Financial Management and Funding Strategies: Travel and Tourism Sector

This report provides a detailed analysis of finance and funding within the travel and tourism sector, focusing on the role of finance in the success and growth of businesses in this industry. It explores various pricing methods suitable for the sector, emphasizing the importance of cost and volume in finan...Read More

Finance and Funding in the
Travel and Tourism Sector

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1. Importance of volume and cost in management of finance.............................................1
1.2. Different pricing methods that will be used in travel and tourism sector.......................2
1.3 Factors by which profits of business will be affected......................................................4
TASK 2............................................................................................................................................5
2.1 & 2.2 ................................................................................................................................5
..........................................................................................................................................................7
........................................................................................................................................................20
TASK 3..........................................................................................................................................24
3.1 Interpretation of financial statements.............................................................................24
TASK 4..........................................................................................................................................30
Leaflet...................................................................................................................................30
..............................................................................................................................................31
CONCLUSION..............................................................................................................................31
REFERENCES..............................................................................................................................32

INTRODUCTION
Finance is an essential requirement for every business organisation to survive in the
competitive market world. Company can successfully operate its business and implement various
policies and strategies only when they are in good financial position. For this, company must
analyse the cost incurred in business activities. The main purpose of this report is to provide role
of finance in travel and tourism sector and how funds influence their success and growth. There
are various pricing methods which should be used by Travel and Tourism sector discussed in this
report (Blanke and Chiesa, 2013). Management accounting information which is helpful in
making an effective decision is also covered in this report. For this, company must use various
tools in order to interpret financial accounts. Poster will also be made which is related with the
development of capital project where the funds will be allocated.
TASK 1
1.1. Importance of volume and cost in management of finance
Volume and cost play an important role in managing the finance in Merlin Entertainment
business. The management is held responsible to identify the sources from where the funds are
raised. In every business, it must be required to analyse cost which is incurred in business
activities. Basically, cost is divided into two parts which is fixed and variable. Fixed cost is one
which not made any impact on the business activities undertaken whereas variable cost is one
which is affected with the changes in scale of business. In order to identify the cost, it is
important to first recognise the volume which includes the number of units produced by an
organisation within limited period of time. There is a direct relationship with cost and volume
which means that the cost will be increased when the volume increases and vice-versa while
production activities.
Thus, it is important for Merlin entertainment to have adequate funds which help them in
incurring cost in business activities without facing any difficulties. As company deals in resorts
which attract a large number of visitors thus, it requires huge amount of cost to invest. As if the
economic condition of country rises then the cost of company also increases which requires huge
amount due to which the company should arrange funds from different sources (Peeters, and
Dubois, 2010). During inflation, the price of accommodation and travel expenses goes high due
to which less number of visitors are attracted and show less interest to visit such country where
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they should spend huge amount. Therefore, in order to attract them, Merlin Entertainment needs
to adopt various promotional activities and provide attractive and affordable packages to the
public which affects and influence the interest and behaviour of visitors to visit such tourist
places.
Due to high competition, company may fail to attract a large number of customers due to
which they are unable to cover its actual cost and faces losses. Thus, company must follow
effective ways which help them in recovering their expenses and minimises the usage of funds.
Company is also required to focus on various sources from where they manage to collect funds.
The manager should select such sources from where they should pay less interest on amount they
received. It is also required to allocate such funds in different departments where the chances of
getting positive outcomes will be more.
Therefore, it is important for Merlin Plc to determine the impact of both cost and volume
in order to achieve growth and success in near future. It is important for the manager of Merlin
Plc to make an effective decision after analysing the cost and volume which result in getting
huge profit. For this, cost volume analysis should required to undertaken which is helpful in
identifying the effect of cost and volume on the income of the company. Another technique
which should be adopted by the manager of company will be Break-even period or loss which is
helpful in attaining the situation where they can neither earn profit nor loss. It helps company in
maintaining optimum position in the market (Chen, 2011). Therefore, it clearly indicates that
volume and cost as well as profit; all are interlinked with each other and thus, should be
considered such by Merlin Entertainment in order to achieve profitability.
