Analyzing the Financial Efficiency of The Restaurant Group PLC

This analysis delves into the financial performance of The Restaurant Group PLC for the years 2015-2016. Despite a positive turnover growth of 2% in 2015, the company faced significant challenges that led to a net loss increase from £25 million in 2014 to £37 million in 2015, and further worsening to an operating profit loss of £53 million in 2016. This deterioration was driven by reduced revenue per site and increased costs associated with store refurbishments. Notably, the profitability ratios for both years were negative, at -7.06% in 2015 and -9.21% in 2016, reflecting a decline in overall financial health. The analysis suggests that these losses stem from inefficiencies in operational management and a failure to capitalize on market opportunities during this period. To address these issues, the report recommends strategic changes in business operations, cost management, and investment in marketing efforts to improve customer engagement and revenue per site. The references provided give additional context and support for understanding financial efficiency and resource dependence relevant to public organizations.

FINANCE AND FUNDING IN
TRAVEL AND TOURISM SECTOR

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Explaining the importance of costs and volume for travel and tourism funding.............1
1.2 Analysing pricing methods for travel and tourism...........................................................4
1.3 Measuring the factors that influence profitability for travel and tourism sector..............5
TASK 2............................................................................................................................................7
TASK 3..........................................................................................................................................18
3.1 Interpreting the financial statement of TRG for the year ended on 27 December 2015 18
TASK 4..........................................................................................................................................21
CONCLUSION..............................................................................................................................21
REFERENCES..............................................................................................................................22

INTRODUCTION
Fund is the requirement of every business unit in context with having better survival in
rivalry world. In travel and tourism sector there will be generation of funds or revenue with the
help of consumer interest. Their main motive is to facilitate satisfactory as well as memorable
services to buyers. Funds can be generated by various sources and that helps in meeting the short
term and long-term liabilities of an entity. In the present report, there has been several financial
accounting tools that are used to award financial funding or profit maximisation techniques to
Merlin Entertainment and TRG plc. On the other side there will be use of various ratios as well
as their interpretation which helps in improving efficiency of business.
TASK 1
Merlin Entertainment Plc. is the most successful and fastest growing business in tourism
sector. The company has originally begins from UK and currently operating in 23 countries at
115 locations. This MNC need to improve its functional area and as per its three segments of
operating business such as Midway Attractions, Resort Theme Park and LEGOLAND Parks.
These different areas of Entertainment operates in several ways such as Midway attraction
operates indoor activities like in city centres and resorts. LEGOLAND is based on LEGO
themed activities which is based on the theme, rides and shows (Arestis and et.al., 2017). Resort
theme park activities operates in the accommodation, shows and rides facilities to consumers.
For adequate and appropriate funding to enhance the efficiency of this organisation there must be
use of various cost and finance techniques.
1.1 Explaining the importance of costs and volume for travel and tourism funding
Cost and volume helps in analysing requirements of funds to initially operate any
business activity. There can be various sources through which Merlin Entertainments can analyse
the costs of the business operations.
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(Illustration 1: Source: Arestis and et.al., 2017)
There can be use of several kinds of costs and volume such as fixed costs, variable costs,
direct and indirect cost as well as break-even analysis and cost profit volume analysis that helps
in decision making as well as managing the business operation in profitable way (UK tourism set
to benefit from weak pound, 2017).
Fixed Cost: These kinds of costs remain same and unchanged for each level of operations
in organisation (Fowles, 2014). These costs help in analysing the fixed expense over some piece
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of activities such as depreciation over assets, rent and telephone bills, insurance as well as
interest from loans. These are the costs which are not going to change as compare with Variable
costs. Merlin entertainment can be benefited with the use of this method as they can make the
favourable efforts in measuring the costs incurred for the particular tasks.
Variable Cost: These costs varies as per the requirements or increase in the piece of work
in organisation (Shepherd and et.al., 2017). It depends over events held in business operational
functions such as increase in the sales volume which will resultantly increase the number of
funds to be expanded by Merlin Entertainments. These includes various kinds of costs such as
labour, material etc. which are fluctuating as per the changes occurred or the requirements in
performing business tasks.
