Finance and Funding in Travel and Tourism: A Report

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Finance and Funding in the Travel and Tourism Sector
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Table of Contents
Introduction......................................................................................................................................3
Task 1...............................................................................................................................................4
Task 2...............................................................................................................................................8
Task 3.............................................................................................................................................11
Task 4.............................................................................................................................................16
Conclusion.....................................................................................................................................19
Reference list.................................................................................................................................20
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Introduction
One of the most important prerequisites that a company requires having in order to improve its
operational efficacy and ensure its overall success is financial management. The proper use as
well as allocation of funds within a firm helps it in improving its effectiveness and performance
along with facilitating effectual decisions. This is applicable in case of travel and tourism firms
as well. Finance, funding and management of finances are an important factor to be considered
for firms working within the tourism industry as well.
In this study, a detailed discussion is going to be made regarding the significance and the
relevance of finance and funding in different types of travel and tourism firms. It will be
illustrating the significance of management decisions in tourism firms with respect to costs,
profit and volume and the ways by which management decisions can be enhanced through the
medium of managerial accounting information. The study will also be demonstrating how
financial accounts of tourism firms can be interpreted for providing assistance towards making
finance related decisions in the tourism sector. In the last section of this assignment, the areas
from which funds can be sourced for extending tourism related capital projects in a company will
be discussed as well.
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Task 1
LO1- Understand the importance of costs, volume and profit for management decision
making in travel and tourism
Introduction
As financial management is of great relevance to tourism sector firms, this report has been
prepared to evaluate how costs, volume and profit play a significant role in making management
related decisions in the travel and tourism sector.
1.1 Explain the importance of costs and volume in financial management of travel and
tourism businesses using Carnival Corporation & plc as your case study.
Effectually managing finances and funds is necessary for all organisations no matter it is profit
seeking or a non-profit seeking one (Gean and Gean, 2015). However, in order to manage
finances and funds, tourism businesses require classifying the costs it spends at the first place
(Smith, 2015).
According to traceability and according to behavior, cost can be of various types. While
traceability divides costs into direct and indirect, behavior divides costs into fixed, variable and
semi-variable. Banker and Byzalov (2014) defined direct costs as the expenses made in a
company that are easily traceable to cost units while the vice versa as indirect costs. For
example, while wages and salaries of workers are direct costs of Carnival Corporation & plc, the
cleaning expenses and insurance premium are its indirect costs. Based on cost behavior, fixed
costs are defined as the unchangeable costs of a company (Gu et al., 2014). On the other hand,
variable costs are those that keep on changing from one point of time to another (Ding et al.,
2013). Among the examples of fixed and variable costs in Carnival Corporation & plc, comes
rent, which is fixed cost and wages or material costs, which are variable in nature. However,
MacMillan (2014) mentioned instances in which costs of a company have one part fixed while
one part variable. These costs are called semi-variable costs. Carnival Corporation & plc’s semi-
variable costs include breakage charges, electricity bills as well as telecommunication charges.
However, in order to enhance and improve financial management, companies are also in the need
of the measurement of the volume of goods and services that has been sold. In case of Carnival
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Corporation & plc, the following methods can be applied to evaluate and measure the volume of
tour packages and services sold by it -
 Economies of scale - The several kinds of benefits or advantages companies enjoy
because of functioning at large scales is called economies of scale (Tegtmeier, 2013).
Since Carnival Corporation & plc is a large-scale operator, there are several kinds of
economies of scale that the organisation enjoys, the most common among which is lower
cost of materials.
 Breakeven analysis - The technique or method that helps in the derivation of level of
sales, level of volume as well as profit is called the breakeven analysis (Morano and
Tajani, 2017). Carnival Corporation & plc, by the means of breakeven analysis, can be
accomplishing its sales and profit targets along with finding out the margin of safety.
1.2 Analyse pricing methods used in the travel and tourism sector. You should use relevant
examples from different cruise brands of Carnival Corporation & plc.
In case of tourism businesses, pricing methods play a significant role, as the demand as well as
the sales of the businesses is dependent on the pricing of their packages. The following pricing
methods are used commonly in tourism businesses throughout the world -
 Market led pricing technique - The way in which companies decide their product and
service prices through comparing and investigation prices of same product and service in
the marketplace is called the market led pricing technique (Hsieh et al., 2014). Among
the various brands of Carnival Corporation & plc, Holland America Line is found to be
adopting this pricing technique.
