Financial Analysis and Funding Strategies for EUROCARIB Tourism

This report provides a comprehensive financial analysis of EUROCARIB, a London-based tour operator. It begins with an introduction to funding and finance, followed by an examination of Cost-Volume-Profit (CVP) analysis and its importance in financial management. The report then analyzes different pricing methods employed by EUROCARIB, including market penetration, cost-based, competition-based, discrimination, skimming, and bundle pricing, and discusses factors impacting the company's profitability, such as social, seasonal, and political influences. Furthermore, the report delves into management accounting techniques like financial statements, variance analysis, and investment appraisal. It also explores potential funding sources for the development of a new hotel. Finally, the report includes an interpretation of financial statements using profitability, liquidity, and investment ratios, providing a holistic view of EUROCARIB's financial position and strategic options.

FINANCE AND FUNDING
IN TRAVEL AND
TOURISM

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1 ...........................................................................................................................................1
A. Concept of CVP analysis and its importance in financial management.................................1
B. Analysis of different pricing methods used by EUROCARIB to determine the price ..........2
C. Factors affecting profitability of EUROCARIB.....................................................................3
TASK 2............................................................................................................................................4
A. Different types of management accounting techniques can be used in EUROCARIB.........4
B. Use of investments appraisal techniques as a decision – making tool....................................5
TASK 3............................................................................................................................................8
A. Financial statement of Thomas cook and interpretation of financial statement with the help
of profitability, liquidity and investment ratios...........................................................................8
TASK 4..........................................................................................................................................13
A. Sources of funding available for Eurocarib for development of new hotel..........................13
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Funding is the activity of giving financial resources normally in the kind of currency to
other values such as efforts or time, to finance want programs and project. On other hand,
finance is an amount of total of money given to company with outlook to repay and firm is liable
to pay back capital amount along with certain percent of interest(Odden and Picus, 2018). This
study is based on EUROCARIB tour operators. It is major London-based European tour
operators. This report will explain CVP analysis and its importance in financial management as
well as different pricing methods. It will analysis different factors that influences on profits of
company. It will explain various kinds of management accounting information. Furthermore,
report will assess utilize of investment appraisal techniques and different source as well as
distribution of funding the company. It will interpret ration for probability, liquidity and
investment of particular company.
TASK 1
A. Concept of CVP analysis and its importance in financial management
Cost Volume Profit Analysis(CVP):
CVP analysis is kind of cost accounting. It is easy model that helpful for elementary
direction and for short run judgements. It is planning procedure that management utilize to
anticipate future of volume of action, incurred costs and sales mode as well as profits received.
There are different elements includes such as level or volume of action, selling price of unit,
variable cost per unit, total fixed costs, direct and indirect workforce(Sclar, Lönnroth and
Wolmar, 2016). This analysis is categorised that is fixed and variable costs. Fixed costs are
expenditure that don't fluctuate directly with volume of unit manufactured. The fixed cost
become smaller percentage of total income while variable cost remain constant percentage as
increased production level. Break even point refers to the point at which the firm have no profit
no loss at this stage the Eurocarib recover its cost of the product and services. Variable cost is
the cost which changes with change in the volume but fixed cost are the cost which remain
constant over the period and does not change with change in the level of volume. Semi – variable
cost are those cost which have posses characteristics of both fixed and variable cost once a
specific level of output surpassed.
D1 :
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Particulars Figures (in £)
Selling price per tourist 1600
Variable cost per tourist 400
Contribution (per tourist) 1200
Fixed cost 120000
BEP (in numbers) Fixed cost / contribution per
tourist
100
BEP (in value) BEP (in numbers) * SP per
tourist
100 * 1600 = 160000
Tour packages need to be
offered while company wants
to get £30000
Fixed cost + desired profit /
contribution per tourist
120000 + 30000 / 1200 = 125
Importance of CVP analysis:
2
Illustration 1: CVP analysis
(Source :Cost Volume Profit (CVP) Analysis, 2018)

CVP analysis is important for researching relationship between volume, cost and profits.
It gives an overview of process of planning profits. It is also assists to analysis the objective and
rationality of such budget and forecasts. There are many ways that CVP analysis is very essential
for financial management in the EUROCARIB. Such as:
 It is very helpful to administration as it gives perception into effects as well as inter-
relationship of factors the affects on profits.
 With the help of it, identify maximum sales volume to neglect losses.
 CVP analysis is important to evaluate fixed cost and variable cost.
 It is find out profitable collection of cost and volume.
 It is important to determine profitability by sales and cost of production.
 The utilization of CVP to anticipate and analysis the deduction of its short run judgement
regarding fixed value, marginal price, sales volume as well as selling cost for its plans of
profits on constant basis(Cost Volume Profit Analysis, 2018).
