HND Travel & Tourism: Finance and Funding in the Tourism Sector

This report provides an analysis of finance and funding within the travel and tourism sector, focusing on Merlin Entertainments plc and The Restaurant Group (TRG) plc. It examines the importance of cost, volume, and profit (CVP) analysis for Merlin Entertainments, evaluating different pricing methods used in the tourism sector and factors affecting Merlin's profitability, such as currency fluctuations, government interferences, and travel trends. The report also interprets the financial accounts of TRG Plc, utilizing ratio analysis to assess the company's financial performance and efficiency. Additionally, it touches upon management accounting information and its role in decision-making, concluding with a discussion on sources and distribution of funding for capital projects in the tourism industry. This document is intended to provide students with an understanding of finance and funding principles applicable to the tourism sector.

FINANCE AND FUNDING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Importance of cost and volume in finance management of travel and tourism....................1
1.2 Evaluate pricing method used in travel and tourism sector..................................................2
1.3 Factors effect profit for Merlin Entertainments....................................................................3
TASK 2............................................................................................................................................5
2.1 Different management accounting information for Merlin Entertainments.........................5
2.2 Management accounting information as decision making tool.............................................5
TASK 3............................................................................................................................................5
3.1 Financial accounts' interpretation for TRG Plc.....................................................................5
TASK 4............................................................................................................................................8
4.1 Sources and distribution of funding for development of capital projects.............................8
CONCLUSION................................................................................................................................9
REFERENCE.................................................................................................................................11

INDEX OF TABLES
Table 1: Ratio analysis for TRG PLc...............................................................................................6

INTRODUCTION
Finance refers as provision of money in which study of investment and money
transaction is created. However, funding is a process for providing fund from government and
organisation for entity's business operations. The present report is based on understanding
finance and funding concept for Merlin Entertainments plc and The Restaurant Group (TRG)
plc regarding further business operations as well improving their services. Merlin
Entertainments is wide spread tourism sector organisation of UK that provides travelling and
accommodation services to a million customers globally. While, TRG is of several restaurants
and pubs across UK provides food and accommodation facilities to various tourists. In this
regard, cost and volume management as well pricing methods used in tourism are to be
described. Including this, varieties of management accounting information and their
importance for decision making is to expressed through this assignment. However,
interpretation of financial accounts of TRG can be explained that affects further business
operations. Thus, students are able to understand significance of finance and funding in
tourism sector that remains linked with further operations through this report.
TASK 1
1.1 Importance of cost and volume in finance management of travel and tourism
Merlin entertainment plc focuses on giving memorable experiences to its travellers for
establishing its leadership, the company regularly measure and maintain its cost, volume and
profits (CVP). Further, the continuous check over CVP analysis, provides Merlin easy
monitoring and control over its cost related expenses in order to increase net turnover with
customer satisfaction (Bakand, Hayes and Dechsakulthorn, 2012). In addition to this, CVP
identifies changes in cost and volume which affect the operating income and profits of Merlin
entertainment Plc. Besides, it is important to maintain the record of financial transaction
within the firm to evaluate various aspects like performance of business which helps in
effective decision making. CVP analysis is important for Merlin entertainment as it helps the
company in calculating:
Direct Cost: Direct cost of the travel and tourism sector includes the cost which are
paid for purchasing direct expenses, labour and material.
Indirect cost: Indirect cost are also known as overheads which are indirectly related
with the business activities like cleaning cost, energy cost, property rents, administrative

salaries, telephone expenses, basics utilities, accounting and legal expenses (Cheng, Ioannou
and Serafeim, 2014). This cost also helps in calculating the expenses done on security and
advertising by merlin entertainment plc.
Fixed cost: It is the cost which do not increase or decrease with the changing expenses
of tourism company. Cost paid by the organisation remain constant for all events like cost
given for insurance, depreciation, rent etc (Midrigan and Xu, 2014).
Variable cost: It is the cost of the company which fluctuates with the changes in
selling unit of the organisation. Merlin entertainment Plc faces the basic change in sales
volume which is recorded by variable cost.
The accounting manager of the company uses specific formula to calculate costs
which are:
Variable cost= Total quantity of output* variable cost per unit of output
Total cost= Fixed cost+ (variable cost*quantity)
Break even analysis: It is used by the firm for identifying the point, when to recover
their incurred cost. Merlin entertainment Plc use this to measure where the business has
earned adequate level of profits (Battiston and et.al., 2016). The manager uses this because it
is effective enough to identify the cost which can easily meet their expenses.
Break even point= Fixed cost/ (Sales price per unit- variable cost per unit)
Economies of scale: The firm accomplish economies of scale when it provides
services at same amount of fixed costs.
 CVP analysis enables the organisation in assuming the costs and profits for different
events and activities.
 It helps the travel and tourism sector in setting flexible budgets (Bartram, Brown and
Waller, 2016).
 It leads to effective and accurate classification of fixed and variable costs.
 Manager formulates policies by analysing the effects on costs and profits.
1.2 Evaluate pricing method used in travel and tourism sector
Manager uses pricing methods to set prices in travel and tourism sector because it is
the basic strategy which attracts travellers and manages profitability of business (Segal,
Shaliastovich and Yaron, 2015). Merlin entertainment uses different pricing methods to set
prices of products and services which are as follows:

