Analysis of Finance and Funding in Travel and Tourism Industry

This report delves into the financial intricacies of the travel and tourism sector, examining the importance of cost, volume, and profit (CVP) analysis for effective financial management, with a focus on Carnival plc. It explores various pricing methods, including mark-down pricing, packages, seasonal pricing, last-minute pricing, and discounting, and analyzes factors influencing profits, such as social environments, events, seasons, and currency rates. Furthermore, the report investigates the application of management accounting information within Fulham Shore plc, assessing its use as a decision-making tool. It also covers the interpretation of financial ratios and explores the sources and distribution of funding for capital projects in the tourism industry. The report provides a comprehensive overview of financial strategies and challenges within the travel and tourism sector, offering valuable insights for industry professionals and students alike.

Finance and Funding in
the Travel and Tourism
Sector

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
1.1 Importance of cost and volume in financial management of travel and tourism business....3
1.2 Pricing method used in travel and tourism sector..................................................................4
1.3 Factors influencing profits for travel and tourism business...................................................6
TASK 2............................................................................................................................................7
2.1: Analysing various types of management accounting information that can be used in
Fulham Shore plc:........................................................................................................................7
2.2: Assess the use of management accounting information as a decision-making tool:............8
TASK 3............................................................................................................................................9
3.1: Interpretation of ratios in travel and tourism financial accounts..........................................9
TASK 4..........................................................................................................................................11
4.1: Sources and distribution of funding for the development of capital projects
associated with tourism.............................................................................................................11
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Finance is a field that is concerned with the allocation of assets and liabilities over space
and time under conditions of risk and uncertainty. It is considered as lifeblood of every
organisation that helps businesses to survive in long run. A valuable amount of funds is required
to operate various business operations (Ambrose, 2012). Finance and funding in travel and
tourism is one of the primary concern on the basis of which all the future plans are designed.
Through the act of funding financial resources are provided to different business concerns.
Through this project report understanding of cost, volume and profit of management accounting
information in travel and tourism sector is provided. Pricing methods and factors influencing
profits are mentioned. Together with this various sources of funding in this sector and required
skills to interpret financial accounts is mentioned in the report.
TASK 1
1.1 Importance of cost and volume in financial management of travel and tourism business
There is a rapid growth is noticed in travel and tourism industry over the period of time.
Contribution of this industry towards Gross Domestic Products of the country is increasing. It is
considered as one of the largest revenue contributing sector in UK. Growth in travel and tourism
helps in development of infrastructure sector in the country. Together with this one of the
important contribution is towards creating wealth by generating maximum job opportunities
during an accounting period (Gibson, Kaplanidou and Kang, 2012). Growth in this sectors helps
government to resolve one of the major social issues like employment. Providing employment
leads to more income and higher standard of living. Carnival plc London, England is working in
travel and tourism sector. As working in this company it is important to understand cost, volume
and profit for management decision making by the organisation.
Relationship between cost, volume and profit makes up the profit structure of an
enterprise. CVP relationship becomes essential for budgeting and profit planning. As an ultimate
object of Carnival plc it helps management to find the most profitable combination of cost and
volume. Importance of cost and volume in financial management through CVP analysis is as
follows:
Cost:

