Financial Analysis of Westland Ltd.: Sources, Costs, and Management

This report examines financial management within the hospitality industry, using Westland Ltd. as a case study. It explores various sources of finance, such as hire purchase, bank loans, and venture capital, evaluating their advantages and disadvantages. The report then analyzes income generation through sales, commissions, sub-letting, and sponsorship, providing a breakdown of their contributions. Furthermore, it delves into cost structures, differentiating between fixed and variable costs, and demonstrates the calculation of selling prices using the mark-up method. Finally, the report discusses inventory and cash management techniques, including Economic Order Quantity (EOQ), Just-in-Time (JIT) inventory management, and electronic transactions for cash management, concluding with an overview of the financial strategies and their impacts on business development. The report is contributed by a student to be published on the website Desklib, a platform which provides all the necessary AI based study tools for students.

Finance in
Hospitality Industry

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
TASK 2............................................................................................................................................1
TASK 3............................................................................................................................................2
TASK 4............................................................................................................................................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Financial management is the heart of business and it is the area that drives it forward.
Therefore, in order to start-up a new venture, a company requires funds to manage its operations
effectively (Battini, Persona and Sgarbossa, 2014). The present research is conducted for the
purpose of providing readers with an insight of various sources of finance and their pros and
cons for implementing the same in Westland Ltd.
TASK 1
In order to start up a new business organization, it is essential to manage and collect
prescribed funds for its setup. As per the given case scenario, the entrepreneur can acquire funds
from the following sources:
Hire purchase: Herein, the owner can purchase the required equipment by hiring it and
paying the amount in respective instalments as per the terms and conditions of the contract. The
major benefit is that the entrepreneur does not need to keep any security to the offerer (Caglayan
and Demir, 2014). Moreover, the possession of the equipment is transferred to the owner as soon
as he pays all the instalments. The drawback of hire purchase is that it involves high risk if the
equipment gets damaged and to carry out other activities of business enterprise, owner has to
arrange funds from other sources also.
Bank Loan: The amount that is required by the owner to start-up the business can be
taken from bank by keeping a certain security in regard to the loan. There are several loopholes
and that are as follows. The owner is required to keep some security with the bank and he does
not have any assets as such. Moreover, the amount of interest is quite high (Bhattacharya and
Londhe, 2014). The only advantage bank loan possess is that it can be easily availed by the
owner.
Venture capital: There are several companies that provide loans to launch new
businesses in regards with some amount of share in the management of the organization. As such
there are no disadvantages, the company can avail the prescribed amount easily.
From the above discussed sources of finance, hire purchase is the best in regards to buy
equipments and the entrepreneur can utilize its personal funds to carry out the other business
operations.
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TASK 2
Income is the amount of revenue generated by an enterprise through various methods. In
case of Westland Ltd, income is generated through following sources; Sales: It is the amount of money generated via distribution of goods and services to
various users. When a business engages itself in the distribution of goods and services to
the other person then it can be termed as selling activity. Sponsorship: This is the act of providing financial support to other companies or persons
by providing them with money. It also aids in gaining the word of mouth through
conducting such activities which in turn assist in gaining revenue in the future course of
action. Sub-letting: Herein, the owner is renting a part of the office to some other firm and the
amount availed from it is termed as sub-letting (Mina, Lahr and Hughes, 2013). It is an
additional source of income which may aid the entrepreneur in meeting its small
expenditures
 Commissions: The firm avails commission by giving credit to its customers. This is the
most prominent method used to generate small amount of income by taking some risk in
terms of selling goods to the consumers on credit.
The contribution made by each of the source has been highlighted below in the table. Highest