Cost plus pricing method: This method helps the manager in including both the costs
that are variable and fixed cost. Merlin entertainment Plc uses this method, because it helps
the company in determining its profits (Pasquariello, 2014). Further, after making assumption
manager can decide that at what price the company should offer its products and services in
order to serve customer satisfaction at affordable prices.
Skimming pricing method: The firm uses this method because it helps in earning
maximum profits in short span of time. In this, professionals offers goods and services at the
highest price possible which help the company in recovering their incurred cost. This
skimming strategy is basically used by the market leaders as they already have loyal
customers (Subrahmanyam and Titman, 2013).
Penetration pricing method: This pricing method is used by small firms, in this the
company offers the lowest prices possible for its goods and services to attract maximum
number of customers. Moreover, organisations earns less profit but this method is useful in
garbing the market and its buyers (Murphy, 2016). Merlin entertainment PLC uses this
technique because its main motive is to become the leader of travel and tourism sector which
can only be possible by first attracting more and more travellers by offering services at lowest
price possible.
Per person pricing method: This technique is used by firms who are entering into
new market. There aim is to segregate travellers according to their demands. It helps the
company in understanding the needs and wants of new market. Further, the manager uses this
method and divide its customers according to age, culture etc (Nixon, 2015). and offers them
the attractive prices accordingly and sets schemes as per the market trends.
1.3 Factors effect profit for Merlin Entertainments
Merlin Entertainments which is wide spread organisation across UK aims to create
innovations in services provided by it to a million tourists worldwide. In accordance to this, it
sets target to increase revenue and profitability. It influences increasing in demand for
tourism services and its profit earning capacity. For this purpose, decision maker analyses
different factors which remains suitable for profitability and competitive strategies of entity
(Footman, 2014). For example; currency fluctuation, government investment, travel trend

etc. In order this, some significant determinants that play role in profitability of organisation
can be understood as below: Currency fluctuations: Merlin Entertainments provides services to different countries'
tourists who come for different purposes. For instance; education, entertainment,
research and so on. Therefore, during transaction of services and money, changes in
currency price get impacted. For example; converting dollar into pound, additional
incurred charges are obtained that affects revenue and profitability of entity (Vejzagic
and Zarafat, 2014). Thus, changes in currency price and country's policy regarding
exchanging money get impacted on profit earning capabilities of entity. Therefore,
dynamics in currency exchange rates generates profit or loss for organisation to
provide its services to number of visitors get facilitates. It is considered that changes
in currency exchange rate is an external environmental factor which also affects
economic sector the country. Hence, changes in currency rates impacts profitability of
entity which influences further operations and competitive strategies on large scale. Government interferences: Merlin Entertainment is a public sector tourism services
provider of UK whose operations are affected with nation's governance. In this regard,
organisation requires to be followed on rules and regulations of country's government
in relation to tourism services. Therefore, decisions related to supplement of services
are made according to restrictions on business operations (Gizaw, Kebede and
Selvaraj, 2015). Including this, setting interest rates, foreign exchange rate and
currency exchange rates impact on profitability of entity. However, varieties of tools
and strategies are to be implemented which remains suitable for fund allocation and
operating business's activities efficiently. Apart from this, it is considered that
government prepares budget and strategies to be implemented related to tourism
services and build up tourists' trust towards its services. Hence, government
interferences as decisions and strategies regarding tourism services for social welfare
impact on profitability of organisation as well further implementations.
 Travel trend: It is interlinked with tourists' attraction towards services provided by
Merlin Entertainments and its profitability and competitive advantages for long time
periodicity. In order to this, travel trend involves attracting visitors and potential to

