Financial Management and Funding in Travel and Tourism Sector Analysis

This report delves into the critical aspects of finance and funding within the travel and tourism (T&T) sector. It begins by exploring the importance of cost and volume analysis in financial management, using Carnival Plc as a case study, and examines various pricing methods employed in the industry. The report then transitions to management accounting information, using Fulham Shore Plc as an example, and its role in decision-making. It also includes an interpretation of financial statements. Finally, the report discusses the sources and distribution of funding for capital project development in the T&T sector. This report covers key financial management concepts and their practical application within the travel and tourism industry.

Finance and Funding in
Travel and Tourism Sector

Table of Contents
INTRODUCTION...........................................................................................................................1
Task 1...............................................................................................................................................1
1.1 Importance of cost and volume in financial management of T&T sector:.......................1
1.2 Pricing methods used in travel and tourism sector:..........................................................3
1.3 Factors influencing profits of travel and tourism business:..............................................4
TASK 2............................................................................................................................................6
2.1 Different types of management accounting information:.................................................6
2.2 Use of management accounting information as a decision making tool:.........................7
TASK 3............................................................................................................................................8
3.1 Interpretation of the financial accounts of The Fulham Shore Plc for the year ended 25th
March, 2018............................................................................................................................8
TASK 4..........................................................................................................................................13
Covered in Leaflet................................................................................................................13
CONCLUSIONS............................................................................................................................13
REFERENCES..............................................................................................................................15

INTRODUCTION
To start any business, there is a requirement of finance and funding to run the business
operations effectively and efficiently. Finance is defined as a process in which funds are
provided for business activities, making purchases or investing purposes. Financing and funding
are used in business to get money from different sources and applied them in required areas of
business in optimum way. This report describes importance of finance and funding activities in
the context of travel and tourism sector. This report is divided in four task and in each task, there
is a different scenario given. Task one defines the importance of cost and volume in financial
management of travel and tourism (T&T) sector for which company Carnival Plc is selected and
this provides analysis of various pricing methods used in this sector. Task two tells about
different types of management accounting information that could be used in this industry by
taking Fulham Shore plc as a case study while task three defines interpretation of financial
statements of given company. At last, task four describes about the sources and distribution of
funding for capital projects development.
Task 1
1.1 Importance of cost and volume in financial management of T&T sector:
For understanding this, a company named Carnival Plc is taken. The details about this
company is as:
Carnival Plc: Carnival Corporation & plc is a UK based travel, tourism and cruise operator
company, currently the world's largest travel leisure company, with a combined fleet of over 100
vessels across 10 cruise line brands. Company is planning a holiday trip to a resort lasting one
month for its tourists. The company will also book a floor of a hotel at a resort to accommodate
its tourists. While conducting this tour, various aspects relating to financial management relating
to this is considered by the business organisation working in tour and travel industry to make this
tour profitable for the Carnival Plc (Evans, Stonehouse and Campbell, 2012). For this,
organisation should have a knowledge of following terms, which are: Cost: It is an important aspect in conducting any tour package, there should be a
proper knowledge of cost factor of tour package. For Carnival Plc, It is necessary to
have a cost estimation to achieve the desired profits which company wants to achieve
and to know whether it is profitable for company or not. In estimation of cost, it can be
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classified as fixed cost (cost that is stay fixed when changes occur in the volume of
activity) and variable cost (cost which vary according to volume of activity). Its
importance in context of this industry are as follows:
 Cost reduction: For any organisation in this sector like Carnival Plc, which plans to
conduct a tour, Cost is very important area, which should require to measure by the
company to reduce it. As a result, company can utilise its fund in better way for
financial management and enhance the profitability of company.
 Decision-making: Cost analysis is very helpful in financial management of a
Carnival Plc in evaluating company's performances and accordingly, take decision
for the betterment of organisation. Important decisions means the decisions for
achieving goals and to achieve sustainable growth by focusing various area of
financial management (Kimbu and Ngoasong, 2013). Hence, performance
evaluation of cost is important for an organisation working in tour and travel sector.
 Increasing performance of managers: Cost analysis is helpful for the improving the
performance of managers of Carnival Plc. By the help of data, which is collected
through cost analysis, it can be used by these managers to take meaningful
decisions about the current & future business activities related to financial
management. By the help of cost analysis, financial managers of Carnival Plc can
improved their performance in various areas of financial management. Volume: It refers to quantity of products and services which an organisation serves to
target customers (Thakran and Verma, 2013). Cost and various budget are allocated to
volume of product or service. Volume denotes the level of production in quantity terms.
