HND Travel and Tourism: Finance and Funding Report Analysis

This report provides a detailed analysis of finance and funding within the travel and tourism sector. It begins by exploring the importance of cost and volume in financial management, followed by an examination of various pricing methods, including rack rates, seasonal pricing, and market-led pricing. The report then delves into factors influencing profit, such as seasonal variations, economic environments, advertising, and current trends. Furthermore, it discusses different types of management information used in the tourism sector, including budget reports, and the interpretation of financial accounts. Finally, the report covers sources and distribution of funding within the sector. The report utilizes examples from Merlin Entertainment PLC to illustrate key concepts and provides a comprehensive overview of financial practices at both micro and macro levels within the travel and tourism industry.

FINANCE AND FUNDING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Importance of cost and volume in financial management:...................................................1
1.2 Pricing methods used in travel and tourism sector:..............................................................2
1.3 Factors influencing profit of tour and travels business:........................................................4
TASK 2............................................................................................................................................5
2.1 Different management information used in tourism sector:.................................................5
2.2 Management accounting information as a decision making tool:.........................................7
TASK 3............................................................................................................................................9
3.1: Interpretation of financial accounts of restaurant group:.....................................................9
........................................................................................................................................................10
TASK 4..........................................................................................................................................12
4.1 Sources and distribution of funding:...................................................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Finance is the most imperative tool for the business survival. As, this requires to operate
business in an effective manner. Adequate finance are required to operate the business in an
effective manner and guide them to attain its predetermined targets. As the key objective is to
attain the knowledge, skills and tools which will assist in taking efficient decisions regarding
growth of the plan. The project advantages of cost, volume and revenue assist in making the
business decision making in the field of travel and tourism sector in appropriate manner to assess
skills needed to realize financial data (Verstegen, 2011). Many of the project discuss about
financial issues regarding with micro level and macro level in relation to travel and tourism
sector. There are so many sources of funding available to travel and tourism sector which are
explained herewith. The finance department is looking for making the in depth research about
the financial system and concerned practices are required to be understood adequately. Entire
business decisions assist in making the business more successful and effective.
TASK 1
1.1 Importance of cost and volume in financial management:
In any organisation, cost are required to frame the most imperative role in enhancing
profitability of the cited firm. It is that kind of financial value that is washed-out in order to
generate any product or services but in case of tourism industry, cost which are covered at the
time of delivering services to its consumers and publicity of tourism sector. The cost is classified
into so many cost. These are categorised into so many cost. These are classified as follows: Indirect cost: These are required to be framed that are indirectly concerned with the
production process. These are such as: material and labour cost. This is most imperative
cost for the firm so as to forecast the additional cost and labour in providing customer
services so as to get the least losses. Direct cost: It is that kind of cost which are directly influencing manufacturing of
products and services (Theurillat, Corpataux and Crevoisier, 2010). Direct cost are the
most assisting thing in operational planning as this will also assist in making adequate
decisions in terms of managing the cost system.
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 Variable cost: These are the cost which changes as per the change in the additional unit
in the production of units. As in Merlin entertainment plc is strongly concentrated on
framing specific and unforgettable visitors experiences with its passion. Fixed cost: This is the cost which are stable or fixed irrespective of the change in the
units.
 Cost volume profit: This is one of the most imperative tool that render supporting
information for administration in planning and build an effective decision making. The
travel and tourism sector generate outcomes in order to make the business sustainable.
Such as selling price and volume of sales, total fixed cost. CVP is a more particular
assessment of the connection between selling price, total sales and profits. This plays an
imperative role by rendering adequate management information relating to financial
needs if a more specific level of activity does affect the selling price and other variables.
1.2 Pricing methods used in travel and tourism sector:
There are so many factors those influence the pricing methods used in travel and tourism
sector such as different locations, people, economy etc. these components diverse pricing
strategies of tourism business. Following are different methods that are used in taking decisions
of pricing in any tour and travel sector: Rack rates: This is a rate also known as “full rate”. It is a price, on which no discounts
are applied previously and this is typically a rate that is provided to whole sellers. It is
also printed on the booklets as well (Gibson, Kaplanidou and Kang, 2012). These rate can
also vary according to the day. For example rack rates can be proved more expeditious on
weekends in comparison to general days because people go for tours mostly on holidays. Seasonal pricing: As it is clear from name, it simply denotes a method of pricing in
which profits can be made during those seasons which are on peak for tour and travels
business and these profits will compensate the losses occurred when there was no
demand and there were low sales. It changes according to the demand of customers.
While there is low demand the prices will also go slow to invite people. Cost plus method of pricing: This is a method in which the cost incurred in any goods
and services provided by company and other labour costs are included and then fixed
percentage of profits are to be added us in cost. After that the price that arises is
determined as real value.