Direct costs: Expense that are incurred to meet the direct operations of the organisations
such as direct material, labour as well as costs which will be calculated with the help of this
method (Steffener and et.al., 2016). In travel and tourism there will be requirement of favourable
numbers of workers who make dealings with consumers for Merlin Entertainments as well as
make them aware with the facilities offer by them
Indirect costs: These are the expenses which are indirectly related with the business
operations and these will be denoted as the overhead expenses held in Merlin Entertainments
(Bazot, 2017). It includes rent over property, costs incurred for cleaning and maintenance of the
accommodation facilities as well as energy costs.
Break even analysis: These methods will be fruitful for Merlin Entertainments in
measuring the earnings with expenses incurred by organisational operations. It helps the
managers and supervisors of unit in taking corrective decisions and they will be able to reduce
costs or expenses over some piece of work (Carmo and et.al., 2016). An Equilibrium point where
the expenses meet the gains of entity which says it is the favourable point such as no loss no
profit earned during that period. For the growth of organisation there must be positive ratios of
Costs and profits earned by business.
Cost profit volume analysis: A technique is used to analyse changes or fluctuations in the
cost and volume in Merlin Entertainments. These are aaffecting the functioning organisational
operations as well as income generations (Shepherd and et.al., 2017). It will be favourable as it
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fills the certain requirements and assumption such as everthing which is produced by
organisation must be sold and the consistency in fixed or variable costs. Selling prices of goods
and services must remain unchanged. Managers of unit will be benefited with the analysis of
Contribution margins and ratios which helps them in analysing the costs or volume needed in
work.
1.2 Analysing pricing methods for travel and tourism
Costs or prices implied over the goods and services will be beneficiary for organisational
heads in context with determine expenses as well as methods to overcome such costs. There will
be various kinds of pricing techniques which will help in analysing costs for each operation
organised in Merlin Entertainments.
Cost Plus Pricing: This technique applies in measuring costs or profit over goods and
services delivered by a unit (Radzi and et.al., 2015). Merlin Entertainments and its professional
accountants need to measure labour costs, overhead costs which occurred in delivering the
services to consumers. These will be added to the mark-up percentage to analyse the
organisation has the high demand by buyers and then a favourable decision can be made about
determining the prices over such activities.
Penetration pricing method: It helps in the initial start-up of a business organisation such
as targeting the market and analysing prices set by other rivalry firms. In comparison, with other
units the beginner set lower prices as to fetch the maximum numbers of consumers towards the
brand (Díaz and et.al., 2015). Merlin Entertainments will have the fruitful operating functions as
they set lower prices on some facilities like less travel fees, cheaper accommodation charges as
well as better quality food at budgeted prices. It helps in generating maximum sales as well as it
will be fruitful in earning profits.
Per person Pricing Technique: This method will be beneficial for the travel and tourism
sector in denoting the prices over the expenses helps in each operational task. Prices will be
analysed on the basis of Per room pricing, Occupancy based pricing these techniques tends to
make the analysis on the basis of overcoming the costs incurred all level (Nair and Sankar,
2014). Merlin Entertainment need to make the analysis and record of each visitors in premises,
the most preferable services, most liked travel destination. It helps in fetching the information
regarding the consumer preferences at each level of work. They must democratically analyse the
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consumers such as Children, senior citizens, individual or couple and offered them the services
which are favourable for them.
Skimming pricing method: It is the most sensitive price segments for the business as it
can be used for earning approximately favourable profit from market. Prices over the product or
services will be set out high in the beginning of operation and after satisfying the first buyer, unit
lower down the prices of such activities (Nair and Sankar, 2014). It will be helpful for the
managers of Merlin Entertainments to overcome the costs of such product and services at very
first sales than they will reduce charges and focusing over generating the maximum number of
consumers.
1.3 Measuring the factors that influence profitability for travel and tourism sector
Profit gathering can be influence by various factors which are affecting the survival of
organisation in the competitive environment. There are several reasons which affects revenue
generation as well as earnings of Merlin Entertainments such as:
Season: Organisation will able to earn favourable amount of profit during the season of
travelling at particular locations. It can also be affected by national events and festive seasons
that will be fruitful in acquiring large demand (Arestis and et.al., 2017). Merlin Entertainments
will be benefited with the increase in demand in peak season as well as it will be bountiful in
overcoming the expenditures of costs for the organisational needs. It will be non-profitable as
well in the off season as at that time there can be decrease in the number of consumers and it will
become tough for firm in survival.