In the context of tour and travel business, volume has a different meaning depending on
what is being estimated and for what purpose the data are being used. Generally, most
companies in this sector use number of tickets people are purchasing from company.
The importance of volume analysis are as follows:
 BEP analysis: By using this analytical tool, Carnival Plc can find level of volume of
activity, which provides it optimum profitability. Break-even analysis will help a
company to determine the sales quantity or number of products that should be sold
by it, in order to, manage its various aspects related to earn enough money to pay its
entire expenses. In Break-even analysis, company shall calculate different break-
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even point at different sales volumes that helps an enterprise to invest requisite
funds in production of products at desired volume to earn more profits by enhancing
the reasoning power of financial managers related to financial management.
 Economies of scale: In the tourism industry, by increasing the volume of services
provided by company, an organisation can achieve its economies of scale. It can be
said that it defines the relationship between quality of service produce and cost of
such production in context of tourism industry. In respect of Carnival Plc Company,
economies of scale is all about maximising service volume and providing
advantages through reducing the cost (Vogel, 2016). By ensuring best quality, an
organisation can achieve its economies of scale through increasing its volume. It is
very helpful for the financial management of Carnival Plc to use the volume
analysis. Due to this, company may manage its finance related decision effectively
and efficiently.
 Dis-economies of scale: It is noticed that Carnival Plc cannot achieve its economies
of scale in long run due to unfavourable condition such as high competition,
compromise with quality of services, low performance etc. This condition is called
as dis-economies of scale, which is just opposite of economies of scale. Dis-
economies of scale is helpful for the Carnival Plc to find the exact time so that it
can take its decisions related to financial management of company to continue
survive in long run.
From the above it is analysed that cost and volume are important for Carvinal PLC as it is useful
for them to reduce cost, decision making, enhance the performance of manager, BEP analysis
and so on.
1.2 Pricing methods used in travel and tourism sector:
Decisions about which pricing method can used by tourism company is very crucial
decision as it ultimately effects the profitability of the organisation (Wanhill, 2013). There are
various pricing methods, which can be adopted by the tourism enterprise, which are discussed as
follows:
 Cost plus pricing method: In this pricing method, a certain amount of profit percentage
is fixed and added above the cost so that it can earn profits easily. This is very easy
method to understand and applied by tourism industry's company like Carnival Plc.
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Carnival cruise lines which is one of the brand of Carnival Plc is adopted this method
because it is most suitable for this brand. For example: Carnival plc can use this method
so that it can compute all cost such as fixed and variable cost that is price of services,
labour, material cost etc.
 Market oriented pricing method: In this method, price is decided by market forces, it
can be high or low as per market conditions that prevails in the market by competitors.
This pricing method is used by the Holland America line cruise brand of Carnival Plc.
For example: Carnival plc can apply this method it can set the price based on their
competitors price.
 Promotional pricing: It is consider being one of the most powerful sales strategies that
help in increasing profit of carnival plc. Manager cut the price of packages by certain
percentage for a specific time so that actual demand can be increased. Management of
Carnival Plc will offer promotional pricing as sales incentive when they are planning to
launch new cruise line. For example: this method can be used by Carnival plc to attract
more number of customers as well as enhanced the demand of their services.
 Demand Based pricing: This is a kind of pricing method that are totally based on
customer demands and the perceived value of the product. Management of Carnival use
this method to see the guest customer responses towards purchase of their different cruise
line and then they use to set the suitable price that help to increase sales. There are
different method of demand-based pricing such as price skimming, price discrimination
etc. For example: Carnival plc used this method to set the price according to the demand
of customers.
 Value based pricing: This pricing is also known as price setting strategy that help
manager to fix price of product according to customer perceived value of various product
and services. Company use to provide the valuable features or services that help them tp
take advantage of value based pricing. For example: Carnival Plc use to offer higher
prices of the room that have beautiful ocean view.
