Financial Analysis and Funding Report: Tourism Industry Performance

This report provides a comprehensive financial analysis of the tourism industry, focusing on two major players: Dalata Hotel Groups and Carnival Corporation. It delves into cost and volume analysis, examining their significance in understanding the relationship between costs, revenue, and profit, particularly for Carnival Corporation. The report explores various pricing methods used in the travel sector, including rack rates, seasonal pricing, discounting, and packages, and discusses factors influencing profit in the travel and tour business, such as weather conditions, natural disasters, terrorism, and economic downturns. Furthermore, the report examines the use of management accounting information, including financial statements, cost allocation reports, ratio analysis, and budgeting, for decision-making within Dalata Hotel Group. It highlights how this information aids in assessing business efficiency, making informed decisions, and optimizing financial performance. Finally, the report addresses the sources and distribution of funds within the tourism sector, offering a complete overview of financial management within the industry.

FINANCE AND
FUNDING

TABLE OF CONTENTS
Finance and funding.........................................................................................................................1
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P 1.1 Significance of Cost and Volume..................................................................................1
P 1.2 Pricing Methods............................................................................................................2
P 1.3 Factor influencing profit of travel and tour business....................................................3
TASK 2............................................................................................................................................4
P 2.1 Various management accounting information..............................................................4
P 2.2 Use of management accounting information................................................................4
TASK 3............................................................................................................................................5
P 3.1 Interpretation of financial accounts of Dalata Groups of Hotel and Plc.......................5
Interpretation:......................................................................................................................7
Task 4...............................................................................................................................................8
P 4.1 Sources and distribution of Fund..................................................................................8
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Social and economic phenomenon of modern civilizations which is very much in trend in
modern civilization is tourism. The main objective of the report is to thrive out all the financial
information of the two Plc on the basis of given scenario. Dalata Hotel Groups and Carnival
Corporation are the two hospitality providing industries. In this report we have analysed all the
financial information related with these two companies. The report deals with the current image
of all the financial aspects of the travel and tourism company. In this report we have gone for the
last two-year performance of the company with the help of financial analysis. Discussion is also
one of the sources and funding for public or non-public tourism development. Cost and volume
analysis is also done for the carnival corporation. This report also shows the different pricing
method with various management accounting information, powerful tool for decision making.
TASK 1
P 1.1 Significance of Cost and Volume
Carnival Corporation & Plc is world's leading cruise line and largest cruise holiday
company in the world, Carnival Corporation & Plc is experiencing a dynamic growth in the
business despite of facing challenges as global crisis, marketing changes, different consumer
behaviour. The cost and volume profit are tool for financial analysis to find the better
understanding of cost and net revenue, it describes the relationship between cost, revenue, profit
and volume that helps for further decision making of financial management of Carnival
Corporation & Plc. To find the cost and volume of the business certain assumption are taken into
consideration like all units are sold and the fixed variable cost will remain same (Otley, 2016) .
The cost and volume analysis help to find how the cost of the company is used and how it relates
to the volume of activities of Carnival Corporation & Plc. In relation to our company the cost
and volume analysis plays an important role to control and make plan for financial matter of the
company.
The cost and volume tools are also important to analyse the breakeven point, in a business a
breakeven point is the level of activity where the revenue and the total cost is at the same level
which means there is no profit or loss in the business. With the help of cost and volume
technique all the financial data can be re considered so that the management of the company can
make better future plan and helps to minimize the loss. Our Case study focuses on the
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importance of cost and volume analysis tool for the financial management of Carnival
Corporation & Plc.
Importance of cost-volume – profit to Carnival Corporation & plc. :
 cost-column-profit analysis will help the company to plan and analyses the future need on
an effective manner.
 The break even will help in ascertained the amount of sells of packages required to reach
a point where fixed and variable cost can be covered.
 It will help the management to make effective decisions regarding the cost and volume of
the packages offered to the tourist.
P 1.2 Pricing Methods
A good mix of marketing strategy and financial analysis can help in setting the pricing
method for tourism sector. As there is no such pricing method for traveling sector because of its
rarely identical location, people and the components for the travelers. The tourism business is
developing its brand and market share, it’s difficult for travelers to get the general pricing from
the star rating accommodation company, so the pricing strategies are important for the tourism
sector as well (Renz, 2016). The pricing strategies of the traveling market is based on
information like the operating cost, type of market, uniqueness of your business, pricing of
competitors etc. the pricing methods of tour ant traveling sectors are:
Rack Rates: The official rates before any discount applied can be termed as rack rates,
which is being provided to the wholesalers and distributed on the brochures. During the peak
holiday season, the rack rates for operation remain same without day to day discounting. For
example: Seaborne cruises is ultra-luxury cruising in smaller ships, rack rates method is
applicable for small cruise ships.