Cost volume and profit analysis explains the behaviour of profits in response to a change
in cost and volume. Carnival plc is related to travel and tourism business and to calculate impact
of cost and volume on profits understanding CVP analysis is important. Similar to other
organisations Carnival plc also possess targets to earn revenue in a particular financial year. To
achieve targeted objectives it is important to identify level of sales volume that needs to be made
to achieve targeted objective. Sales made at the level where cost incurred is equal to revenue
then it is a situation of break-even-point. To have insight into the effects and inter-relationships
of factors which influence profits it is important to understand contribution of cost and volume.
Cost is the amount that is incurred by Carnival plc to provide services to consumers. Higher cost
leads to expensive services and minimise consumers attraction (Guttentag, 2015). It is important
to manage cost for the product and services provided by the organisation to maximise profits.
Cost and volume possess reverse relationship as higher the cost will leads to low volume of
sales. On the other hand low cost will bring higher sales volume and target to earn more revenue
will be achieved by Carnival plc. Cost within travel and tourism sector can be direct, indirect and
fixed cost. For effective financial management allocation of cost must be available with Carnival
plc to take productive decisions.
Volume:
BEP analysis: This analytical tool, help Carnival Plc to find the level of volume of action
that gives it optimal net income. Break-even analysis support respective company to find out the
sales measure or amount of goods which must be sold during a period that aid to earn adequate
money to give its total expenditure. In BEP organization should work out antithetic break-even
component at various sales volumes that benefits carnival Plc to put needed funds in production
of commodity at desirable volume so that profit can be increased.
 Improving performance: It helps in enhancing ability of Carnival plc by effective
management through accurate information regarding cost and volume of the company.
 Decision making: Planning for future is based on information provided and effective
planning helps in good decision making that contribute towards attainment of targeted
objectives.
 Dis-economies of scale: It is detected 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. (Wanhill, 2013).
1.2 Pricing method used in travel and tourism sector
Carnival plc uses various pricing strategies when selling services to variety of
consumers. The price can be set to maximize profitability for each unit sole or from the market
overall. An effective pricing helps business in travel and tourism sector to defend an existing
market from new entrance. Price is considered as one of the effective tool that gives competitive
advantages to organisations. Pricing of a product depends on variety of things such as type of
business, targeted consumers, cost incurred. For tourism businesses setting price will be more
market based. Price for Carnival plc will be set to ensure that profits are available on each sale.
Following pricing methods are used by Carnival plc for its future-
 Mark down pricing strategy: When selling prices are deliberated and reduced then it is
termed as mark down pricing strategy. This pricing strategy is used by Carnival plc in
order to remain competitive. When sales are slow then it is considered as one of the
effective method to boost up sales. This helps to generate more bookings and more
revenue will be earned by organisations. This pricing method is used by the Holland
America line cruise brand of Carnival Plc.
 Packages: Packages are highest in trend as largely appreciated by travellers all over the
world. This helps to meet needs such as hotels, airfare, transfers, tours and all activities
are for inclusive price. Developing packages with complementary tourism is a good way
to stimulate demand and add value without having to discount. Packages are used to
target niche markets effectively. Adopting this strategy will help Costa cruise line to earn
well in competitive world.
 Seasonal pricing: Different prices are charged throughout the year to cover low and
high seasons. Usually there are some days in a year in which sales are high and for some
days sales are low. Charging price as per different season will help to recover cost
because of off season. Carnival plc will adopt this strategy during holiday period to
become competitive (Kimbu and Ngoasong, 2013).
 Last minute pricing: A common pricing strategy for accommodation suppliers and tour
operators to fill any last minute gaps. It involves discounting prices according to take-up

which are then promoted on last minute booking website. It helps to fill vacant seats and
brings company in break even situation despite of loses. Carnival plc will use this
strategy to have complete its bookings to be at break even point.
 Discounting: Discounts are used in off seasons or to assist yield management but this
strategy must be selective as over use of this can reduce profitability. It is reliable
strategy for Carnival plc in order to deal with competition. Carnival cruise lines which is
one of the brand of Carnival Plc is adopted this method because it is most suitable for
this brand
Particulars Amount
Sales price per consumer 15000
Less: Variable cost
Meal charges 2500
Contribution 12500
Fixed cost 1500000
Total number of consumers 160
Total profits 2000000
Desired profits 500000
1.3 Factors influencing profits for travel and tourism business
In the fast changing environment there are various factors that are affecting businesses. It
is essential for Carnival plc to determine different factors that affects and influence profits for
tourism industry (Koutra and Edwards, 2012). There are positive and negative aspects of each
factor that needs to determine profit earning capacity of an organisation. Factors that are
influencing profits of Carnival plc are as follows-
 Social environment: It has been observed that environment have a leading causing on
the profitableness of business firm operating in travel and tourism sector like Carnival Plc
Further more, there are fast alteration in target customized prime and taste, as a
consequence, services supplied by Carnival Plc needs a endless change. But many time, it
is not easy for an organization to modify itself reported to the current market