contribution is ranked first.
Table 1: Westland Ltd Income generation for the year 2015
Methods of revenue Generation Amount in £ Percentage contribution
Sales 150000 150000*100/180000 = 83.33%
Commission 15000 15000*100/180000 = 8.33%
Sub-letting 10000 10000*100/180000 = 5.55%
Sponsorship 5000 5000*100/180000 = 2.77%
Total Revenue for the year 2015 £180000
From the above table it can be analysed that sales has generated almost about 83% of the
income for the said organization. Thereafter commission, sub-letting and sponsorship are the
minor sources through which the company has generated revenue.
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TASK 3
In order to serve the needs of the customers, the company has to incur various costs that
determine the selling price of the product. The formation of dish requires raw materials in form
of vegetables and other spices that are required for its preparation. These can be constituted
under variable cost that differs time to time. It does not remain same over the period of time.
Likewise, fixed cost contributes to the amount of equipment needed at the workplace. These are
the one time investment and remain fixed for a period of time (Singh and Wasdani, 2016). Like
in case of the concerned company machinery, utensils, land, building etc remains fixed.
Further, there are several other costs which are incurred by a company and these are
indirect and direct cost. The former comprises of depreciation charged on equipments,
electricity, and wages to the workers, etc. These are the amount that cannot to be accurately
traced and are distributed unevenly to each product or services. Simultaneously, direct cost can
be ascertained easily and can be classified on the basis of cost object.
Table 2: Selling price of dish
Fixed cost 15000
Variable cost 10000
Total cost 25000
Formula Total Cost + desirable profit %
Mark-up method 25000+30% = 7500
Cost of each dish 7500+25000 = 32500/100
Selling Price 325
Thus, the selling price of each dish has been ascertained from the above method.
Likewise, the company's gross profit can be traced by deducting various costs for producing and
selling the dish.
TASK 4
There are ample of methods through which stock and cash of an organization can be
managed in an effective way. The various techniques of inventory management have been
enlisted below:
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 Economic Order quantity (EOQ): This is a tool used to manage and order the accurate
inventory thereby reducing the overall carrying and storage cost of the company (Yu, Li
and Wang, 2015). It also aids in meeting the shortage of stock and ordering cost by
giving accurate order to the suppliers. It can be calculated by using the following
formula:
EOQ = √ (2*Quantity*cost per order/carrying cost per order) Just in Time (JIT): It demonstrates the prescribed amount of raw material at the time of
need. There are several advantages of JIT which helps in reducing the storage cost
thereby eliminating warehouse requirement (Wood, 2013). The major drawback here is
that it hampers the overall production process in case of urgent requirement of the raw
materials.
Cash management tools:
 Electronic transactions: This is the best method through which the company can manage
and assess its cash requirements. The firm can make online transactions and reduce the
cost of paper work which aids in saving time. Every single transaction is recorded in a
computerized manner.
CONCLUSION
The above report depicts various sources of finance that is beneficial for the Westland
Ltd. It also demonstrates about several techniques to manage cash and inventory and reduce the
amount of cost. The overall analysis reveals that the stated company has significant measures for
growth and development within the market. The financial aspects reflect positive growth
measures for the business which are highly beneficial for business development aspects.
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REFERENCES
Books and journals
Battini, D., Persona, A. and Sgarbossa, F., 2014. A sustainable EOQ model: theoretical
formulation and applications. International Journal of Production Economics. 149.
pp.145-153.
Bhattacharya, S. and Londhe, B. R., 2014. Micro Entrepreneurship: Sources of Finance &
Related Constraints. Procedia Economics and Finance. 11. pp.775-783.
Caglayan, M. and Demir, F., 2014. Firm productivity, exchange rate movements, sources of
finance, and export orientation. World Development. 54. pp.204-219.
Mina, A., Lahr, H. and Hughes, A., 2013. The demand and supply of external finance for
innovative firms. Industrial and Corporate Change. 22(4). pp.869-901.
Singh, C. and Wasdani, P., 2016. Finance for Micro, Small, and Medium-Sized Enterprises in
India: Sources and Challenges.
Wood, R.C. ed., 2013. Key concepts in hospitality management. Sage.
Yu, J., Li, F. and Wang, H., 2015. An EOQ Model for Deteriorating Items with Weibull
Distribution Rate and Time-Value of System Cost. Management & Engineering. (18).
pp.72.
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