Financial Analysis of Funding and Costs in Travel and Tourism Sector

This report delves into the financial intricacies of the travel and tourism sector. It begins by explaining the significance of costs and volume in financial management, followed by an analysis of various pricing methods employed within the industry. The report then explores factors affecting tour and travel businesses, such as tourism seasons, terrorism, political stability, and climate. Moving on to management accounting, the report assesses different types of information used, including financial statements, forecasting, budgets, variance analysis, and management information systems, and how this information serves as a decision-making tool. Furthermore, the report provides an interpretation of travel and tourism financial accounts, focusing on gross profit margin and net profit margin. Finally, it analyzes the sources and distribution of funding for the development of capital projects associated with tourism, offering a comprehensive overview of financial management within the travel and tourism industry.

Finance and Funding in
Travel and Tourism Sector

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
1.1 Explain importance of costs and volume in financial management of travel and tourism
businesses ...................................................................................................................................3
1.2 Analyse pricing methods used in travel and tourism sector ................................................4
1.3 Analysing factor affect tour and travel business .................................................................5
TASK 2............................................................................................................................................6
2.1 Assessing different types of management accounting information used in tour and travel
business.......................................................................................................................................6
2.2 Assess use of management accounting information as a decision- making tools ...............7
TASK 3 ...........................................................................................................................................8
3.1 Interpretation of travel and tourism financial accounts ........................................................8
TASK 4..........................................................................................................................................15
4.1 Analyse sources and distribution of funding for development of capital projects
Associated with tourism............................................................................................................15
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Management accounting plays an important role for every type of organization. Managers
inside organization should take various decision. Present will provide information of importance
of cost in an organization. This assignment will come up with relationship between cost and
volume. Report will present an information about management accounting information works as
a tool to make decision. It will also provide various sources of funding for capital projects of
travel industry.
TASK 1
1.1 Explain importance of costs and volume in financial management of travel and tourism
businesses
Costs – Cost is of different types such as direct cost, indirect cost, variable cost and fixed
cost.
Volume - Break even analysis, cost volume profit analysis
Direct cost – It is a cost that is directly accountable to a cost object. Direct cost is cost
which is directly allocated to a project. It includes cost of material, cost of labor, equipment etc.
expenses that are traced directly with specified cost is subjected towards direct cost.
Indirect cost – Indirect cost is cost which is not accountable to a cost object. Indirect
cost consist of office expenses, security costs, personnel (Cabral, Grilo and Cruz- Machado,
2012). This is that cost is not directly related to manufacturing. Indirect cost are of two types,
fixed cost which contains all fixed expenses and other is recurring fixed cost which contains
repeat expenses. Indirect cost are indirectly related to unit.
Fixed cost – It is a cost which do not change with change in its output. This is an expense
that do not decrease or increase in number of services and goods. Fixed cost which is not avoided
at any cost while production. It is needed to be paid. It includes rent, depreciation, insurance
amount etc.
Variable cost – It is a cost which get increased with increase in their activity level. With
change in sales volume, change in variable cost takes place. Variable cost includes cost of
material etc.

Break even analysis – It is a technique which is used to determine point where Carnival
Corporation recover their all incurred costs and from where they earn sufficient level of profits.
Break-even point is that point of production where an organization do not have profit or loss.
Cost profit volume analysis – purpose of CVP analysis is to determine changes in cost
and volume affect to Carnival Corporation operating income and their profits. There are effective
assumptions made within this process such as sales price remain constant"variable costs remain
constant" total fixed costs remain constant" every produced unit get sold.
1.2 Analyse pricing methods used in travel and tourism sector
Travel and tourism sector uses various pricing methods to attract customers. An
organization applies various pricing methods. There are methods pricing methods are such
methods that get utilize in order to set prices for different products which get paid by customers
easily and organization attain adequate level of profits from it. Below are different pricing
methods followed by different organization in order to set their prices such as:
Cost plus pricing method.
Carnival Corporation use this method for pricing in order to set their prices. According to
this, pricing method they take into consideration all variable cost (variable cost + fixed cost)
once they include all amount cost then they add up all cost which includes their profit share. By
using this method, they set up prices of their services and earn adequate level of profit.
Skimming pricing method-
Leaders of market usually follows this method to set price. According to this method,
they set highest price for their respective products and services (Clemen and Reilly, 2013). By
taking help of high price, organization became capable of recurring cost which is incurred in
production of goods and services so that they can get higher price.
Penetration pricing methods-
In market, there exist both small and big organization. To attract customers, small
organization lowers their price of goods and services to increase their sales. As compared with
high price share of profit is bitten lowers but due to increase of sale they are able to earn
sufficient amount of profits.