1.3 Factors influencing profits of travel and tourism business:
There are large numbers of factors that present in the market which effects the profit of
travel and tourism firm like Carnival Plc (Lunt, Mannion and Exworthy, 2013). A business
should take into account these factors, which are discussed in detail as follows:
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 Social environment: Environment has a major influence on the profitability of any
organisation operating in this sector like Carnival Plc. and also operation of this company
is very complex. Further, there are rapid changes in target customers choices and
preferences, as a result, services provided by Carnival Plc requires a continuously
change. But sometimes, it is not possible for an enterprise to change itself according to
the market environment (Page, Song and Wu, 2012). Therefore, it should be better for the
company to balance the its internal environment with external environment to make
changes and earn more profits as company is able to accept changes.
 Economic environment: This is another major reason due to which a company in
tourism sector like Carnival Plc. can either achieve more profit or can be suffered losses
or low profits. If there is an inflation in the economy then purchasing power of customer
is affected. As a result, Carnival Plc. has to decrease its price of services to maintain high
volume of services, but due to this, Carnival Plc. have to earn low profits.
 Current Trends: In travel and tourism sector, if company wants to survive and earn
more profits then it should operate its business activities as per current trends. Further,
Carnival Plc has to modify its services after taking into consideration of current trends.
By offering services as per expectation of target market it is possible for company to earn
higher profits. But on the other side company can suffered losses if it cannot be able to
offer services as per the current trends.
 Poor Planning: This factor has also a major effect on the profitability of company. It can
be happened that Carnival Plc. has unable to plan its activities as per the market condition
or plan made by the company cannot be so good to increase its profits (Von der Weppen
and Cochrane, 2012). As a result, staff shall not be able to do the business operations in
efficient manner and it can lead to decline in overall profitability level. For example: if
carnival plc can not perform an effective plan then their profitability may be effected.
 MESO factors: There are different MESO level factor that may effect the profit of
company. Such as customer, competition, price, Demand Supply and promotion activity.
Some of these are discussed below:
Customer: In case if customer are not satisfied with the services and product of company
they will move to other option this will reduce they profit of Carnival Plc.
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Competition: There are different companies offering variety of cruise line to customer
that may be main reason to reduce the profit of carnival plc. For example, some competitors like
celebrity cruises, Royal Caribbean cruises etc.
Price: Carnival Plc provide decent price to a wide ranges of customer, but some time
they increase the price depending upon seasonal changes, demand etc. this may move customer
to other option and reduce the profit of respective company.
Demand Supply: The sudden increase in demand can also reduce the profit of Carnival
Plc.
Promotion activity: There are different promotional activities that are taken into
consideration by Carnival Plc to promote their product such as, Hoardings, T.V advertisement
etc. In case if these activates are not able to promote the features of services offered by Carnival
then profit could be reduced. For example: Carvinal plc can perform promotional activity so that
customers can aware about their services.
TASK 2
2.1 Different types of management accounting information:
Management accounting information is focused at internal Management accounting
information is very useful for decision making of managers in the company, it provides financial
data relevant to Fulham Shore Plc's manager's operations in an effort to make sound business
decisions. There are various types of management accounting information available for managers
of an organisation which include financial ratios, budget forecasts, variance analysis and cost
accounting (Airey and et.al, 2015). The selection of appropriate accounting method is important
because the attainment of the business goal & objectives is depended on this. These different
type of management accounting information which are useful for Fulham Shore Plc are as
follows:
 Financial statements: It is also called as financial report and it contains financial
performance of the company for specified period of time. With help of financial
statements, managers of Fulham shore Plc can use this in taking key decision in various
areas. Managers can use information provided by the annual reports (financial
statements) of this company in identifying the area in which company can make
investment for fulfilling the business objectives (Boughton, 2012). These statements
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include balance sheet, income statement, cash flow statement etc. and these statements
provides profitability, liquidity & stability position of the company. Managers can use
these statement for evaluating the efficiency of business operations of company.
 Balance sheet: It is also known as the statement of financial position that describe the
summary of financial balances of an organisation during an accounting year. The
statements shows the actual balance of assets, liabilities, capital employed and detail of
balance showing income and expenses during a year.
 Income statements: It is statements used by accountant of company to analyse the
financial performance during an accounting time period. Income statements is also
known as revenue and expense report that help company to control expenses and
improve profit within a year.
 Cash Flow: Assessing the amount, timing and uncertainty of cash flows that is
consider to be one of the most basic objective of financial reporting. This is mainly
used by company in order to evaluate the total liquidity, flexibility and financial
performance.
 Budgets: It can be used for the purpose of setting criterion and standards as well as to
identify the feasibility of set targets by the tourism enterprises as a tool of management
accounting. Budget are the financial plans that are prepared by the company in order to
achieve desired financial goals of company. By making budgets for future period,
managers of Fulham shore Plc can plan its operations for future period and accordingly
instruct its staff and employees to do work for attainment of desired results as stated in
budgets.