environment. Therefore, it should be better for the carnival plc to make a equilibrium on
internal along with external environment to so that changes are done in order to attain
more profit.
 Events: When a destination has special event like holiday markets, annual festivals on
large scale or Olympics then travel marketing is ratcheted up accordingly. This increased
and grab attention of public at large scale through social media and news channels. This
is turned as marketing for tour and travelling company and attracts large number of
consumers. When Carnival plc is choosing event place as their destination then it will
leads to attract large consumer group and brings more profits for the company.
 Seasons: Most travel destinations and related tourism products have at least one set of
high and low seasons. In off seasons it brings lower rates through cheaper flights and
less interest overall. In peak season cost related to each area increases. To deal with
increased pricing in peak season Carnival plc will use marketing plan with a heavy high
season and light low season spending budget. In case if respective company is not able to
provide the services according to the seasonal changes that may effect the overall profit.
For example, in summer people are willing to have indoor swimming pool that makes
them satisfied. This will attract large number of guest so profit can be increased
 Currency Rates: Travelling internationally is very mush affected by currency
fluctuations in the currency rates between countries. A positive fluctuation will boost
travelling business and eventually profits of Carnival plc will get hike. When fluctuations
are negative then it will affects travel and tourism businesses by reducing income (Von
der Weppen and Cochrane, 2012). For example, respective company make a deal on the
behaves of particular clients with Hotel that after 2 month they require 5 room and other
accommodations at 500 euro according to the current rate. But in case if rates get
fluctuate in future then Carnival have to pay extra amount to respective hotel this will
impact the profit of company.

TASK 2
2.1: Analysing various types of management accounting information that can be used in Fulham
Shore plc:
In a business organisation tasks and activities are efficiently performed or organised by
using management accounting information and information obtained from management
accounting process are used by management to design new and improved tasks or activities.
Management accounting assists in establishing proper control over activities whether internal or
external, on regular basis (Morrison, 2013). It also helps in identifying any possible events which
can create difficulties in organisation's operation in near future. Following are the various type of
management accounting information, as follows:
Financial statements: There are different kind of financial statements prepared by the
internal accountant in order analyse the overall performance of company during a specific time
period. Some of these are discussed below:
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.
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 by
management of company to coordinate, control, analyse and visualize the important
information for company at a specific time period.
Management of Fulham Shore plc can use all these above mentioned information in order
to establishing a systematic control on activities of organisation and to enhance and achieve
targeted performance and goals (Zapata and Hall, 2012). Management should use these
information for reporting purpose in order to formulate a systematic chain of communication
between various various department within the organisation.
2.2: Assess the use of management accounting information as a decision-making tool:
Management accounting information is play a major role in decision making process by
providing relevant information for decision makes like owners, managers, top level management
etc. Management accounting information includes classified information that need no additional
analysis so decision makers can use these information directly to take any financial decision
(Nicula, Spanu and Neagu, 2013). These information also assists in planning, budgeting and
estimating process. In the context of Fulham shore plc following points describes use of such
information in decision-making:
 Comparative analysis: Management accounting information provides a comparative
analysis of information which can be used by Fulham as a tool for decision-making. As
provides a measure for interpreting relationship between data of two or more periods. For
example carnival Plc tries to new fix a tour package from London to Bristol during
summer season then they require last year budgets that help them to set accurate prices.
 Forecasting: Management accounting information creates a basis for estimating or
projecting performance of an business organisation. In Fulham to determine the
objectives and to take decision based on objectives of company for short term,
management accounting information provides forecasting as a tool of decision-making.
For example, company is planning a trip for customer in different part of Indonesia then
they have to properly forecast about the current and future climatic condition as recently
country faces tsunami.