Per person pricing method-
Entry of new market entrants follow per person pricing method. They charge price to
customers as they facilitate them. According to this method, price is charge according to visitors
of customers (Collier, 2015). Segregation among senior citizens, children, and couples is also
done that helps in attracting number of tourist towards services provided by Carnival
Corporation.
1.3 Analysing factor affect tour and travel business
There are number of factors which can affect profits of Carnival Corporation. Some
factors are discussed under:
Tourism season
Carnival Corporation earn higher profit from their business activities they easily meet out
with their expenditures when tourism season is on peak (Ismail and King, 2014). In off season of
tourism sector, company failed to earn sufficient amount of profit to meet their expenses too. So,
season of tourism plays a vital role in affecting prices of Carnival Corporation.
Terrorism –
Terrorism is most offensive and worst factor which can affect profit of Carnival
Corporation. It not only affect profit of organization but also badly provide dangerous to lives of
customer. Increase in terrorism activities, there can be effective reduction in profits therefore,
organization can't meet out with its expenses.
Political stability
One of essential factor which can affect profit of Carnival Corporation is political
stability (Jermias, 2017). With effect of this, government apply some charges for services
provided by organization this can affect profit of organization. If political party is unstable, rate
of taxes are fixed in this case, then organization cannot finalize its prices resultant failing in
attractive tourists towards them.
Climate -
Pleasant and beautiful climate always helps customer to attract number of tourist. In case
of pleasant atmosphere, Carnival Corporation able to set good price and receive adequate profit

(Nitzl, 2018). But in case if climate is unpleasant, no customer attract for tourism this can
provide adverse effect in profitability of organization.
Economic environment
Environment keeps on changing variation in gross domestic product in country may
affect profit if Carnival corporation. If position of country is economically good, then it will
attract resident of country for traveling.
TASK 2
2.1 Assessing different types of management accounting information used in tour and travel
business.
Main aim of management accounting information is decision making. Management
accounting helps in providing financial data to managers and decision-makers so that they can
able to take decision for Dalata group plc. Following are different types of management'
accounting informations -
Financial statements
To identify information about accounting department of Dalata group plc financial
statements plays an important role. Financial statements are records of finance of organization
which includes income statements balance sheet, fund flow statements, cash flow statement etc.
financial statements help to identify financial position of organization. To ascertain profit and
loss it is very important to estimate financial position of Dalata group (Otley, 2016). Financial
statements consist preparation of final account. Notes of account are integral part of financial
statement financial statements aims to provide all necessary financial information that helps
manager to take better decision making.
Forecasting
Dalata group plc uses forecasting as source of management accounting information. In
market, there is a cut throat completion and to tackle this, organization needs to forecast about
upcoming activity (Provost and Fawcett, 2013). Meaning of forecasting is planning for future.
main object of forecasting is to attempt of prediction for output o upcoming activities with help
of trend analysis. Growth statistics forecasting is done with help of past data.

Budgets
Dalata group plc use budget as management accounting information. Budget is a process
in which estimation of future planning is done. Process of budget takes place after forecasting is
completed. Budget process is allocated capital money for the future operations. Estimation of
upcoming cost and liabilities are made while estimation of budget.
Variance analysis
Variance analysis is technique in which actual is compared with standard object of
Dalata group plc. In this process, actual realized expenditures are compared with budgeted
expenses. While doing comparison, if variation occurs they are modified, if needed.
It is basically related actual and standard cost of activities which are listed onto budget.
Management information system
Management information system is computerized database which Dalata group plc used
while preparation of budget. Management information system basically focus on providing
feedback to every manager of Dalata group plc and its performance. It uses company's data,
analyse presents reports.
2.2 Assess use of management accounting information as a decision- making tools
Due to decision making process, management accounting is known as important part of
organization. In an organization, managers have to take countless decision. Management
accounting utilizes information to build report that gives slight information about ongoing
business activities. To analyse profit margin and labour utilization, managers do data driven
inputs to make decision of day to day activity. This data helps to improve leverage which helps
improvement of decision making. Various types of management accounting help to take
decision making process. Some factors are discussed below -
Comparison with trends
Management accounting information includes various information which are beneficial in
business decision making. Decision making plays an important role in working of organization.
On basis of report prepared with help of management accounting, Data group PLC is able to
compare difference between trends and take suitable decision for an organization.
Forecasting