1.2. Different pricing methods that will be used in travel and tourism sector
It is important for Travel and tourism business to set prices for their various packages in
an effective manner that will attract a large number of customers as well as earn huge profits. For
this, company must be required to consider fixed and variable cost. In fixed cost, the expenses
incurred by company will not be changed and they only incur expenses in the form of fixed
assets they acquired to operate business whereas in variable cost, company can incurred different
cost in day to day operations of business. After ascertaining both the costs, manager of company
should add such cost and find out the exact value which help in identifying the total value
charged from their customers on per person basis. While determining the cost, the company
should add some amount of commission in total cost which help in increasing their total
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earnings. There are various factors which will be considered while determining cost for services
the company provide which are as follows:
Competition: As there is huge competition in travel and tourism business due to which
the Merlin Entertainment should carefully determine the cost which will be charged from their
customers. For this, the manager should first analyse the price their competitors charged for their
services and accordingly, fix an effective and competitive price which help them in attracting a
large number of visitors and attain huge profit. Therefore, it is important to make an effective
strategy relating to packages they offered to customers which enhances the interest and
behaviour of customers (Erkuş-Öztürk and Eraydın, 2010). There are many competitors such as
Club Corp and Royal orchid’s hotels which give a tough competition to Merlin Entertainment.
Therefore, it is important for company to take corrective actions in order build a strong image
among competitors.
Target market: Merlin Entertainment should focus on targeting new market in order to
expand their business and attain large customer strength. For this, company first advertise the
services they offered at particular price and accordingly, influence behaviour of visitors to visit
at their destinations rather than their competitors. Company may search market which attracts
different groups of people such as children, adults or families which will help in generating huge
profit.
Demand in market: The demand also affect company's profitability due to which the
company must need to put efforts in meeting such demand in order to achieve growth and
success. For example: if the demand of certain products or services rise and the customers are
like to pay more amount to get that product then the company has an opportunity to increase the
prices of products and services which help them in generating huge profits. This will increase the
sales of company and earn huge income (Heung, Kucukusta and Song, 2011). Merlin
Entertainment also has another option to reduce the prices of their products and services in order
to attract a large number of customers. For example: the demand will be low and high in summer
season therefore, company must put their maximum efforts in such situations.
Break even analysis: It indicates that company should charge the prices on their services
which they can neither face loss nor profit. It is an optimum situation where the company should
fix the prices of their packages in such an effective manner that will help them in attaining strong
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position. Therefore, Merlin Entertainment needs to consider optimum cost that will help them in
avoiding the situation of losses.
Cost plus pricing: It is also considered as another method which allow company to add
certain percentage of profit to actual cost of the product which they charged from the customers.
Along with this, there are various methods which should be adopted such as inguinal and
absorption costing, top down method and return on investment. Merlin entertainment must
considered all these methods in order to fix an effective price through which the profitability of
company also increased.
1.3 Factors by which profits of business will be affected
Every business has main objective is to earn profit and it can be possible only when they
charged an effective price on the products and services from the customers. After deduction of
the cost incurred related to manufacturing and marketing expenditures, salaries etc. the
remaining amount will be called as profit (Scanning the Environment and PESTEL Analysis.
2016). Thus there are various factor which influence and affect the profit of company either in
negative or positive way therefore the manager of Merlin Entertainment need to consider and
examine such factors and accordingly implement corrective actions in order to attain strong
position in competitive market world. In travel and tourism sector includes various businesses
such as restaurants, hotels, travel agencies etc. through which they can earn huge profits. The
major factors which need to be consider are as follows:
Political factors: In this factors, government's rules and standards play an important role
in affecting and influence the profits of business. For example, if government imposed higher
rate of taxation of tourism services reduces the net profit of company whereas if government
provides subsidy then it will help company in generating huge profits.
Economic environment: It is related with economic factor which can also affect the
profit of the company. For example, if GDP of UK is increased then the value of money should
also increases due to which the purchasing power will also increases which affect the profit of
travel and tourism business in negative way as less number of people may show their willingness
to visit at such place (Soliman, 2011). The customers prefer to visit at such places where their
country's currency gets more value and therefore the economic environment make both negative
and positive impact on tourism business and its profit.
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Seasonal variations: Mostly visitors are likely to visit during summer seasons which
generated huge profit of tourism business. And similarly in winter season they suffered.
Therefore variation in seasons make huge impact on the profit of tourism business. Therefore
Merlin entertainment should also suffer and earn profit on seasonal basis.
Technological factors: As there are various technologies which is introduced every year
which need to be adopted by travel and tourism business in order to achieve growth and success
in competitive market. Therefore adopting new technologies reduces the profit of company and
on the hand they can able to attract large number of customers which indirectly bring profits to
company (Moutinho, 2011).