 Variance analysis: This is very useful tool for the Fulham Shore Plc to identify the
areas due to which company has differences from the budgets or targeted standard and
accordingly, take corrective action to attain desired results.
 Cost allocation report: This is very important for Fulham Shore Plc to identify the
various cost during the business activities. It helps company to allocate the cost at right
place so that operations can be done in optimise manner.
 MIS (Management Information System): This is mainly used as information system
that help in decision making for the betterment of company performance. MIS is used
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by management of company to coordinate, control, analyse and visualize the important
information for company at a specific time period.
Training package:
Basis of package Requirement
Purpose  To minimise the ineffectiveness into
workers nature.
 To maximise the ability subject to
managing query as well as risk.
Format  The format will be bifurcated according
to workers strength such as high,
medium and low.
Time of training Morning timings from 10:00 am to 12. 30 pm
Evening timings from 3:00 pm to 5: 30pm
2.2 Use of management accounting information as a decision making tool:
The various management accounting information such as budgets variance analysis etc.
can be used in capital budgeting and other investment appraisal techniques to take decisions. The
use of management accounting information helps the Fulham Shore Plc in taking decisions
pertaining to business (Assaf and Josiassen, 2012). The major aim of Fulham Shore Plc is to
provide the quality services to the customers as well as to achieve good profits. The management
accounting information is helpful for making decision in regard to the development of new
products as well as expansion of business. By the help of these information, a company can
identify the area where it can reduce its expenses without affecting the profits of the company.
Budgets provides us key information so that Fulham Shore Plc can make its decisions over the
future courses of actions and by the help of variances it can identify the ways to cut down the
variance in actual and budgeted figures. In other words, by calculating variance, a company can
control its unproductive activities so that profits cannot be minimised.
Further, by analysis of financial statements of company, it can allocate its financial
resources in such a manner that will facilitates an effective utilisation resources to minimise cost
and attain higher profits. With the help of management accounting information, the cost analysis
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of business can be done which helps company in better utilise its resources for costing of
services, it offers (Jucan and Jucan, 2013). The preparation of budgets can be made on the basis
of financial information so as to make future plans and strategies.
Forecasting: This is an important activity that help an organisation like Fulham Shore
Plc to see in advance and plan accordingly so that any problems can be reduces. The manager
use to forecast on the basis of past scenarios and plans are prepared to deal with future
upcoming.
Cash Flow: This is a statements that describe the actual inflows and outflows of
company during a financial year. The operating activity shows the actual operating expenses of
company. This is mainly used by company in order to evaluate the total liquidity, flexibility and
financial performance.
TASK 3
3.1 Interpretation of the financial accounts of The Fulham Shore Plc for the year ended 25th
March, 2018
Income Statement of The Fulham Shore Plc for the year ended 25th March, 2018
Particulars 25th March,
2018 (£’000)
25th March,
2017 (£’000)
Revenue 54695 40441
Cost of sales -32039 -22553
Gross Profit 22656 17888
Administrative Expense -18940 -12989
Heading Operating profit 3716 4899
Share based payments -616 -631
Pre operating costs -1209 -1914
Amortisation of brand -821 -821
Exceptional costs – cost of acquisition - -26
Exceptional costs – Impairment of property, plant and -867 -
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equipment
Exceptional costs – loss on disposal of property, plant
and equipment
-61 -
Operating profits 142 1507
Financial income 2 1
Financial costs -254 -135
Loss / Profit before tax -110 1373
Income tax expense – current year -258 -164
Income tax expense – prior year 218 -
Loss / Profit for the year from continuing operations 150 1209
Loss for the year from discontinued operations -415 -240
Loss / Profit for the year -565 969
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Balance Sheet of The Fulham Shore Plc as at 25th March, 2018
Particulars 25th March,
2018 (£’000)
25th March,
2017 (£’000)
Non Current Assets
Intangible assets 26550 27374
Property, plant and equipment 31768 27306
Investments 281 -
Trade and other receivables 943 947
Deferred tax assets 193 1406
59735 57033
Current assets
Inventories 1490 1052
Trade and other receivables 3325 2602