Process of forecasting involves decision making. Forecasting is process which involves
decision at every stage. Forecasting is another name for planning. In forecasting process,
decision are taken with help of management accounting information and then further working
proceeds.
Investment
An organization consist of lots of working. Where manager have to take decision for day
to day activities. Investment is another important activities in organization onto which managers
have to take decision (Schwarzenegger and Burrito, 2017). On basis of management accounting
reports which includes financial information of Data group PLC, managers decides that in which
activity what amount to be invested or not all these decision regarding investment are taken by
decision-makers with help of management accounting.
Raising capital
Another important part of organization's working where managers have to take decision.
Major part of organization is finance department which requires sound decision making. It is
very critical department which needs to be handled very efficiently. One wrong decision can
affect working of entire Data group PLC. When and for which activities capital should be raised.
With help of management accounting all decision are taken. Managers are capable to take
decision for betterment of organization.
New product and services
Decision regarding new product and services helps organization in growth. There are lots
of decision to be take regarding product and services. It includes many areas in which effective
decision making must be done like when to product and service launch, what should be price,
how promotion of product and services is to be done. Taking about Data group PLC, manager
should take care of all these question which are to be answered for better decision making.
TASK 3
3.1 Interpretation of travel and tourism financial accounts

Interpretation

Gross profit margin
Gross profit margin is basically a gross income divided by net revenue. In this gross profit
margin has increased from 62.20 % to 63.20%, which shows good sign for Atalanta group pl. For
all organization, gross profit margin have to suffer as more competition increases.
Net profit margin
Net profit ratio compares organizations net income to its net revenue. Here, net profit
ratio increases from 12.02% to 19.0% which comparatively high. It shows that Atalanta group pl
have ability to translate sales into earning for shareholders.
Return on capital employed
Ratio depicts that return on capital employed has been increased from 4.53% to 7.56%, which
signifies that company is receiving goods returns (Motley, 2016). Return on capital employed
shows that overall profitability of company has been increased. It also symbolizes that all assets
are pay off that is why financial position of company has been increased.
Return on equity
Taking financial data into consideration it is clearly observed that return on equity has
increased from 6.03 % to 10.08% which is good for organization. Return on equity measures
return on funds of owners, whereas equity is known as total investment of all owner. Reason
could be in increase of equity is increase in margin of profit.
Current ratio
Current ratio helps in identifying current assets against current liabilities. In financial
ratio, it can be seen that current ratio of previous year was more than in current year. In last year,
current ratio was 1.44:1 and in present year it is 0.46:1 which shows that liability has increased
over assets. It shows that Atalanta group pl had a hard time paying their current liability in short
run.
Quick ratio
It is liquidity ratio which is harsher than current ratio. Here quick ratio is 0.83:1 in
previous year and 0.35:1 in current year, which shows that it is a time for stress to Atalanta group
pl because high inventory across all organization have make selling difficult.
Receivable turnover ratio
It is clearly seen that receivable turnover ratio has been decreased from 42.04 to 41.53. It
is good for Atalanta group pl as it means that average collection period of company is also

decreasing. It conveys that organization is able to collect debt from debtors efficiently with its
debtor.
Stock turnover ratio
In this, stock turnover ratio has increased from 69.4 to 71.16, it shows efficiency of
management in Atalanta group pl. Increase in inventory turnover ratio shows average means that
stock are sold at a faster rate, notifying stock management effectiveness.
Creditor’s payment ratio
Creditors' payment ratio shows efficiency that how quickly an organization pays off money
owed to suppliers. It is observed that in given scenario credit payment ratio has decreased from
42.33 – 38.98. It shows that organization is having trouble in paying off its bills those of
suppliers.
Gearing ratio
Decrease in gearing ratio from 0.43 – 0.33 results in favor of Atalanta group pl
Debt to asset ratio
Debt to asset ratio has decreased from 0.25 to 0.22. Decrease in number shows that
organization has a lower proportion debt which is beneficial for organization.

Interpretation
First activity is cash from operating activities. This starts with total income of company and
changes it from accrual basis to cash basis. With use of changes in balances of current liability
and current assets during same period it is done. It is consisted of debtors, stock, supplies,
insurance, payable etc. and all other current assets and current liabilities. In this, some revenues
and expenses recorded in income statements are non-cash. Adjustment for depreciation is also
done. In this, it is seen that cash from operating activities are $2864, which is profitable for
organization.
Talking about investing activity, all purchase and sale of assets and liabilities takes place.
Here cash flows from investing activity resulted in loss of $118398.