 ROI pricing technique - Depicted by the name itself, ROI pricing is the technique that
organisations use for fixing product and service prices based on the return they wish to
get from the amount they spend for providing them to their customers (Baker et al.,
2017). Carnival Corporation & plc’s brand P&O Cruises is the common example of a
tourism organisation that adopts ROI pricing.
 Cost plus pricing technique - When an organisation’s prices are set through determining
product cost followed by adding up markup percentages, it is known as cost plus pricing
(Yang, 2017). Another brand of Carnival Corporation & plc that adopts cost plus pricing
is the AIDA Cruises.
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Among the others, marginal costing pricing, contribution costing, and cost led pricing are also
used for tourism pricing in various areas across the globe.
1.3 Analyse factors influencing profit for travel and tourism businesses using Carnival
Corporation & plc cruise brands as your case study.
Businesses across the globe, expect for the non-profit seeking ones, operate in order to earn large
amount of profits. Profit is the amount of financial gains that a company has from its operations
(Obrinsky, 2015). However, these financial gains of tour operating companies are often affected
due to diverse kind of factors, which have been discussed below -
 Variations in seasons - A common issue that all enterprises in the tourism sector face is
changing demand in different seasons (Guzman-Parra and Quintana-Garcia, 2015). For
instance, when it is summer, people avoid travelling to heated places, thereby reducing
the profits that tour operators in that area earn. This is in the case of Carnival Corporation
& plc as well. This is because due to the high chances of occurrence of storms and
cyclones, tourists avoid cruise tours during the monsoon, thereby having a negative
impact over Carnival Corporation & plc’s profit.
 Current trends within the sector - There are different kinds of trends that exist in various
industries. For instance, sports tourism, adventure tourism and various others are the
current trends due to which all tourism businesses face troubles. However, businesses
such as Carnival Corporation & plc do not provide such tourism facilities to its
customers. This is yet another reason for the lowering profit of the company.
 Economic environment factors - An organisation’s economic environment factors
largely have an effect on its profits (Briassoulis and Van der Straaten, 2013). Inflation /
deflation, rate of interest, cost of living index and others are the common economic
environment factors, which lead an organisation towards affecting its profit. For example,
in case of Carnival Corporation & plc, whenever there is inflation in any of the countries
within which it operates, tourists are reluctant towards higher spending and lead to
lessening its profit.
Conclusion
Therefore, through the medium of this report, it can be evaluated that tourism sector firms can be
ensuring an effectual financial management through the means of measuring and analyzing their
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cost analysis, volume measurement and profitability evaluation. It also highlighted how tourism
firms can be managing their prices along with showing the factors that lead to causing an effect
on tourism business’s profits.
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Task 2
LO2 - Understand the use of management accounting information as a decision making
tool in travel and tourism businesses
2.1 Explain different types of management accounting information that could be used in
travel and tourism businesses using The Fulham Shore plc as your case study
One of the most effectual means through which decisions can be made in an organisation is
management accounting information. Management accounting information can be used in the
context of diverse tourism organisations in order to make significant decisions. The ways in
which management accounting information can be used in organisations can be evaluated
through the example of The Fulham Shore plc, which is a restaurant business in UK. The
following discussion illustrates how management accounting and information derived from it can
be used in tourism businesses -
 Information available on company budgets - An effectual source from which
management accounting information can be achieved is the budgets of a company
(Bogsnes, 2016). By accessing a company’s budget possesses, tour operations and
tourism businesses are able to achieve significant information such as time, expenditures,
cost, planned sales, quantity of resources, allocated revenues and others. For example,
through accessing The Fulham Shore plc’s budget, the management of the organisation
can its budgetary control effective in nature as well as make decisions related to its
operations and strategies that are required being performed to achieve budgetary targets.
 Information available in the financial statements of a company - A company’s financial
statements also serve as significant source of managerial accounting information (Biddle,
2015). Different financial statements of an organisation provide different types of
information. For instance, The Fulham Shore plc’s profit and loss statement and balance
sheet can be used for evaluating its financial stability as well as its financial performance.
On the contrary, from the company’s cash flow statement, information can be derived
about its liquid position. Information derived from these financial statements can be used
for understanding and deciding on how its finances can be improved as well.