increase profit earning capabilities of organisation (Gizaw, Kebede and Selvaraj,
2015). In accordance to this, several trends are applied for attracting visitors that
affects demand for services produced by organisation (Finance and Funding, 2016).
However, implemented strategies and meeting visitors' expectation are considers as
current trend for tourism services also contributes in economic, production and other
sectors of the nation also remains able to increase its efficiency at high level. Thus,
travel trend and mind set for providing tourism services impacts on profitability and
competitiveness of organisation on large scale.
Therefore, above mentioned tools impact on profitability of Merlin Entertainments plc
that provides travelling and accommodation services to different countries' people on large
scale. In addition to this, various factors and tools are impacted for further years' operations
and profitability to maintain and sustain attraction of tourists towards tourism services
effectively (Adrian, Etula and Muir, 2014).
TASK 2
2.1 Different management accounting information for Merlin Entertainments
Enclosed in attached ppt.
2.2 Management accounting information as decision making tool
Enclosed in attached popt.
TASK 3
3.1 Financial accounts' interpretation for TRG Plc
The Restaurant Group plc is one of the largest well known entity of UK which
provides food and accommodation services to a million customers of the world. It operates
around 470 restaurants and pubs in different across UK as well in other countries globally
(Delis, Hasan and Tsionas, 2014). As per the given case scenario, entity is planning to create
innovations in its tourism services including travelling and accommodation. Therefore,
decision maker of the organisation analyses its financial performance by using tools like; ratio
analysis, profit and loss account etc. On the basis of which, further different ideas can created
for improving profitability and competitiveness effectively. In this regard, financial
performance of TRG Plc can be identifying by analysing following ratios for 2015 and 2016
as:

Table 1: Ratio analysis for TRG PLc
Ratio Formula 2015 2016
Profitability ratio
Revenue 1278 1457
Gross profit 1085 1230
Gross profit margin (Gross profit/ revenue)*100
84.898278
5603
84.420041
1805
EBIT 394 454
Total assets 2735 2958
Total capital employed (Total assets-current liabilities) 2469 2606
ROCE (EBIT/capital employed)*100
15.957877
6833
17.421335
3799
Liquidity ratio
Current assets 260 340
Current liabilities 266 352
Current ratio (Current assets/current liabilities)
0.9774436
09
0.9659090
909
Stock 26 36
Quick ratio
[(Current assets-stock)/current
liabilities]
0.8796992
481
0.8636363
636
Efficiency ratio
COGS 794 910
Inventory/ stock turnover
ratio (COGS/Inventory)
30.538461
5385
25.277777
7778
Account receivables 16 20
Debtors' receivables
period
(Accounts receivables/revenue)*365
days
4.5696400
626
5.0102951
27
Account payable 31 41
Creditors payment period (Accounts payables/COGS)*365 days
14.250629
7229
16.445054
9451

Profitability ratio: It includes gross profit, net profit margin and return on capital
employed ratios by which profit earning capacity of TRG can obtained. However, ratio
analysis for organisation can be expressed as below:
 Gross profit margin: It is determined by percentage of gross profit and earned
revenue of the company. However, sales turnover of TRG in 2015 is 1278 while in
2016, it is 1457 which is quite effective. It is because of increasing in demand for
tourism services that affects profitability and competitiveness of entity. In this regard,
gross profit margin in 2015 is 84.89% while in 2016, it is 84.42% due to
competitiveness and decreasing in profitability. Therefore, it is recognised that
producing tourism services in 2016 is better than in 2015 so productivity of entity is
enhanced which remains good for its further operations.
 ROCE (Return on capital employed): It is evaluated by percentage of EBIT to
capital employed through which organisation's potential is identified. As per ratio
analysis and its interpretation, it is identified that this ratio has increased in 2016 by
2% which is effective for its further operations. However, ROCE in 2015 is 15.95%
while in 2016, it is 17.42%. Therefore, it will be influence in future time period
efficiently.
 Current ratio: It is liquidity ratio which represents cash and liquidity position of
TRG is calculated by ratio of current assets to current liabilities. As per the ratio
analysis, there is no great difference between both of the ratios. However, in 2015, it
is 0.97 and in 2016, it is 0.96 which is moderate in comparisons. An ideal current ratio
of any entity is considered as 2:1. Therefore, TRG requires implementing strategies
for its effectiveness so that entity's productivity and profitability can be enhanced in
future time period effectively.
 Quick ratio: It is evaluated by [(current assets-stock)/ current liabilities] which
presents liquidity position of TRG also influences further tourism services. On the
basis of analysing this ratio, several ideas are generated for increasing productivity
and profitability of entity. However, by comparing given ratios of the organisation, it
is evaluated that in 2016, quick ratio is get reduced. It is because of management of
business operations. By comparing both years, there is moderate change in ratio that