 CVP analysis is essential to profit planning, controlling on costs, implementing sales
strategies and decision making.
Through CVP analysis, company easily identify cost and volume for selling price and
level of production. Therefore, EUROCARIB tour operators follow cost volume profit analysis
for planning of holiday trip in Caribbean. With the help of it, tour operators easily determine cost
and sale volume of holiday trip.
B. Analysis of different pricing methods used by EUROCARIB to determine the price
Price of the products and services play an important role in identifying the value of
product and services being produced by the organization. There are different pricing strategies
used by different companies to determine the price of products and services. EUROCARIB in
order to determine the price of product can use the following strategies : Market penetration pricing method : This method assist in determining the price of
product by entering the market with keeping the price of products and services lower to
attract customers towards the organization and influence them to change their existing
brand for their products and services which are being offered at the low prices (Wang,
Xiang and Fesenmaier, 2016). Market penetration helps in maintaining the price of
product lower at the initial stages of the business and after the organization gain enough
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customers increases the price of product and also provide them high quality products and
services to retain the customers in business. EUROCARIB can use this pricing method in
order to attract more customers for the travel to Caribbean summer holiday to increase its
market share and profitability. Cost – based pricing method : In cost – based pricing method The price of the product
is determined on the basis of cost of production by adding profit margin to the cost the
selling price of the product and services is determined (Varasteh, Marzuki and
Rasoolimanesh, 2015). Cost – based pricing method include adding desired profit margin
to the cost product to identify the final price of the product(4 Types of Pricing Methods –
Explained, 2018). EUROCARIB can use this pricing method to determine the price of
product On the basis of cost of incurred to provide that product and service to customers. Competition – based Pricing method: The price of the product is determined on the basis
of prices of competitors offered for their products and services. The Organization uses
this method to provide competitors with tough competition by offering the prices to
customers by determining the prices offered by competitors to their customers
(Armenski, Dwyer and Pavluković, 2018). This method helps in attracting customers
towards the brand. EUROCARIB can use this method to attract more customers towards
the brand by setting the price of product and services on the basis on competitors price of
goods and services. Discrimination pricing : It is a pricing strategy that charges different price from different
customers for the same products and services. In this the customers are charged with the
maximum price they are willing to pay. Skimming pricing : it refers to the pricing strategy in which the price of the product is set
higher price of the products and services at the initial stage and then lower the price over
years.
 Bundle pricing : it is a pricing strategy in which the company sell the product and
services in the package or bundle for a lower price than they would charge it from
customers if the bought the products separately.
C. Factors affecting profitability of EUROCARIB
There are various factors which affect the profitability of the EUROCARIB. The
following are various factors which have their influence on EUROCARIB operations:
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Social factors : These factors include Social trends which have their influence on the
profitability of the tourism sector. These factors include customers preference , demand, safety
and security of society etc (John and Susan, 2015). These factors have its impact on the
EUROCARIB profitability that can leads to reduction in customers and also effect reducing the
demand of product and services offered by EUROCARIB.
Seasonal changes : It refers to changes in season which have its impact on the
profitability of EUROCARIB. Seasonal changes leads to changes in demand of customers for
traveling to particular destination in that particular season. Eurocarib will have less profitability
in summer season as the demand for tourism is less in that season as compared to winter season.
The demands for tourism increases in winter which helps in generating more revenues for the
travel and tourism sector.
Current trend : The profitability of EUROCARIB is affected by changes in trend of
tourism. The current trend of tourism include adventure tourism , nature tourism and cultural
tourism which is gaining popularity in the industry and attracting more customers towards the
organization. The current trend of tourism destination is changing as per different generation
people such the young generation prefer adventure trip whereas old generation prefer religious
and culture trips. EUROCARIB in order to attract more customers towards the brand must
provide travel according to the preferences of different people and must not stick of only one
type of tourism.
Political Factors : Political changes affect the profitability of travel and tourism sector.
Political factors includes changes in government norms and policy and also refers to changes in
government due to which there are various changes in laws which affect the profitability of this
sector (Wicker and et.al., 2017). The taxation policy of government affect travel and tourism
sector due to which the organization have to pay taxes to government from their profit which
leads to reduction in profitability of the firm. EUROCARIB profitability is affected by various
policy formulated by government.
TASK 2
A. Different types of management accounting techniques can be used in EUROCARIB
There are different management accounting techniques used by Eurocarib to improve the
performance of organization which includes budgets, financial statements , variance analysis and
forecasts.
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Financial statements: These are the statements prepared by the company in order to measure its
performance and profitability . Financial statements contains the information relating to financial
transaction which assist in determining the profitability of the firm (Rogerson, 2017). Financial
statements include income statements, balance sheets and cash flow statements. Income
statements is as report which include income and expenses pertaining to specific period which
helps in identifying the net profit and loss for the period. Balance sheets in financial information
is prepared to identify the position of organization at a particular point of time.
