Report: Finance and Funding in the Travel and Tourism Sector

This report provides a comprehensive analysis of financial management within the travel and tourism sector, focusing on The Carib Happy Tours Company (CHTC). It begins with an exploration of Cost-Volume-Profit (CVP) analysis, detailing its importance in profit planning and decision-making, alongside an examination of various pricing methods like market-led, profit-led, and cost-led pricing. The report then delves into the factors influencing profitability, including political and economic environments, and calculates the required customer base for CHTC to achieve desired profits. Furthermore, the report examines management accounting information and its tools, such as budgeting, for strategic and operational decision-making. Finally, it discusses capital investment appraisal techniques, including Net Present Value (NPV), Accounting Rate of Return (ARR), Internal Rate of Return (IRR), and Payback Period, providing a well-rounded overview of financial strategies and tools within the tourism industry.

Finance and Funding in
the Travel and Tourism
Sector
1

TABLE OF CONTENTS
INTRODUCTION ..........................................................................................................................3
TASK 1............................................................................................................................................3
A...................................................................................................................................................3
B...................................................................................................................................................4
C...................................................................................................................................................5
Task 2...............................................................................................................................................6
A...................................................................................................................................................6
B...................................................................................................................................................8
Task 3...............................................................................................................................................9
A...................................................................................................................................................9
task 4..............................................................................................................................................12
A.................................................................................................................................................12
Conclusion ....................................................................................................................................13
REFERENCES .............................................................................................................................14
2

INTRODUCTION
The management of large amount of money by the companies and governments is
known as the finance. While funding is the act of providing a financial resources in the form of
money to the organization for starting a business or any other reason. The present report is based
on The Carib Happy tours company which provide a summer holiday package to its customer.
The firm also provide a hotel at resort to accommodate its tourist. The present report covers, the
importance of CVP analysis at the travel and tourism business is explained. Along with this,
pricing method that CHTC use to determine the price charge by tourist is analyzed. Apart form
this sources and distribution of fund for the development of capital projects associated with
tourism is analyzed.
TASK 1
A.
According to the given scenario The Carib happy tours company (CHTC) is planning a
summer holiday trip at the Caribbean holiday resort. The company the book the hotel at the
resort for comfort its tourist. It analysis the cost volume profit for knowing the profit by using the
concept of CVP analysis that are as follow:
The cost volume profit analysis is known as a (CVP) it is a tool of planing a profit of the
CHTC. Further it helps to manager in understanding the change in the firm profit which arises
due to the change in the firm variable cost, selling price, volume fixed cost and the mix of the
product sold (Hu, Liu, and Zhou, 2012). Moreover, the CVP analysis helps in knowing the
interaction and relationship between the different products selling price, any change in variable
cost per unit, the tour company make or achieve all the sale volume and the sale mix that is the
various product which company produce for selling purpose.
Basic elements of CVP analysis are as follow:
Cost: Cost is the first element of business. CHTC incurs certain cost initially for carrying out the
business. These cost are used for making a a product and for providing a services so, it is a
expanses
3

Volume: Volume is the second important element of the business which is how much the tour
company will produce and sell. To determine how much to produce is can be known by deciding
how much they want to sell.
Profit: Profit is the last elements of Carib happy tours company. It should know that how much
profit they can make by delivering the products and services to their customer (Hörl, Sauer and
Zamboni, 2013.). It can be determine through the selling price of the product deducted the cost
of manufacturing the product.
The importance of CVP analysis:
Cost volume profit has a huge scope in different decision making of management. It
helps in determining the quantity of the product which is required to produce for attaining the
desired, further under different cost and volume relationship it helps in knowing the profit which
comes after selling a products to its customer. Further it help in analysis a the product and
service which are most profitable for the Carib happy tours company (Mulley and Walters,
2014.). By determining it company can focus on making a products and services which are
generating a profit. To understand any variance in its sales volume, because of any reason of the
profit can be known by the CVP analysis.
Moreover it also help in understanding the level of fluctuation which can afford its selling price
fr increasing the sales and to know the new level sales. Any fixed cost which can arise at the
company can be understand by the help of cost volume profit analysis.
B.
According to the given scenario, Carib tour happy hour company is growing al over the
world. It is necessary for the tour company to make a effective decision so that it can make huge
profit and further can expand its business. There are various cost pricing method which CHTC
can used for earning the profit by selling its products and services.
 Market led pricing: it is the pricing method in which prices are set according to the
skimming and pricing and penetration pricing (Mulley and Walters, 2014.). In the
penetration pricing method lower the cost set of products for attracting a customer for
survive in competitive market. While in skimming pricing the tour company set a high
price because there position in market is already strong.
4