can be managed also effective strategies can implemented for 2017. It is forecast that
in further years, liquidity position of entity would be enhanced and all business
operations can manage efficiently.
 Inventory-turnover-ratio: It shows return on inventory by which organisation's
inventory tools and turnover can analysed. It is proportion of cost of goods sold to
inventory of the organisation. However, in 2015, this ratio is 30.53 while, 2016, its
value decreases to 25.27 that required to increasing its inventory therefore proper
management can be obtained that affects productivity and profitability of organisation.
Therefore, it is essential for entity to prepare strategies for balancing the supplement
of tourism services.
 Debtors' receivable ratio: It is determined through proportion of account receivable
to revenue over 365 days. As per this ratio analysis, it is evaluated that in 2015, its
value is 4.56 while in 2016, this value is of 5.01. Therefore, TRG group should
prepare strategies for debtors' receivable to managing all business operations and
improving productivity as well profitability of entity at high level.
 Creditors' payment period: Through this ratio analysis, payment to creditor time is
interpreted by which efficiency of TRG is analysed. In this regard, creditors' payment
period in 2015 is interpreted as 14.25 while in 2016, it is of 16.44. It is because of
inefficient fund and imbalanced distribution of tourism services. Therefore,
organisation should focus on this timing therefore, further business operations can run
smoothly.
TASK 4
4.1 Sources and distribution of funding for development of capital projects
Merlin entertainment plc focuses on giving memorable experiences to its travellers for
establishing its leadership.
To regulate smooth functioning of operation the firm needs proper flow of funds
which are availed by many public and private sources.
Public sources of funds of Merlin entertainment Plc are as follows:

 Department of Culture: These are the association which support travel and tourism
sector so these departments provide loans and grants to merlin entertainment Plc to
establish its market.
 Media and Sport. For example, National Lottery Commission: These
commissions supports tourism so it provides funds for limited time span.
 Office of Deputy Prime Minister like European Social Fund: These funding
committee raise funds through various activities and events and then again provides
the same to Merlin entertainment Plc
 Regional Development Fund: The organisation gets lot of help and support from
these funding units. Moreover, these funds are for short term and help the company in
establishing its leadership in market.
 Sources and disbursement of funding through the Non-Governmental Public
Bodies (NGPB): The funds by these non governmental bodies helps the firm to
accomplish its goal and serve customer satisfaction at affordable prices.,
 Private sources of Merlin entertainment Plc are as follows:
 Equity funding: It is important for the company in long term capital investment.
Equity funds are only suitable for the investors are ready to bear risk. Besides,
investors who want fast growth of their business do not prefer equity shares as it keeps
on fluctuating.
 Debt funding: It plays a vital role in raising long term capital. Debentures helps the
company in raising funds. Company pay off debt in fix period like six months or one
year.
 Government funding: Grants given by the government to the firm to carry forward
its business activities in new market or to establish its position in market.
 Bank lending: Borrowings from the bank plays a major role in financing the business
activities. Besides, borrowings from the bank are for short term or for medium term
like, overdraft or short term loan.

The travel and tourism company follows adequate and suitable method of setting
prices in order to meet the demands of travellers and earn appropriate share of funds.
CONCLUSION
As per the report, it is concluded that finance and funding is essential for decision
making and effectiveness of Melin enterprise and effective tourism services. In this regard,
different tools are described for better quality services of entity. Including this, financial
performance of TRG is presented by using ratio analysis as determining different ratios by
which further implementations can be obtained. In addition to this, different management
accounting information as well their significance are understood that lead to increase its
effectiveness at higher level. However, different aspects of finance and funding are expressed
through this report for effective decision making regarding business operations in further
years systematically. Therefore, it is considered that finance and funding are crucial for
economic balance and improving financial position of the entity.

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Online
Finance and Funding. 2016. [online]. Available through: <http://www.un.org/esa/forests/wp-
content/uploads/2015/06/brief_funding_tomaselli.pdf>. [Accessed on 24th July 2017].