Seasonal Pricing: this method is important as there are different periods of holidays
each year like school holidays, public holidays. Different price level can be covered throughout
the year to cover low and high seasons.
Discounting: To attract more travelers discounting is an important method of pricing.
Discounts are generally given during the off season, but the implementation of discount can
reduce your profitability. Tourists can become habitual of discount
tickets which will make it difficult to charge normal rates or will devalue your
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Product. Aida cruises is a premium quality cruises which applying discounting
Method of pricing.
Packages: Nowadays going on tours by taking packages are very much in trends, tourists
are more focused on packages to meet all their needs of holidays in one price. Packages can be a
good pricing method to attract the tourists without any discounts (Chiwamit, Modell and
Scapens, 2017). For example, Carnival Cruise Line is providing best packages from around three
to eight days, a year-round basis and on a seasonal basis as well.
P 1.3 Factor influencing profit of travel and tour business
Tourism is one of the main sources of revenue and economy for the country. Every
country wants to be the first preference of the tourist to visit. The tour and travel are one the
biggest industry not only for the country but for the global economic development, there are
number of factors which influencing the profit from tour and travel business. Some of these
factors are:
1)Weather condition: Human has no control over the product of nature, the weather
become a factor that affect the tourist to travel in particular country which influence the revenue
of business (Suomala, Lyly-Yrjänäinen and Lukka, 2014). Country with the bad weather such as
snowfall, blizzard no tourist will want to go. During rainy season heavy rainfall hinders tourist
for sightseeing and shopping and there will be threat of flood.
2)Natural Disaster: sometimes a small natural disaster can cause a major impact on the
tour and travel industry. It becomes a major threat for the industry's revenue. Earthquake and
Tsunami are the major natural disasters which can cause loss of lives, serious damage to
properties and infrastructure in the country. For example, the recent fit of tsunami in Japan
causes loss of lives of tourist, prior booking of tourist has canceled or opted different destination
which causes loss to the tour and travel companies. Another example is of Hurricane Maria
which causes huge damage to Carnival Cruise Line ships on the coast of Eastern Caribbean.
3)Terrorism: With increasing threat of terrorism in Asian, European countries, the tour
and travel industries are having huge loss of revenue as tourist will never want to go to war-torn
country. Terrorist attack not only reduce the popularity of the destination but the business of the
industry also gets affected. The recent terrorist attack on the European country like France,
Belgium, turkey has affect the ocean and river cruise reservation. For example, Carnivals Cruise
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line's new Carnival Vista was originally planned to call on Izmir, turkey but the port has been
replaced with Kusadasi, Turkey instead.
4) Decline in sales: At the time of recession the country suffers an overall decline in
GDP, which results in the fall of tour and travel industry of the country. For example: the
Carnival is facing the share market reduction ad bad image on tourist because of the recent
accidents, like sinking of Costa Concardia last year which causes loss of 32 people and a fire in
the engine room of Carnival Triumph which leads around 3000 passengers stranded in middle of
ocean for four days without electricity. These accidents lead the company to cut down its fare
affecting the profit.
TASK 2
P 2.1 Various management accounting information
In the context of Dalata hotel group plc, there are several types of management accounting
information which can be used for decision making such as:
Financial statements: Profitability, cash flow statement and balance sheet are the main financial
statements which are prepared by the company at the end of an accounting year. Hence, by
drafting financial statement concerned hotel group can assess the position of profit, cash,
assets and liabilities.
Cost allocation reports: The primary function of the management accounting is a cost allocation.
The cost allocation word consists of two words cost and allocation, which itself telling the
clear meaning that is allocation of cost. The management accountants make a systematic
report reflecting the allocation of capital in various economic resources (Bromwich and
Scapens, 2016).
Ratio analysis: It may be served as the most effectual tool which in turn provides high level of
assistance in gauging financial performance of the company from several perspectives such
as liquidity, profitability and efficiency. Hence, using such tool manager of hotel group can
assess the extent to which financial position is good.
Budgeting or variance analysis: This is another most effectual tool which assists company in
identifying differences take place in the actual and planned figures. It enables the manager
of Dalata hotel group to get information about the causes due to which business unit failed
to meet desired level of output.
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In order to make sound decision Dalata hotel group plc has to take support of profit and loss
account, cash flow statement, balance sheet, etc. All these reports are helpful in identifying
issues in business and making necessary changes in system. As company is planning to offer new
travel packages to tourists, for that it has to ensure whether it has sufficient finance or not. They
have to look upon their financial position this can help the company in making sound decision
and offering cost effective products to consumers.