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The ways in which management accounting and information derived from it can be used in travel and tourism busin
Information available on company budgets
Information available in the financial statements of a company
Information derived from the variance analysis tool
 Information derived from the variance analysis tool - According to Pollard (2014),
variance analysis is the tool available in managerial accounting within which the
differences prevailing in a company’s actual performance and budgeted performance can
be determined. This information of the budgetary differences of a company can be used
in order to make efficient decisions within it along with deriving areas due to which
budgetary variances arise within it. For instance, The Fulham Shore plc can be using the
information derived from the variance analysis tool to find out the reasons behind its
budgetary variances and decide on how they can be reduced.
2.2 Assess the use of management accounting information as a decision-making tool for
The Fulham Shore plc
Another way in which management accounting information helps tourism businesses is through
facilitating effectual decision-making within it. The following discussion illustrates how
management accounting and information derived from it can be used for making decisions -
 Decisions related to raising an organisation’s capital - The raising of capital in an
organisation needs an efficient process of decision-making to be present. The use of
management accounting in any organisation involves preparing reports such as
performance reports, variance reports, demand reports, sales reports and others. The
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information in all these reports helps the organisation in understanding its capital
requirements and deciding how much capital requires being raised. For example, in
Fulham Shore plc, reports such as budget reports, financial statements, sales reports and
others help it in understanding its capital needs and thereby help it in making decisions
on raising capital within an organisation. Decisions related to forecasting - Decisions within a company related to forecasting can
also be made through efficient management accounting information (Box et al., 2015).
The variance reports, performance reports and budget reports help a company in making
its forecasting related decisions. For example, through information from the reports
mentioned above, Fulham Shore plc will be able to can make its forecasting decisions
related to its sales level, profit level, expense level and such other factors. The financial
position and performance of the company can also be forecasted through this
management accounting information. Decisions related to investing - Investing is another decision that management
accounting information facilitates within an organisation (Xu, 2015). Whenever the
organisation Fulham Shore plc looks forward to expanding and developing its operations,
a large amount of investment is required. In such a situation, management accounting
information can be used for making decisions through the medium of investment
appraisal reports.
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The ways in which management accounting and information derived from it can be used for making decisions
Decisions related to raising an organisation’s capital
Decisions related to forecasting
Decisions related to investing
Task 3
LO3 - Be able to interpret financial accounts to assist decision making in travel and
tourism businesses
3.1 Interpret financial accounts of The Fulham Shore plc for the year ended 25th March
2018 showing at least two years performance (for example comparing 2018 to 2017).
The management of finance and funding within tourism firms is not only dependent on
managerial accounting information but also on financial accounting information and the data
available within financial accounts of a company. However, in order to facilitate effectual
financial decisions in a company, it is necessary to conduct a detailed analysis of its financial
statements. In case of tourism firms, efficient financial decisions can be made through the means
of financial account elucidation. However, there are various means using which this elucidation
of financial accounts can be done. For example, the elucidation of the profit and loss statement of
a company can be used in order to make several types of financial decisions through the analysis
of its revenue collected, the costs spent, the expenses incurred and lastly the profits earned.
On the other hand, the interpretation of a company’s cash flow statement helps it in
understanding the net amount of changes, which have taken place in the total amount of cash that
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a company held at the end of a year to the end of the next year. The various flows of cash from
diverse activities are also presented under this financial statement. In the similar manner, the
balance sheet (statement of financial position) of a company helps in the measurement of its
financial position and the structure of its capital. Thus, in such ways, various financial accounts
of a company are of various uses for making finance related decisions and this usefulness are
same in the case of tourism firms as well.
However, the information present in the financial accounts of a firm does not show a proper
financial position and performance of the firm. According to Koonce et al. (2017), in order to
conduct an effective interpretation of financial statements, firms require applying several tools
such as financial ratios. Financial ratios can be defined as the metric using which information
present in a company’s financial statements can be elucidated in an effectual manner (Lakshmi et
al., 2016).
Evaluation of The Fulham Shore plc’s profitability ratios
Key financial ratios 2018 2017
Gross profit per cent 41.42 % 43.83 %
Return on equity -1.51 %0000 2.52 %
Net profit per cent -1.05 % 2.29 %
Return on capital employed 0.27 % 3.21 %
Return on assets -0.91 % 1.72 %
Table 1: Presentation of the Fulham Shore plc’s profitability ratios during the years 2017
and 2018
(Source: Fulhamshore.com, 2019)
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