TASK 2
2.1 & 2.2
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TASK 3
3.1 Interpretation of financial statements
The restaurant group is one which deals in restaurant business and has over 500 branches
across worldwide. In this section, the financial statements of this restaurant will be carefully need
to analysed through using different ratios (Xiang, Magnini and Fesenmaier, 2015). Company
should focus on grabbing opportunities which help them in achieving growth and success. For
this the company must evaluated their financial performance through analysing following
statements:
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Particulars 2015 2016
Current ratio 0.28 0.36
Net gearing ratio 11.18% 15.12%
Net profit Ratio 14.24% 40.75%
Acid test ratio 0.23 0.32
Return on capital employed 32.44% 111.84%
Working notes:
1. Current ratio indicates the difference between the current assets and current liabilities.
This define the relationship between them. As per above it found that company's current
ratio in 2015 is 0.28 and in 2016 it increases to 0.36 (Irudeen and Samaraweera, 2013).
2. Net gearing ratio: It can be calculated as dividing total debt by shareholder equity. As per
above, the company attain weak financial position in 2016 as compared to year 2015.
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3. Net profit ratio: It can calculated as dividing net profit by net sales (Papatheodorou,
Rosselló and Xiao, 2010). As per above the company has generated huge profit in 2015
as compared to 2016.
4. Acid test ratio: This is the ratio which can be calculated as dividing liquid assets by
current liabilities.5. Return on capital employed: Earning as an interest on the invested amount is known as
return on capital employed. As per above ROI in 2016 is higher than ROI in 2015 which
indicates that the company earn more amount in 2016 as an interest on their investment.
Current ratio: It is mainly used to identify the capabilities of company to repay its debts
and liabilities. The standard ratio is 2 which means the company must have current assets twice
of their liabilities. Current ratio is also used to roughly estimate the financial stability of
company. In the given case, the ratio has been rises from 0.28(2015) to 0.36(2016) it indicates
that the company is having good asset position but also required a improvement as it has not
reached to the standard ratio.
Quick ratio: As per the above the quick ratio were 0.23 in 2015 and has reaches to 0.32
on 1st January which means the company is successfully growing and also have good cash
reserves. From this it has been interpreted that company has in strong financial position ton pay
its current liabilities of time that will build brand image in competitive market world (Morgan,
2004).
Return on capital employed: It refers to the amount which is invested in business in
order to get huge amount in return. This indicates that the amount invested must be utilised in an
optimum manner. As per above, this ratio has rises from 32.44% to 111.84% which means they
are utilised their available resources in profitable manner.
Gearing ratio: This ratio indicates that the company must need to maintain its equity as
compared to debts. As per above reports it has rises from 11.18% to 15.12% which means that
the debts of company are continuously increasing which is not good sign for company. For this
the company must need to control its borrowings.
Net profit ratio: It indicates the net profit of company after deducting all expenses
incurred. Through this ratio company can able ton know its actual financial position. As per the
above reports it has been found that profits of company are continuously rises from 14.24% to
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40.75% which shows that company can successfully achieves its desired objectives(Dickinson
and Lumsdon, 2010).
It will clearly indicated from above cash flow statements that cash balances of company
is increases through which they are capable of implementing new plans and strategies. Thus it is
important for company to invest their funds in such areas where they get huger amount in return.
This will help company in achieving growth and success in near future.
It also has been said from above financial statements that currently business has operated
its operation in an effective and efficient manner through which they can attain strong position in
competitive market (Huang and et. al., 2013). This also has been observed that the performance
of company is good in 2016 as compared to 2015. It can also be said that the ratios of company
are providing good result in 2016 as compared to 2015 thus the overall financial position of
company is good.
TASK 4
Leaflet
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CONCLUSION
It has been concluded from the above report that financial resources is essentially for any
business in order to achieve desired goals and objectives in an effective and efficient manner. In
case of travel and tourism business the funds are essentially required in developing heritage sites
and other technologies used by them to attract large number of customers. It is also important for
them to set an effective price which help them in generating huge profits as well as attain large
customer strengths. It is also required to allocate funds to invest funds in such areas where they
get maximum amount in return.
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REFERENCES
Books and Journals:
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Online
Scanning the Environment: PESTEL Analysis. 2016. [Online]. Available through:
<http://www.business-to-you.com/scanning-the-environment-pestel-analysis/>.
[Accessed on 14th November, 2017].
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