 Analysis of Rate of Return: Before launching new project every organisation conduct
analysis of the expected rate of return (ROR) to ascertain viability of project or whether
there is another option is available. In Fulham this analysis by using management
accounting information is useful in case of decision related to launching of new product.
For example there is some illustrated data is taken to calculate accounting rate of return:
Year Cash flows PV factor
Net present
value
0 -20000 1 -20000
1 9850 0.9090909091 8954.55
2 9500 0.826446281 7851.24
3 6500 0.7513148009 4883.55
4 5500 0.6830134554 3756.57
NPV 11350 5445.9
Internal rate of return 23.56%
Interpretation: From the above calculated net present value it has been ascertained
that after four year company is going to earn 5445.9 with internal rate of return upto 23.56
during an accounting year.
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. 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.
TASK 3
3.1: Interpretation of ratios in travel and tourism financial accounts
Interpretation of financial statement by using ratios
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
equipment
-867 -
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

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
Process of data collection is considered to plan an appropriate model of workflow.
Financial statement analyst view balance sheet, income statements and more documents for
evaluating the financial accounts of The Fulham Shore plc and compute and analyse different
ratios that are mentioned below:
Ratios Formula 2016-17(in
million)
2017-18(in
million)
1. Profitability ratios:
 Gross profit ratios Gross profit/Sales*100 18/41*100
=43.90%
23/55*100
=41.81%
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 Net Profit margin ratio Net profit/sales*100 1/41*100
=2.43%
0/55*100
=0%
2. Liquidity ratios:
 Current ratio Current assets/current
liabilities
4/14
=0.28:1
6/12
=0.5:1
 Quick ratio Quick assets/ current
liabilities
Quick assets =
0+1=1
1/14
=0.07:1
Quick assets=
0+1=1
1/12
=0.08:1
3. Investment ratios:
 Return on Equity Net income/ Average
stockholder's
equity*100
1/19.5*100
=5%
-1/19*100
=-5%
 Return on Assets Net profit/ Total
assets*100
1/61*100
=1.63%
0/65*100
=0%
Gross profit ratio:
This ratio exhibits the percentage of profit after cost of goods sold i.e. gross profit in
comparison to total revenue (Smith, 2012). It points outs profit figure of company earns after
cost of goods sold. The Fulham Shore plc has gross profit ratio of 43.90% in 2016-17 and
41.81% in 2017-18 which shows a negative decrease in gross profit of company.
Net profit margin ratio:
The Fulham Shore plc has net profit ratio of 2.43% in 2016 and no net profit in 2017-18
which shows that company's efficiency to generate net profit has been decreased.
Current ratio:
It describes efficiency of business to pay debts due during a particular period out of
current assets. Ideal current ratio is 2:1. Fulham Shore plc has current ratio: 0.28:1 in 2016-17
and 0.5:1 in 2017-18 which is less than the ideal ratio of 2:1 showing unfavourable trend.
Quick ratio:
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Ideal quick ratio is 1:1, quick ratio above 1:1 shows that the business can meet its current
financial obligations by using its quick assets on hand and quick ratio lower than 1:1 shows that
company has high dependence on inventory or other assets to pay its short-term liabilities. The
Fulham Shore plc has quick ratio: 0.07:1 in 2016-17 and 0.08:1 in 2017-18 which is bwlow the
ideal ratio and considered as unfavourable.
Return on equity:
The return on equity ratio is type of a profitability ratio that shows efficiency of
organisation to earn profits from its shareholders investments. ROEs of 15-20% are normally
considered as favourable. The Fulham Shore plc has return on equity: 5% in 2016-17 and -5% in
2017-18, which is showing a decrease in company's efficiency to generate income from its
shareholders.
Return on assets:
The return on assets ratio shows company's effectiveness in relation to earn a return on
its investment in assets. Fulham Shore plc has return on assets of 1.63% in 2016-17 and null
ratio in 2017-18 due to no net profit, which shows a decrease in company's effectiveness to
generate income from assets.
TASK 4
4.1: Sources and distribution of funding for the development of capital projects
associated with tourism
15

CONCLUSION
From this report it is concluded that minor decision related to finance and funding have
great impact on performance and profitability of company. To take such type of vital decisions
management should consider different techniques and analysis like ratio analysis, analysis of
pricing methods, forecasting etc. Information used in management accounting information assists
in assessment of company's efficiency and effectiveness in monetary terms.
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