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 Cost led pricing method: Under this strategy of pricing a fixed % of the total cost is
added in amount of cost arrived for product and services. Then the final price is arrived at
which sales are to be made. Market led pricing: This price is determined after making a deep research in market.
This price is depending upon the demand of product and services in market. After
assessing demands of customers, company develops and improvises their goods and
services. Last minute pricing: These prices are basically discounted prices which are used on daily
basis and it fills the gap between the available inventory at last minute. These pricing
methods are promoted on different website (Murphy, 2013). Types of common pricing
are as follows: Per person pricing: This is a type of price which is set for person to person. These
methods are commonly used by transport operators. It includes options such as pricing
for an adult or child. Per unit pricing: This price method is used for making price decisions of per unit of a
product. For example deciding value of food available for per person.
Single or double tenancy: This is consisting of single rate and double rate. In this if only one
individual is there than price would be accordingly and if there is any other person with him also
then some discount will be given.
 Absorption pricing: In this pricing method all the variable costs that are included
in such activity is included and in addition a part of total fixed prices in also
added up to determine final selling price. It provides guaranteed revenue for a tour
and travel business.
 Marginal pricing: It means setting a price that is in excess of the marginal cost
but is lower than full cost. Overheads are not involved in this pricing method. It is
that price which is equals to extra cost incurred in manufacturing an extra unit of
product.
 Investment pricing method: In this method of pricing, return on the investment
made is a targeted rate.
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After considering these pricing methods a tour and travelling company decides its own
selling price in such a manner that attracts a number of customers and also generates a good
revenue for organisation.
1.3 Factors influencing profit of tour and travels business:
It is very important for every organisation to earn profits because profitability of a
business in the sign of success (Song and Lin, 2010). Every organisation manages its operations
and functions in such a manner so that it can enhance revenue of the company. If a company is
generating good revenues then investors and different financial institutions will be attracted
towards company to make further investments and then make money. It also encourages the
owner of business to plan expansion of existing entity. Without profits, the employees of
company will also be demotivated and then it will not be possible for them to give their best to
operate the functions of organisation. Following are benefits of profitability in a company: Expansion plan for existing business: If a enterprise is making good profits and has
attained success in market than it should plan its expansion in other markets also. Good
revenue will help a business man in taking decisions regarding better location and will
help in generating and investing the required capital to establish new business.
 Help in funding: Most of the investors likes to invest in such companies those are
operating their business wisely and making good profits. So high profitability of any
organisation will help in raising funds from market because the goodwill of such firm
will also be good in economy.
Now following are the factors that influence profitability of business in tourism and travel
businesses: Seasonal variations: There are many variations found in tour and travel businesses
because they are on peak at the time of holidays and vacations. People usually go for
tours when they are free (Morrison, 2013). So when there is very much demand of such
services in market according to season then profits will also be increased and if there is
low demand then there will be no profits. Economic environment: There is always a great impact of economic environment on
tour and travel business. As there are always changes in climate and weather so if these
factors are in favour than it will invite more people towards travel and hence the profits
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of a tourism business will be enhance. These factors influence sales of services and
products of such type of business. Advertising: As much popular will be the company and its services, it will surely
enhance the profits of any company because more and more people will be aware of such
entity and hence the demand will also be increased.
 Current trends: In today's world everyone wants rest from their busy schedule and for
this they opt for vacations to be spent at beautiful destinations. They select best tour and
travel agencies which provide services at reasonable prices. Because of this trend of
spending holidays in tourism activities, profitability of a business increases as more
customers are attracted towards the good travel agencies who provide best services to
their clients.
These factors effect the profits of tour and travel agency in positive as well as negative
way. So it is important for owner of such business to be focused on such activities so that it can
maximise its revenues and achieve all its objectives.
TASK 2
2.1 Different management information used in tourism sector:
Management accounting information is very useful in any king of business because it is
related to the internal management and people who make decisions for any organisation. This is
a a tool of management which helps managers in taking business decisions accurately and in a
appropriate time (Vanhove, 2011). It is also useful to outsiders of any company because it
provides information of any organisation by preparing different reports and financial statements.
These are used by prospective investors to decide whether to invest in company or not. After
analysing these statements which are prepared under this tool , the financial position of any
business can be understood. Manager of Merlin Entertainment PLC uses these accounting
information to make best decisions for a company to achieving the best results.
Following are different type of management accounting information for Merlin Entertainment
PLC:
Budget report: Budget is used and prepared by internal management of any organisation
to pre plan the whole functions to be operated in a business, cost to be incurred and profits to be
earned. It is completely based on previous financial results (Tribe, 2015). It controls production
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cost of company. In Merlin entertainment PLC budget report is a very effective tool to plan the
operations of company and increasing performance of organisation. It is internal report used by
management that helps in taking corrective actions regarding performance of a company.