 Profit led pricing: Under this method there are two method of pricing that is competition
pricing and pricing based on customers. Int he competition pricing the price of products
and services CHTC set according to he price of its competitor. While the price is set
according the customer need s and demand in the pricing based on customer method.
 Cost led pricing; in the cost led pricing, the price of products and service set by the
CHTC according to the cost and volume of business. For getting a sufficient profit on
their investment company set the price on above the breakeven point which can be
determine after calculating a breakeven point (Ismail and King, 2014.). If price is set
above the breakeven point then tour company can earn high level of profit. For example
company can earn profit by this method
Assume, cost = 500
Add: Mark-up – 20%
Prices = 500 + (500*20%)
= 500 + 100
= 600
 Return on investment pricing: In this method price is set by the tour company
according to the interest rate and return on investment. In this price is fixed on the basis
of profit which they expected to return.
C.
The profit is the income of the CHTC company which is generated by a total sales and
cost of manufacturing. There are various factor which can influence the profit of the CHTC
which the earn on the holiday trip that are as follow;
 Political environment; the political instability can affect the profit of the tour company.
There are many more political factors such as taxation, strict rules and regulation of other
nations can impact the costing services, if the tax rate is charged high then CHTC
required to keep the price of its products and services high which may decrease the
customer base.
 Costs: it is the most important elements which affects the pricing of the products and
services which tour company provide such as hotel, transportation facility etc. the cost of
services is increased then organization will also need to increase the price of tour
5

package. If the price of fuel is rise then it lead to increase in transportation cost and if
hotel charged high rate on its services then it affects the profit of CHTC.
 Economic environment; at the time of global recession consumer are reducing their
unwanted spending such as traveling etc. it affects the market demand because consumer
are avoiding a traveling for spending the vacation only business people are traveling
(Ittner and Larcker, 2001). For coming out from this situation CHTC is providing a
discount an offer on its various holiday package for grabbing a attention of customer. It
helps in managing a low profit instead of suffering form loss.
Calculation of profitability
Sales 90*800 72000
Less: Variable cost 90*200 18000
Contribution (72000-18000) 54000
Less: Fixed cost 60000
Profitability/loss (54000-60000) -6000
If company book 90 tourist for its holiday package then it suffer form loss of $6000 and cannot
earn profit of $10000.
Calculation of required customer to reach desired profit
Desired profit 10000
TFC 60000
Contribution 800-200 600
Minimum sales to earn desired return (60000+10000)/600
116.6666666
667
Rounded off 117
CHTC company required to to take maximum 117 customer to earn a desired profit.
TASK 2
A.
According to the given scenario, CHTC wants to improve its decision making procedure
by adopting a various accounting decision making techniques. For this purpose it hired a new
finance officer for managing finance decision. There various types of management accounting
information which CHTC can used that are as follow
6

Management accounting information(MAI) is focused on decision maker and internal manager.
It is used by the finance officer to decision a way through which business move forward and
choose a decision between buying decision or making. Without the management accounting
information the forward palling, monitoring actual performances and projection cannot be done
(Ramirez and Christensen, 2013). Moreover there are various management accounting
information tools are developed foe measuring a accounting data for getting a informative result
so that strategic decision can be made. The MAI helps a decision maker in making a various kind
of decision such as operational decision and strategic decision
 Strategic decision; in this type of decision CHTC can earn along term benefits . The man
objective of tour company is to create a better value for its stakeholder and its be done by
analyzing the accounting information. The firm actual position can be estimated by the
cash flow and fund flow. Through this it can make a investment whenever company
required. The various strategic decision such as merger. Acquisition etc decision can be
made by the firm after knowing its actual position through financial statement.
 Operational decision; The operation decision are related with day to day operations.
Through this CHTC can effectively manage the inventory which helps in providing a
best service to its customer. It provides a clear estimation of the working capital which
tour company required to run its daily operation and activities.
 Budget; the management accounting information tool involves in their form of forecast
and budget. Budget is known as the financial plan for future, it helps in knowing what is
required to be done in future. Through this CHTC came to know from where revenue will
be generated and cost can be incurred. Budget is helpful in identifying a wasteful
expenditures. The main purpose of making a budget is to get a maximum outcome and
minimum expenses (John, Warnock-Smith and Miyoshi, 2013). Further, the budget is
required to prepared by a CHTC company for the following purpose that are described
below;
 The firm budget are prepared so that net profit can be earned and find out by the decision
maker. It is also necessary to prepare to make a realistic estimation about income and
expenditure.
7