P 2.2 Use of management accounting information
This information is necessary for business Dalata hotel groups to ascertain the business
efficiency and it further aids in earning profit by utilising assets accordingly (Department of
Tourism, 2017). Information related to accounting supports manager in review the past activity
and accordingly makes the decision for future through which high profit can be attained.
Information of this nature are in terms of budget forecasting, cost accounting, financial ratios and
variance analysis. If manager doesn’t review the information of this nature, then decisions made
be them can be considered as gambling or assumption.
Management accounting information is helpful for Dalata hotel group plc in making
sound decision. By looking at income statement, managers can compare profitability ratio of the
company of this and previous year. This helps in making necessary changes in cost allocation so
that its revenues can be increased. Relevant cost analysis is the benefit of management
accounting system in order to make sound judgement. Managerial accounting information is
used by company management for the purpose of identifying the price of product to be sole by
considering sufficient profit margin.. It is very important decision to take by the Dalata hotels
groups in order to minimize their cost and maximize their profit.
Furthermore, balance sheet and ratio analysis helps in measuring the gap between
expected and actual cost. By looking at sales in cash flow statement, managers can find out
satisfaction level of consumers. Once the Dalata group determines what services they have to
give to their customers, the company need to serve. Through activity-based costing, decision
related to most profitable customer can be made and hence they will be serve.
Information of managerial accounting supports in making decision pertaining to make or
buy particular component. Through this, cost is ascertain accordingly and profit margin can be
determined (Paramati, Apergis and Ummalla, 2016).
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TASK 3
P 3.1 Interpretation of financial accounts of Dalata Groups of Hotel and Plc
Profitability ratios
Particular Formulas 2016 Ratio 2017 Ratio
Gross profit 181 220
Operating profit 55 87
Net profit 35 68
Sales revenue 291 348
Admin expenses 126 134
Total equity and capital
employed 620 737
Gross profit margin Gross Profits
Sales Revenue
181 62.20% 220 63.22%
291 348
Operating profit margin Operating Profit
Sales Revenue
55 18.90% 87 25.00%
291 348
Net profit margin Net Profits
Sales Revenue
35 12.03% 68 19.54%
291 348
Return on equity Net Profits
Total Equity
35 5.65% 68 9.23%
620 737
Return on capital
employed Operating Profits
Capital Employed
67 10.81% 87 11.80%
620 737
Admin expenses to sales
ratio Admin Expenses
Sales Revenue
126 43.30% 134 38.51%
291 348
Liquidity ratio
Current assets 99 38
Inventory 2 2
Prepaid expenses 5 7
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Quick assets 92 29
Current liabilities 69 83
Current ratio Total Current Assets
Total Current
Liabilities
1.43 0.45
Acid test ratio Quick Assets
Current Liabilities
1.33 0.34
Efficiency ratio
Total assets 985 1101
Cost of sales 110 128
Average inventory 2 2
Trade receivables 15 20
Trade payables 52 64
Asset turnover ratio Sales Revenue
Total Assets
0.29 0.31
Stock turnover ratio Cost Of Sales
Average Inventory
55 64
Debtors collection
period Trade Receivables*365
Sales Revenue
19 days 21 days
Creditors payment
period Trade Payables *365
Cost Of Sales
171 days 183 days
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Interpretation:
Profitability ratios: the gross profit of Dalata has reached 348 from 181 which shoes
that there is an increase in the sales revenues of the firm and reduction or controlling of cost. The
gross profit margin has increased from 62.2% to 63.22%. this resulted in increment of both
operating and net profit margin by approximately 6 % (Annual report, 2017). Return on equity
have increased from 5.65% to 9.23%, which is a result of increment in net profit by 33 and total
equity by 117. the return on capital employed have also enhanced from 10.81% to 11.80%.
With an increment in the sales revenue there is an increment in administrator cost also the
admin cost for 2016 was 126 and this increased to 134 in 2017, but the percentage change shows
a reduction from was 43.30% to 38.51%. this reflects situation of cost controlling by the Dalata
groups of Hotel and Plc. although there is an increment in the administration cost but the cost has
been controlled with the percentage increase in the sales (Tolkach, and King, 2015). The
proportion of administration cost with increased sales revenue have been reduced.
Liquidity ratios: there is a sudden drop in current assets from 99 to 38, which reduced
the liquidity position of Dalata in term of current ration from 1.43 to .045. There is no major
change in prepaid expenses and inventory and will affect the immediate liquidity position of firm
which is measured through acid test ratio. The ratio has fallen down to 0.34 from 1.33.