Cash and cash equivalents 359 271
Assets classified as held for sale 329 -
5503 3925
Total Assets 65238 60958
Current liabilities
Trade and other payables -11521 -13332
Income tax payable -486 -533
Borrowings - -180
12007 14045
Net Currents liabilities -6504 -10120
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Non Current liabilities
Trade and other payables -1470 -
Borrowings -12350 -6000
Deferred tax liabilities -1779 -2265
-15599 -8265
Total Liabilities -27606 -22310
Net Assets 37632 28648
Equity
Share Capital 5714 5714
Share Premium 6889 6889
Merger relief reserve 30459 30459
Reverse acquisition reserve -9469 -9469
Retained earning 3936 4963
Equity attributable to owners of the company 37529 38556
Non controlling Interest 103 92
Total Equity 37632 3864
Source: Available at companies own website (http://www.fulhamshore.com)
Interpretation of financial account can be done by using ratio analysis:
(1) Profitability Ratios:
 Gross Profit Ratio: Gross Profit / Sales * 100
2017-18 2016-17
22656 / 54695 *100 17888 / 40441 * 100
41.42% 44.23%
Gross Profit Ratio means the ratio that indicate percentage of sales, company is earning
gross profit. Company must maintain its gross profit ratio or must have increase in gross profit
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ratio as compare to last year. Presently company is having gross profit ratio of 41.42% in 2017-
18, whereas company is having gross profit ratio of 44.23% in 2016-17. So, the gross profit ratio
of the firm is decreased from last year. Therefore, company have take concern on this matter.
 Net Profit Margin Ratio: Net Profit / Sales * 100
2017-18 2016-17
-565 / 54695 *100 969 / 40441 * 100
-1.03% 2.40%
Net Profit Ratio means the ratio that indicate percentage of sales, company is earning net
profit. . Presently in 2017-18, company is having net profit ratio of -1.03% and in previous year,
2016-17 it has 2.40%. It means that company is not operating well as compared to previous year
as its net profit margin reduced from last year. Therefore company and management must take
steps to reduce its indirect expenses.
(2) Liquidity Ratios:
 Current Ratio: Current Assets / Current Liabilities
2017-18 2016-17
5503 / 12007 3925 / 14045
0.46 0.28
Current ratio means excess of current assets over current liabilities by taking current liabilities as
a base '1'. Generally 2:1 current ratio is considered as good. Company having current ratio as
0.46:1 in current year 2017-18 and in previous year 2016-17 it has 0.28:1 current ratio is
increased from previous year. This means that company is improving its capabilities in achieving
good liquidity position as compared to previous year. Although it is lower than the standard ratio
so they have to improve more in order to meet the standard ratio.
 Quick Ratio: Quick Assets / Current Liabilities
2017-18 2016-17
4013 / 12007 2873 / 14045
0.33 0.2
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Quick ratio means excess of quick assets over current liabilities by taking current
liabilities as a base '1'. Generally, 1:1 quick ratio is considered as good. Company having current
ratio of 0.33:1 in current year and in previous year it has a 0.2:1 quick ratio. As its quick ratio
increased from last year. This means that company has not fully capable to pay its short-term
obligations but its performance increases as compared to previous year, which is good sign for
company.
(3) Investment Ratios:
 Return on Equity: Profit after tax / Net worth *100
2017-18 2016-17
-565 / 37632 * 100 969 / 38648 *100
-1.50% 2.51%
Return on equity means earning for owners of the company. Generally, 15-20% return on
equity is considered as good and company has -1.50% return on equity, which is less than
previous year, and it is negative. For improving its return, company should take appropriate
actions. So, that firm can get good returns on equity.
 Return on Assets: Net Profit / Total Assets * 100
2017-18 2016-17
-565 / 65238 * 100 969 / 60958 *100
-0.87% 1.59%
Return on assets means what percentage of total assets, company is earning profit.
Presently company have a negative return on assets of -0.87% but there is a positive return in
previous year. This mean that management will have to respond appropriately to improve its
return on total assets by utilising its assets more effectively and efficiently to increase its net
profit.
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TASK 4
Covered in Leaflet
CONCLUSIONS
From the above report, it is concluded that cost and volume analysis shall be useful in
financial management for tourism sector to achieve higher profits. The pricing methods used by
the company in this sector is a significant factor for success of the business. Various use of
management accounting information and factors for travel and tourism are also discussed. For
analysing the financial accounts, various ratios has calculated and sources and distribution of
funds for capital projects associated with tourism are also explained.
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