 After preparing a budget ti is allocated in the firm which help in reduction of unwanted
expenditure on days to day operational activities (Radzi, Bansal and Wong, 2013).
 For the short term plan of tour CHTC company that is marketing efforts, promotional
tools budget are made so that goals can be achieved in appropriate way.
B.
The capital investment appraisal techniques are as follow
 Net present value method: The nest present value technique helps in measuring the cash
flow whether excess shortfall. It is the comparison between the amount invested today
with the present value of future cash receipts from the investment.
 Accounting rate of return: it sow the profit which is expected form an investment to the
amount which is required to invest (Needles, Power and Crosson, 2013). It is a non
discounted capital investment appraisal techniques and also not take in consideration with
time value of money.
 Internal rate of return; The internal rate of return is used to measure the quality of a
investment. It also helps in ranking the projects by its overall rate of interest when the
investment has a higher rate then it is usually preferred.
 Pay back period method
Project Project B
Initial investment -1500 -2000
1 30000 28500 800 -1200
2 35000 63500 900 -300
3 40000 103500 950 650
4 45000 148500 1000 1650
5 60000 208500 1100 2750
Total 208500 2750
Project A is the shortest pay back period for the investment because in this investment amount
recovered fast and it start generate profit. While in Project B it take 3 to 4 years for earning
profit.
Average rate of return method
Project Project B
Initial investment 1000 1500
1 30000 800
8

2 35000 900
3 40000 950
4 45000 1000
5 60000 1100
0 0
Total 210000 4750
Average 42000 792
ARR 4200.00% 52.78%
In the project A there is higher rate of returns as compared to project B. it means that CHSL will
naturally prefers the project A over the low rate of returns.
Net present value method
Project Pv @ 10% Present value Project B PV @ 10% Present value
Initial
investment 1000 1500
1 30000 0.909 27273 800 0.909 727
2 35000 0.826 28926 900 0.826 744
3 40000 0.751 30053 950 0.751 714
4 45000 0.683 30736 1000 0.683 683
5 60000 0.621 37255 1100 0.621 683
Total 154242 3551
NPV 153242 2051
15324.18% 136.72%
In the above project A there is positive net present value which is acceptable and investment with
negative present value then the project is not acceptable.
Internal rate of return
Project A Project B
Initial
investment -1500 -2000
1 30000 800
2 35000 900
3 40000 950
4 45000 1000
9

5 60000 1100
IRR 2016.53% 28.00%
In this example it shows that in Project A rate of return interest rate is higher as compered to the
Project B so it will be prefer on other. The CHS will use work with Project for earning a profit.
TASK 3
A.
Thomas Cook Group Plc Formula 2014 2015
Profitability ratios
Revenue 8588 7834
Gross profit 1868 1772
Net profit -118 23
GP ratios (Gross profit/net
sales)*100
21.75% 22.62%
NP ratio (Net profit/net
sales)*100
-1.37% 0.29%
Return on equity (Net income
/Shareholders
equity)*100
-31.20% 7.84%
Return on capital
employed
(EBIT/Total capital
employed)*100
0.94% 7.01%
Liquidity ratios
Current assets 1829 2035
Inventory 34 32
Current liability 3894 3702
Current ratio (Curernt
assets)/(current
liabilities )
0.47 0.55
Quick ratio (Current assets -
inventory)/Current
liabilities
0.46 0.54
Efficiency/Activity ratios
Total assets 5794 5958
Assets turnover ratio (sales/Total assets) 1.482223 1.3148708
10

