is opposite to the situation of
economies of scale (Said, 2016). This is that point where fixed cost per unit increases due to
decrease in number of services provided. Merlin entertainment is a service provider
company, therefore the management should take care about the number of services in an
year so that the company need not to face the situation of diseconomies of scale. For
example if the company reduces its activities in the rental building, its per unit fixed cost
will increase.
Break-even analysis: Break even analysis refers to that situation where company operates in the
situation of no profit and no loss. It is that point where the overall variable cost is equal to
the revenue of the company. This should be the minimum situation of any company so that
the company does not face any losses.
Cost-volume profit analysis: this analysis is used to determine the affects in operating income
and expenses of the company that have caused due to changes in costs and volume of goods
and services. Likewise, Merlin entertainment can also use Cost-volume profit analysis in
order to identify the affects of change in cost and volume to the operating income of the
company. This analysis is based on several assumptions like constant fixed cost, sales price
per unit is constant, all the production is sold, etc (Uechi and et.al., 2015).
P1.2 Various pricing methods used in Travel and tourism
Merlin entertainment can use any of the pricing method from the choices given below:
Cost-led pricing: this is also known as cost plus pricing method. In this method a fixed
percentage is added to the cost of the product and services so as to get atleast a fixed percentage
of profit on sale of single product or service. This is the common method of pricing and is used
when the total amount of cost is easily available to the company. This method or pricing is
generally used by the small enterprises
Competition pricing: It is a method in which a seller uses prices of competing market and
products to decide the value of its goods. The seller would instead of deciding the prices on its

own will compare its goods/services to other items and will decide the prices depending upon the
prices of similar goods/services in the market. The seller has three options while setting the price
for the goods which are:
 Prices below the competition.
 Prices at the competition.
 Prices above the competition.
Absorption pricing: Absorption pricing is the method where the price of product or service is
determined by attributing all the variable costs that are related to that product or service along
with the proportion of fixed cost (Ward and Forker, 2017). This method of pricing is a variation
of cost plus pricing because in that method all the costs are attributed to the product or service
but in this method only the proportion of fixed cost is attributed. This method is used by those
organisations where the fixed cost is higher and the units or segments of the company are more.
Example Reliance industries.
Package pricing: package pricing is that pricing method where prices of different packages are
set based on the features of the package. This method is generally used by the companies like
Merlin entertainment that have different packages for different services. Under this value of the
services are determined on the basis of which prices are set. Merlin can provide types of
packages where some will include all services and some packages will include basic services and
there would be option for the customers to choose what services they want and what they don’t
want.
Consumer based pricing: It is a method in where the prices are determined keeping in view the
customer ability to pay for the related product or service (Jung, 2017). That is the price under
this method is based on the customer insight and what from the customers point of view will be
the value of related product or service. This method is used where those products are dealt with,
on which no particular price is mentioned and different sellers provide the same product at
different prices.

Marginal pricing: this is the method of pricing which is often employed by the travel industry.
Marginal pricing method operates on a minimum level of capacity to sustain profit. Travel
industry is the industry where there can be huge loss when the situation of under booking comes
because even at that suffers from maintenance cost like staff salaries, etc. Therefore the best
pricing method for Merlin entertainment will be the Marginal pricing method.
Other pricing methods:
 Visible pricing
 Price discrimination
 Marginal price timing
 Seasonal pricing, etc.
P1.3 Profit influencing factors in Travel and Tourism
Government support and intervention: Government: profits of companies are mainly affected
by the government support and government intervention. Government has made various norms
and regulations regarding the operations of companies from different sectors (Koo, Shin and Lee,
2017). In many countries, government play an important role in promoting the travel and tourism
in their countries. In those countries private companies are benefitted because they don’t need to
spend much amount in promoting their business. This reduces their cost of advertisement which
in turn will affect the profit of company. MERLIN is operating in around 23 countries, therefore
firstly management need to analyse on which countries government is actively participating in
promoting tourism and travelism. After identifying such countries the management can plan
accordingly the need of advertisement in different countries. Sometimes norms and regulations
of government are harsh they affect the companies. Government also intervenes many times
when the operations of companies affect the overall economic condition of the country.
Travel trends: many times travel trends can be determined by general observations. These trends
are developed on yearly basis that determines what the market is after. These trends can help the