Financial statement: Abreast decisions are taken by management of Merlin
entertainment PLC by using this tool. Financial statement is defined as a tool that presents
accurate position of any organisation. It provides details regarding profit and loss of a company
as well as balance sheet on a particular date that represents Assets and Liabilities of the
company. The manager analyses whole financial statements to make further decisions regarding
a business to enhance profitability and performance of any business entity. Managers can utilise
such information while making important decisions such as investments, loans, purchasing new
assets, paying off liabilities etc. these statements measure the profitability of a company and
performance of the organisation.
Variance analysis: This is management information tool which is used to measure the
differences between actual data received and the budgeted or planned data. It helps in calculating
the differences between both data and then find the reasons behind these variances. By doing this
it helps managers to take corrective actions to remove the reasons behind these differences. It
enhance the performance of company and helps in making effective decisions to reduce the
mistakes previously done. This analysis is based on performance level of financial activities of
any business. It helps in preparing future budget for the organisation.
Forecasts: Forecasting process is based on future vision and objectives of Merlin
Entertainment PLC. It can be defined as assessing future needs of any particular product and
services which are based on previous information of any company. basically, this is a decision
making tool which is totally related to future assumptions. It is also helpful in planning and
budgeting processes because after making forecasts, managers of a company plans to make a
budget. It helps in anticipating the expenses to be made by any company and evaluating that how
much money will be needed by different departments of any organisation.
Management Information System: This is a tool which mainly focus on any business
process and information technology. In Merlin Entertainment PLC, main purpose of using
management information system is to provide reviews and feedbacks which help in determining
the performance of company that is useful for strategic management level (Heung, Kucukusta
and Song, 2011). It is a computer based database. It produces regular results and reports on
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functions and operations of every level of management in a effective way. It is very useful
management accounting information used by any company to make effective decisions regarding
business.
It can collect any type of information that is useful to effect the management of company
and it is also beneficial for employees of an entity to perform their jobs and duties in very
effective manner. Management information system helps in achieving goals and objectives of
any organisation. It includes Accounting, manufacturing, marketing and human management
information system to develop the activities of any business in best way.
2.2 Management accounting information as a decision making tool:
Management accounting information is a very important process which is contained of
accounting data of any organisation (Evans, N., Stonehouse and Campbell, 2012). Whole
performance of a company is summarised in this information. It makes improvement in decision
making process to attain long term objectives and goals. This information is very important
while making decisions for any organisation which includes relevant cost analysis, accounting
based costing techniques, make or buy decisions analysis and utilising the information.
Following are some uses of management accounting information that can help in decision
making process of Merlin Entertainment PLC:
Comparison with the current trend: Merlin Entertainment PLC analyses different year's
accounting information and then compare them with each other and find the reasons of different
variances. After analysing it makes decisions for further accounting years to enhance
performance of company. It is very helpful in making future decisions according to year wise
trends.
Forecasting sales: Under management accounting information forecast is a effective
management tool. Manager of Merlin Entertainment PLC make assumptions regarding future
demand of produce and forecast the sates that helps in making decision that how much
production is to be made by any company. By doing this, any organisation can achieve its
objectives appropriately and a very effective manner.
New product and service: These accounting information helps management in making
decisions regarding introducing the new products and services. It helps in assessing that if new
product or any services are introduced than what will be the effect of it on existing market
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situation and it will help in achieving organisational goals. It will also provide higher satisfaction
to customers and attract them towards business (von der Weppen and Cochrane, 2012).
This is not necessary that decisions to make new products only can be taken by help of
financial information but modification in existing products decision can also be taken by the
managers of Merlin Entertainment PLC. Cited company develops their business process through
developing their products and providing a great satisfaction to the customers.
Investment decision making: These accounting information are also useful in making
decisions such as to make investment or not in business. It also helps outsiders of company and
prospective investors because they can make investment in company after analysing its financial
statement. It also helps the managers of company to decide that where they should make further
investments.
Raising capital: A company can raise its capital through many sources such as internal as
well external. Internal sources are consist of equity share capital and preference share capital
whereas external sources are debt capital, personal loans and loan from financial institutions. By
analysing financial statements, managers can make decisions that whether to raise funds through
internal sources or from outsiders (Nielsen and Spenceley, 2011). It all depends on risk taking
ability of a company because if it can take risks then it can raise capital through debt because it is
called as charge on profit of any organisation.
After making such study of uses of management accounting information tools in decision
making it can be said that at every step of any business different decisions are made by its
managers and for making such decisions help of management information is taken.
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TASK 3
3.1: Interpretation of financial accounts of restaurant group:
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Cash Flow statements:
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