Political Environment: Changes or renovation of political environment in the country
can affect the demands of consumers as well as profitability of Merlin Entertainments. There
have been variations in the rates and policies of the particular locations which differs as per
political rules and regulations (Fowles, 2014). This organisation took travel at various locations
in several countries and they have faced the obstacle in such tours. Problems related with
currency variations, taxations, laws as well as exchange rates which affect the budget of the
particular journeys. Consumers faces these kinds of obstacles in the run and they started
switching the plans or cancels their tours.
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Economical variations: Every country or nation has difference in their culture and
economy which create problem in attaining the favourable services to consumers from different
countries. There will be barriers faced by Tourists such as language, currency and their ability to
meet the expenses (Shepherd and et.al., 2017). Merlin Entertainments must access the economic
conditions of particular locations and buyers related with such locations, then they must set
prices of the tours as clients can easily afford. Thus, such variations in economic environment of
countries will affect profit collections of the firm.
Climate: Difference in the various locations as compare with native place environment
which attracts an individual more than any other destination. People love to go such places which
are bizarre and different from the areas where they are from (Shepherd and et.al., 2017). Merlin
Entertainments can take advantage At, the time of summers people would love to visits hill
station or places which are comparatively cold and on height same as with winter season, the
demands raise for the tours at beach and hot spot. It will be profitable for organisation in
attracting the consumers by planning the tours on the basis of climates.
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TASK 2
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TASK 3
3.1 Interpreting the financial statement of TRG for the year ended on 27 December 2015
TRG Group of 470 restaurants and pubs which are operating in UK and has the various
leading brands such as Coast to Coast, Frankie & Benny's, Garfunkel's, Chiquito, Burning &
Price as well as Home Counties Pub Restaurants. These are the refreshment groups which are
operating UK and traded over 50 outlets primarily with Airports. Thus, here is the calculations
and analysis based on the TRG's financial information for the year 2015 and 2016. Managers or
supervisors of the organisation will be informed and advices as comparing the two year data as
well as describing their loopholes and weaknesses (Restaurant Group (The) PLC, 2017). The
table listed below gives the adequate information regarding with various ratio analysis:
Particulars Formula 2015 2016
Current assets (CA) 38 50
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Current liability (CL) 136 140
Stock 6 6
Prepaid expenses 15 16
Liquidity ratios
Current ratio CA / CL 0.35 0.29
Quick ratio
Current assets –
(Stock + prepaid
expenses) / current
liability 32.11 44.11
Profitability ratios
Gross profit 137 3
Sales 38 33
Net profit -40 -17
Gross profit ratio
(GPR)
GP / sales revenue
*100 360.53% 9.09%
Net profit ratio (NPR)
NP / sales revenue
*100 -105.26% -51.52%
Efficiency ratio
Net profit -40 -17
Capital employed 436 373
ROCE NP / Capital employed -0.092 -0.046
Fixed asset turnover
ratio 1.78 1.9
Inventory turnover
ratio 93.71 117.77
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Receivable turnover
ratio 396.29 222.83
Debt-equity ratio
Shareholders equity /
long term debt 0.12 0.2
Interpretation: It is to be analysed on the basis of ratios of The Restaurant Group that in
year 2015 and 2016 there has been current ratio of 0.35 and 0.29 as per current assets and
liabilities of both the years. It can be said that there is the reduction in the current ratio for the
year 2016 as compare with the previous year as well as Quick ratio for the both years is 32.11
and 44.11 respectively. The profitability ratio is -105.26% & -51.52%, is because of the
organisation had net loss in both operating year. Efficiency ratio for the year 2015 is -0.092
while in 2016 it is -0.046 which is also a negative percentage because of the net losses. Hence, it
will be assumed that the firm need to make several changes in enhancing the operation
performance of the organisation as well as plan strategies to lower down costs.
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TASK 4
CONCLUSION
As per above assessment Merlin Entertainments plc has been benefited with various costs
such as fixed, variable, direct, indirect and the cost volume profit analysis. It facilitates basic
information related with the organisational costs and expenditure as well as advises managers in
controlling such expenses. Further, various management accounting tools were discussed over
enhancing profitability and efficiency of the firm and their workforce. Ratio analysis related with
financial data of TRG for the year 2015 and 2016 has been done and they were suggested to
make changes in operating the business activities. There are negative profitable ratios of both the
years, such as -105.26% and -51.52% due to net losses incurred in both operating years. There
has been discussion made over fund generation through various sources as well as development
related with the capital projects.
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