companies in promoting their business (Mitchell, 2017). Trends include vogue of a particular
destination like beaches, fun worlds, heritage city tours, etc. Such trends are becoming popular
these days. People like to go where the whole crowd is going and the destination which is in
trend. These trends help the management in planning their activities. By determining the trend
merlin can plan to attract tourist towards its segments like LEGOLANDS parks and midway
attraction.
Seasons: while planning any tour the 1st thing which is mostly considered is the season or
weather conditions of the destination (Factors affecting profit in Travel and Tourism, 2017).
Favourable weather condition will naturally attract more tourists and unfavourable weather
condition will keep away the tourists from the destination. It also depends upon the choice of the
tourists, like some people like to visit cold places, some like to visit beaches in summers and
some are interested in visiting places to have fun like Merlin. Therefore the greatest factor that
affects the profit of any travel and tourism business is the weather condition or season of the
desired location.
Advertisement and promotions: in order to increase the profit of the business many companies
take help of advertisement and promotions activities. These activities help the business in
attracting customers. Advertisement and promotion of any business improves the brand image of
the company. Tourists don’t like to visit the places they are not aware about. Without any
advertisement and promotion tourist will not be able to get the knowledge about the destination.
Therefore through advertisement and promotions, Merlin can float the information about the
activities and the packages that the company is providing in the market so that more tourists get
attracted. More tourists means more profits. By this way advertisement and promotions affects
the profit. For example Merlin can advertise all of its available services by television advertising.
Economic factors: Economies differ from country to country. The economical factor of any
country can have a significant impact in the profit earning (Said, 2016). If the economy is
suffering from recession, then the people will be more careful in spending their money. At this
time people would prefer the places where they can get equal or more value of their money.
Merlin at this time should focus on providing the packages of economic cost. While, during

boom period people would like to fulfil their wants and desires. At this time Merlin can offer the
packages at some higher price.
TASK 2
Enclosed in ppt.
TASK 3
P3.1 financial performance of The Restaurant Group
It is mandatory for every company to prepare Financial Statements. These financial
statements provide information about the liquidity position and financial position of the company
(Ward, and Forker, 2017). These financial statements help in analysing and determining the
financial position of the company using various techniques and methods like Ratio analysis,
horizontal and vertical analysis, trend percentage analysis, etc. Here financial performance of
The restaurant group Plc has been analysed using ratios analysis technique.
Ratio Analysis: It is a technique of financial statement analysis that helps in determining the
financial performance of organisation in several key areas (Financial ratios, 2017). It provides a
quick indication about where the company is heading forward. Ratio analysis provides the
information like solvency position of the company, profitability capacity, liquidity position of the
company, etc.
Liquidity Ratio
Ratios Formulas 2016 2015
Current assets (C.A.) 11.8 8.12
Current liabilities (C.L.) 33.14 29.14
Working Capital ratio
current assets / current
liabilities 0.36 0.28
Quick assets 3.32 1.06
Quick Ratio
Quick assets/ Current
liabilities 0.10 0.04
Working capital
Current assets (C.A) –
current liabilities (C.L.) -21.34 -21.02

Liquidity ratios exhibit the information about the liquidity position of the company. To
operate smoothly, every company needs liquidity in its funds. Liquid funds help the company in
meeting urgent financial requirements. Working capital ratio of the restaurant group exhibits that
the company’s current assets are less than that of it current liabilities. Whereas, the ideal working
capital ratio is 2:1. That means current assets of the company should be the double of its current
liabilities. This position of the company shows that the company don’t have enough current
assets that mean the liquidity position o0f the company is weak with a negative working capital.
Efficiency ratio
Ratios Formulas 2016 2015
Inventory turnover ratio COGS/ Average inventory 117.77 93.71
Fixed assets turnover
Net revenues/ Average
fixed Assets 1.9 1.78
Total asset turnover ratio
Net revenues / Average
Total Assets 1.6 1.54
Efficiency ratios determines how effectively the company is using its resources. Inventor
turnover ratio provides the information about how efficient the management is in rotating the
inventory of the company in the market. The analysis shows that the management is efficient in
rotating the inventory. Fixed assets turnover shows the optimum use of assets. The ideal fixed
asset ratio is 5 times. This shows the management of The restaurant group is not efficient in
utilising the fixed assets of the company.
Profitability ratios
Ratios Formulas 2016 2015
Sales 711 685
G.P. Margin 708 558
N.P. margin -40 69