Balance sheet consist of assets and liabilities of the organization which helps in
determining the financial position of the firm (Wang, Cole and Chen, 2018). Cash flow
statements are the reports prepared to identify the cash inflow and outflow for the particular
period. It helps in determining the minimum cash requirements of the firm to perform its various
operation. Eurocarib can use financial statements for improving its performance on the basis of
financial statements' organization is able to make forecast of its various expenses which affect its
performance level and can make strategies to reduce those expenses.
Variance analysis : Variance analysis helps in identifying factors due to which the performance
of the organization is not achieved (Airey, 2015). Variance analysis helps in improving
performance by measuring the organization by measuring the actual performance with planned
in order to identify variances in the performance on the basis of which necessary action are taken
to achieve the performance goals of the firm on the basis of variance analysis. Eurocarib can use
this technique to improve its performance by analyzing the variances in performance by
measuring standards set for performance with actual.
Budgets: Organization is able to improve the performance of its various functions by preparing
budgets which assist in comparing the actual with the budgeted targets to improve the
performance of the company (Chiu and Yeh, 2017). Budgets include estimates of expenses and
incomes to identify the future profitability which helps in improving the performance by
identifying variances which affect performance of the firm. Eurocarib can use this technique for
improving the performance of the organization by preparing budgets which assist in making
comparison.
Forecast :Eurocarib can use forecasting for improving the performance of the organization by
making forecast of its various activities (DeFranco, Morosan and Hua, 2017). Forecasting
involves making estimates for the future operations to make planning according on the basis of
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estimates to achieve the goals of the organization by improving performance. Forecast helps in
identifying various threats which may affect the performance of the business to take necessary
steps to reduce the threats and achieve the goals of business. Eurocarib can use this technique for
improving its performance which helps in increasing its profitability and identifying the future
sales target to plan accordingly to achieve those target.
B. Use of investments appraisal techniques as a decision – making tool.
Payback period : Payback period refers to the period which is required to recover the
initial cash of investment. This method of calculating returns from the investment is easy to
calculate.
Year
Project
A
Cumulativ
e cash
inflows
Project
B
Cumulativ
e cash
inflows
Project
C
Cumulative
cash
inflows
1 26600 26600 4600 4600 11200 11200
2 26600 53200 6200 10800 8600 19800
3 26600 79800 8000 18800 6600 26400
4 26600 106400 10000 28800 0 26400
Particulars Project A Project B Project C
Initial investment 80000 20000 20000
Payback period 80000 / 26600 = 3.01
years or 3 years
approx.
3 + 1200 / 10000
= 3.1 years or 3 years
and 1 month approx.
2 + 200 / 6600
= 3.03 years or 3
years approx.
On the basis of project A , project B and project C it can be interpreted that the payback
period of project A is 3 years which is less than the time of project B and C. So, it is
recommended to Eurocarib to select the project A as decision making tool for investment
appraisal.
Average rate of return (ARR) : It refers to measuring the profitability of the firm on the
basis of financial statements rather than cash flows. ARR is calculated by the formula = average
income / average investment over the life of projet.
Year
Project
A
Project
B
Project
C
1 26600 4600 11200
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2 26600 6200 8600
3 26600 8000 6600
4 26600 10000 0
Average
earnings
after tax 26600 7200 6600
Average
investment 80000 20000 20000
ARR 33.3% 36% 33.0%
On the basis of above computation it can be interpreted that Eurocarib in order to choose
the most profitable project must choose the project B for higher returns. Project b is providing
36% Average rate of return which shows that the project B will be profitable for eurocarib.
Net present value :Net present value shows the difference between the future cash flows
of an investment with the amount of investmnet.
Computation of Net present value (NPV)
Year
PV
factor
@
10%
Projec
t A
Discou
nted
cash
inflow
Projec
t B
Discou
nted
cash
inflow
Projec
t C
Discou
nted
cash
inflow
1 0.909 26600 24182 4600 4182 11200 10182
2 0.826 26600 21983 6200 5124 8600 7107
3 0.751 26600 19985 8000 6011 6600 4959
4 0.683 26600 18168 10000 6830 0 0
Total
discou
nted
cash
inflow 84318 22146 22248
Less:
Initial
invest
ment 80000 20000 20000
NPV 4318 2146 2248
On the basis of above computation it can be concluded that project A must be chosen by
Eurocarib as it is showing the highest value among the three which shows project a is profitable
for the firm.
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TASK 3
A. Financial statement of Thomas cook and interpretation of financial statement with the help of
profitability, liquidity and investment ratios
Balance sheet of Thomas cook: Balance sheet is prepared by Thomas cook to identify its
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10