Efficiency ratio: as reflected in balance sheet the average inventory has remained
unchanged and as per income statement the cost of sales has increased to 128 from 110, which
shows an increment in stock turnover ratio. An increase in total asset of 16 changed the asset
turnover ratio to 0.31 from 0.29. There is increase in both trade receivables and payables of 5 and
12 respectively (Uechi and et.al., 2015). This resulted in increment in both debtors' collection
and creditors payment period.
Dalata have earned good profits in 2017 and is in a better financial position but it does
not stand in a good liquidity position. With an increase in time limit of 12 days to pay creditors,
the debtor collection period has also increased by 2 days.
Conclusion: From overall evaluation, it has assessed that profitability position of Dalata Plc
was good and increased in the year of 2017 over 2016. Further, efficiency aspect of the company
was also improved in 2017. However, business unit needs to take initiatives for making
improvement in liquidity position. Hence, from the investment perspective financial position and
performance of Dalata Plc can said be good.
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Task 4
P 4.1 Sources and distribution of Fund
Introduction: Tourism being main attraction of the nation and also it is a major source of revenue to the
economy of the nation. To flourish tourism a constant effort is needed for its development and
improvement. A major part for this development process is various innovative and new capital projects
undertaken by government. According to a survey conducted in UK the value of capital investment in
tourism industry for year 2018 was expected to be 18.1 GBP.
Different sources of funds:
1. European social funds: funds are allocated for
betterment and development of tourism. One of
such project was started by department of
transport of UK, to encourage more tourists to
travel by rail to see the unexplored heritage
across UK, the project was funded by UK
government for £1 million.
2. National lottery commission: the department
for culture, Media and sports regulates the
database for every grant of national lottery with
the gambling commission. The amount of lottery
winnings is awarded as grant by lottery
commission to be used for good causes such
improvement of cycle storage facilities and
development of theme parks.
3. Regional development funds: a funding by
European union for investment in infrastructural
development. The major development and
improvement was for footpaths and bridleways.
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4. Non-government public bodies:
NGPB is not a government body but it
plays an important role in proceeds of
national government. This body
regulated the funding in projects related
to small scale and heritage development
with the national government.
5. Non-public funding: the sources can be
debt and equity findings. The funds
raised are used to improve the
information system for tourism which
includes proper channels of information
circulation. One of such department is
TIC, [tourist information system].
CONCLUSION
The report concludes Carnival Corporation and Plc being in travel and tourism industry
have a major effect of cost and profit volumes on its business. With the use of various pricing
methods, it is suggested that how it can cut the cost and enhance profit by keeping a pace with
changes in the industry. The Dalata Groups of Hotel is in a good financial position for the year
ended 31st march 2018, with a net profit of £10 million. The company also enjoys a good
liquidity position. Dalata group of Hotel and Plc is in a profitable position but it does not enjoy a
stable liquidity position which can be a problem in near future. For the development of tourism
in nation various capital projects are undertaken and they are funded with governmental and non
governmental sources.
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REFERENCES
Books and Journals
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Management accounting research. 31. pp.45-62.
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Wiley & Sons.
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accounting innovations: The case of economic value added in Thai state-owned enterprises.
Management Accounting Research. 37. pp.30-48.
Suomala, P., Lyly-Yrjänäinen, J. and Lukka, K., 2014. Battlefield around interventions: A
reflective analysis of conducting interventionist research in management accounting.
Management Accounting Research. 25(4). pp.304-314.
Bromwich, M. and Scapens, R.W., 2016. Management accounting research: 25 years on.
Management Accounting Research. 31. pp.1-9.
Wagenhofer, A., 2016. Exploiting regulatory changes for research in management accounting.
Management Accounting Research. 31. pp.112-117.
Paramati, S. R., Apergis, N. and Ummalla, M., 2017. Financing clean energy projects through
domestic and foreign capital: The role of political cooperation among the EU, the G20 and
OECD countries. Energy Economics. 61. pp.62-71.
Tolkach, D. and King, B., 2015. Strengthening Community-Based Tourism in a new resource-
based island nation: Why and how?. Tourism Management. 48. pp.386-398.
Uechi, L and et.al., 2015. Sector dominance ratio analysis of financial markets. Physica A:
Statistical Mechanics and its Applications. 421. pp.488-509.
Online
Annual report. 2017. [Online]. Available through:
<file:///home/user/Downloads/Dalata_AR17_FinancialPostion.pdf>.
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Department of Tourism. 2017. [Online]. Available through:
<https://www.gov.uk/government/organisations/department-for-digital-culture-media-
sport>.
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