Average debtors 261.5 226.5
Debtors turnover ratios (Sales/Average
receivables)
32.84 34.59
Debtors velocity 365 days /(debtors
turnover ratio)
11.11 10.55
Average creditors 1282.5 1334.5
Cost of sale 6720 6062
Creditors turnover ratio (Cost of sale)/average
creditors
5.24 4.54
Creditors velocity (365 days /creditors
turnover ratio)
67.75 78.15
Solvency ratios
long-term borrowings 715 1038
Shareholder equity 247 340
Debt to equity ratio Long-term
debt/Shareholders
equity
2.89 3.05
EPS Net income available
to
shareholders/Number
of outstanding shares
-0.08 0.02
 Gross profit; the gross profit of Thomas cook in 2016 is higher as compared to the 2015.
it shows that proportion profit generated by the sales of the products and services before
selling the administrate and expenses.
 net profit: it shows the profit that is generated after the tax payed. It is the meaning profit
after cost of production , administration deducted form sales. Thomas cook face loss in
2105 and earn net profit 0.29%.
 quick ratio: it is a liquidity ratio which show that ability of a Thomas cook pay to its
current liabilities. This are the current assets that can be convert into cash in 90 days. In
2016 company have 0.54 % quick ratio as compared to 20125 it have only 0.46%.
 Current ratio: it measure the ability of Thomas cook to pay short term liabilities with
the current assets. The current ration in 2016 increases upto 0.55%.
11

 Debtors turnover ratio: In this it shows that how many time in a year debtor buy and
pay on average. It shows that debtors turnover has been increased 2times in 2016 as
compared to 2015.
 Assets turnover ratio; It shows that company ability to generates a sale form its assets
by comparing average total assets with a net sales. IN 2016 there is 1.31 time sale is
generated as compared to previous year.
 Creditors turnover ratio; It shows that how much company paid to its creditors in a
year that is Thomas cook paid less in 2016 that is 4.54 times as compared to 2015. it
means it fail to pay more in 2016.
 Earning per share; It is a portion of profit that company which Thomas cook allocate to
its each outstanding share of common stocks. In 2015 the earning per share of Thomas
cook is negative and in 2016 it is 2 paisa per share.
TASK 4
A.
According to the given scenario CHTC is constructing own hotel instead of hiring a
hotel for its tourist at the Caribbean. The cost of construction a hotel is 25 million that which a
tourist company required. For this purpose it identify the various sources of fund both internally
and external that are as follow;
Internal sources of fund
 Retained profit; it is the internal sources of finance that CHTC can used for constructing
a business. The retained profit is the profit which company get after paying a dividends to
the shareholders. It is the long term source of finance for the company.
 Sale of assets: if the CHTC company sales its assets then it generates a cash which can
be used for any purpose such as for constructing a new hotel etc (Samadi, Mohsenian-
Rad and Wong, 2012). the company can sold the assets by determining the need of cash.
If high amount of cash is required the it need to sell a land , building etc. while low
amount of cash is required then it can sell car , furniture etc.
12

 working capital: The CHTC can take a loan form bank. Reduction in the working capital
can work is a internal sources of finance. It can be done by speeding up the cycle of
account receivables and lengthening the cycle of account payable.
long term sources of finance
 Equity shares: It is the common sources of finance for the CHTC. But it is nit easy to
raise this capital as it necessary to complete a of of legal formalities. It is important that
all investor should believe on tour company before investing in its project (Samadi,
Mohsenian-Rad and Wong, 2012). The feature of equity is share is the sharing of
ownership right and current shareholders rights are diluted for some extent.
 Loan; it is the long tern debt capital raised by the Tour company on which interest is
paid. The CHTC can take a loan form bank or from a financial institution and interest per
month. It can take loan for longer period (3s to 5 years) or shorter period (2 to 3 years) of
time. Further it also need keep some security in case if loan is nor re payed they can use
that security deposit.
CONCLUSION
From the above report it can be concluded that, the concept of CVP analysis is
appropriate to measure the profit of the CHSL company. It has a great importance that it helps in
various decision making process of management. There are various cost pricing method such s
profit led pricing, cost led pricing etc. through profit led pricing company can easily calculate the
profit on above the breakeven point. There are different types of management accounting
information that CHTC can be used to see the way through which business move forward and
take a decision between buying decision and making. Further it can be concluded that, the rare
various investment appraisal techniques which company can choose for making a decision of
working on a new project such as net present value method, internal rate of return method etc.
there are various internal and external sources of funding which helps CHSL in investment for
constructing a new hotel.
13