GP ratio
Gross Profit / sales revenue
*100 99.58% 81.46%
NP ratio
Net Profit / sales revenue
*100 -5.63% 10.07%
Capital employed 294.98 297.41
Return on capital employed Net Profit / Capital employed -13.560 23.200
Return on assets Net profit/ total assets -9.020 15.440
Profitability ratios determines the profit earning capacity of the business. These ratios
shows how well the company is earning profit. Net profit margin of the company shows that the
company has suffered loss in 2015, while the company is recovering in the following year. This
also includes return on capital employed that identifies the actual return on the capital employed
of the company. It is visible from the above results that in 2015, the company has provided
negative return on capital employed which the company has recovered in 2016. The overall
company’s financial position is weak.
Solvency Ratio
Ratios Formulas 2016 2015
Shareholders equity 49.61 60.58
Long term debt 8.97 6.52
Debt-equity ratio
Shareholders equity / long
term debt 5.530 9.29
Total assets 100 100
Total liabilities 50.39 39.42
Debt to asset ratio total liabilities / total assets 0.5039 0.3942
Solvency ratios determines the ability of the company in meeting its long term and short
term obligations. The ideal debt equity ratio should be 1:2. That means company can raise debt
equal to the two times of its equity capital. But as the results, company equity is 5times more

than its debt, therefore company can raise more debt capital. This will enable the company in
meeting its working capital requirement which is negative.
TASK 4
Enclosed in poster.
CONCLUSION
From the above study it has been concluded that, like any other industry, finance and
funds are equally important for travel and tourism business. From the above report it is clear that
management accounting information helps the management in making various economic
decisions regarding business and helps in achieving the goals and objectives of business.
Financial performance analysis of the restaurant group plc has also been conducted by analysing
the ratio. The results from such analysis conclude that the financial performance of the company
in 2015 was not sound and also was having the weak solvency position. Though in 2016, the
company has shown a growth which is a good indication for the users of its financial statements.
However, liquidity position of the company is not good enough in both the years. The report also
focuses on various pricing techniques that Merlin entertainment can adopt. The best suggested
technique for Merlin is Marginal pricing.

REFERENCES
Books and Journals
Rani, N., Yadav, S. S. and Jain, P. K., 2015. Financial performance analysis of mergers and
acquisitions: evidence from India. International Journal of Commerce and
Management. 25(4). pp.402-423.
Said, H. A., 2016. Using Different Probability Distributions for Managerial Accounting
Technique: The Cost-Volume-Profit Analysis. Journal of Business and Accounting.
9(1). pp.3.
Uechi, L. and et.al., 2015. Sector dominance ratio analysis of financial markets. Physica A:
Statistical Mechanics and its Applications. 421. pp.488-509.
Ward, A.M. and Forker, J., 2017. Financial management effectiveness and board gender
diversity in member-governed, community financial institutions. Journal of Business
Ethics, 141(2). pp.351-366.
Jung, C., 2017. Public 6 finance and financial management. Public Administration and Policy in
Korea: Its Evolution and Challenges. pp.118.
Koo, B., Shin, B. and Lee, G., 2017. A cost-plus estimating framework for BIM related design
and engineering services. KSCE Journal of Civil Engineering, pp.1-9.
Mitchell, F., 2017. 14VA Pragmatic Constructivist Approach to Studying Difference and Change
in Management Accounting Practice. A Philosophy of Management Accounting: A
Pragmatic Constructivist Approach. pp.272.
Said, H.A., 2016. Using Different Probability Distributions for Managerial Accounting
Technique: The Cost-Volume-Profit Analysis. Journal of Business and
Accounting. 9(1). pp.3.
Ward, A.M. and Forker, J., 2017. Financial management effectiveness and board gender
diversity in member-governed, community financial institutions. Journal of Business
Ethics, 141(2). pp.351-366.

Online
Factors affecting profit in Travel and Tourism, 2017. [Online]. Available
Through :<http://smallbusiness.chron.com/factors-affecting-marketing-travel-tourism-
54570.html>. [Accessed on 18th October 2017]
Financial ratios, 2017. [Online]. Available Through
:<http://financials.morningstar.com/ratios/r.html?t=RTN&region=gbr&culture=en-
US>. [Accessed on 18th October 2017]