REFERENCES
Books and journal
Hu, Z., Liu, Y., Gao, S., and Zhou, L., 2012. Improved in situ Hf isotope ratio analysis of zircon
using newly designed X skimmer cone and jet sample cone in combination with the
addition of nitrogen by laser ablation multiple collector ICP-MS. Journal of Analytical
Atomic Spectrometry. 27(9). pp.1391-1399.
Hörl, M., Schnidder, J., Sauer, U. and Zamboni, N., 2013. Non‐stationary 13C‐metabolic flux
ratio analysis. Biotechnology and bioengineering. 110(12). pp.3164-3176.
WisCombe, C., Robinson, P., and Crotts, J., 2016. Finance and funding in the travel sector.
Operations Management in the Travel Industry. p.154.
Mulley, C. and Walters, J., 2014. Workshop 7 Report: Innovative finance for innovative public
transport. Research in Transportation Economics. 48. pp.389-392.
Horngren, C. T., Sundem, G. L., and Burgstahler, D., 2013. Introduction to management
accounting. Pearson Higher Ed.
Ismail, N. A. and King, M., 2014. Factors influencing the alignment of accounting information
systems in small and medium sized Malaysian manufacturing firms. Journal of Information
Systems and Small Business. 1(1-2). pp.1-20.
Ittner, C.D. and Larcker, D.F., 2001. Assessing empirical research in managerial accounting: a
value-based management perspective. Journal of accounting and economics. 32(1).
pp.349-410.
Ramirez, F. O. and Christensen, T., 2013. The formalization of the university: Rules, roots, and
routes. Higher Education. 65(6). pp.695-708.
Amoako, K. O., Marfo, E. O., and Asamoah, F. O., 2013. Cash Budgetan Imperative Element of
Effective Financial Management. Canadian Social Science. 9(5). p.188.
John, F. O., Warnock-Smith, D., and Miyoshi, C., 2013. An investigation into the core
underlying problems of India's airlines. Transport Policy. 29 pp.160-169.
Needles, B. E., Powers, M. and Crosson, S. V., 2013. Financial and managerial accounting.
Nelson Education.
14

Uechi, L., Akutsu, T., and Kenett, D. Y., 2015. Sector dominance ratio analysis of financial
markets. Physica A: Statistical Mechanics and its Applications. 421. pp.488-509.
Collier, P. M., 2015. Accounting for managers: Interpreting accounting information for decision
making. John Wiley & Sons.
Hong, Y., Wang, W., and Liu, J.P., 2014, November. Study on market mode and pricing model
of the green grid electricity market in China. In Biotechnology, Agriculture, Environment
and Energy: Proceedings of the 2014 International Conference on Biotechnology,
Agriculture, Environment and Energy (ICBAEE 2014), May 22-23, 2014, Beijing, China.
(p. 45). CRC Press.
Wang, X. and Yang, H., 2012. Bisection-based trial-and-error implementation of marginal cost
pricing and tradable credit scheme. Transportation Research Part B: Methodological.
46(9). pp.1085-1096.
Ye, H., Yang, H. and Tan, Z., 2015. Learning marginal-cost pricing via a trial-and-error
procedure with day-to-day flow dynamics. Transportation Research Part B:
Methodological. 81. pp.794-807.
Samadi, P., Mohsenian-Rad, H., Schober, R. and Wong, V.W., 2012. Advanced demand side
management for the future smart grid using mechanism design. IEEE Transactions on
Smart Grid. 3(3). pp.1170-1180.
Online
Financial ratio analysis 2014. [Online]. Available through
<http://www.accountingverse.com/managerial-accounting/fs-analysis/financial-
ratios.html>. [Accessed on 15 November 2016].
Sources of finance 2016. [Online]. Available through
<https://www.extension.iastate.edu/agdm/wholefarm/html/c5-92.html>. [Accessed on
15th November 2016].
15