Financial Analysis of Travel and Tourism Sector: Funding and Finance

This report delves into the financial management of the travel and tourism sector, exploring the importance of costs and volume, and analyzing pricing methods, using Merlin Entertainments Plc as a case study. It examines direct, fixed, and variable costs, as well as break-even analysis and economies of scale. The report further analyzes market-oriented and marginal costing pricing methods. Furthermore, it investigates factors impacting profitability, such as seasonal variations, social environments, and current trends. Additionally, the report addresses management accounting information types and their application in decision-making. Finally, it provides an interpretation of The Restaurant Group (TRG) Plc's financial accounts, including profitability and liquidity ratios, and examines sources and distribution of funds for capital projects within the tourism industry.

Finance and Funding in the
Travel and Tourism Sector

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P 1.1 Explain the importance of costs and volume in finance management of travel and
tourism business.....................................................................................................................1
P 1.2 Explain pricing methods used in travel and tourism sector..........................................2
P 1.3 Analyse the factors influencing profit for travel and tourism business Merlin
Entertainments Plc..................................................................................................................4
Task 2...............................................................................................................................................5
P2.1 Discussing types of management accounting information in travel business................5
P2.2 Use of management accounting information for decision-making................................6
Task 3...............................................................................................................................................8
3.1 Interpretation of financial accounts of The Restaurant Group (TRG) Plc.......................8
Task 4.............................................................................................................................................10
4.1 Sources and distribution of funds for capital projects....................................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
In this documentation, this assignment describe about to importance of cost and volume
in financial management of travel and tourism using Merlin Entertainments Plc cases. Moreover,
this study define that analysis of pricing method in the travelling sector which could be
beneficial for the organisation and also analyse some elements which make impact on the
profitability of the organisation in efficient form. Apart from it, this assignment define that
variety of management accounting information that can be utilised in Merlin Entertainments in
order to profitable decision making process within the organisation effectively. Moreover, this
study also defines that, interpretation of financial accounts to assist decision making process in
travelling and tourism business in the organisation effectively and assessment of sources and
distribution of funding for the development of capital projection associated with tourism
effectively.
TASK 1
P 1.1 Explain the importance of costs and volume in finance management of travel and tourism
business
Importance of Costs:
Direct cost: Direct cost are concerned to those costs in the organisation which is
straightly associated to the all those prices which is generated from those manufacturing and
services process of particular product and services in the organisation which come in the
expenses of the company (Airey and Chong, 2010). In case of Merlin Entertainments Plc firm,
they also have direct cost generation within their organisational environment effectively as they
providing travelling and tourism services.
Fixed costs: Fixed costs of the company are concerned about to those costs which is
remain constraints at the workplace and never get changes. These costs assist reduction volume
of manufacturing of goods and services at the workplace. Fixed cost values remain same and
these must be paid by the organisation while services travelling and tourism services to their
clients effectively.
Variable costs: Variable cots are concerned with the costs in the organisation which is
related proportion of production output at the workplace. Its value frequently changing in the
company while manufacturing process is being done in the company (Sheldon, P. and Dwyer, L.,
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2010). In case of Merlin Entertainments Plc enterprise, they provide various kind of travelling
and entertainments services within the industry so that variable costs often occur in the firm,
which manager of the company needed to manage it in effective manner.
Importance of Volume:
Break even-analysis: Break-even analysis could be used where the company can get
appropriate margin in the company effectively. A break-even analysis is a calculation point
where the company can get figure of revenue equal to expenses of the organisation. In this
process various kinds of prices level associating to several levels of demands, this might be
helpful for travelling business in order to examine that level at which the business entity is
needed to cover total fixed costs of their total sales in the company effectively (Tribe, 2011).
Economies of scale: Economies of scale refer to the process to minimise the costs of per
unit hat occur from raising total outputs of a product and services. This is defined that each
product in travelling and tourism sector, they need to manufacture their product and services at
large scales to per unit costing can be reduced at the workplace which will productive and
profitable advantage for the organisation within the industry effectively. Professional employees
at the workplace and integrated technological equipments can boost the production volume of the
company effectively. The pricing and volume is most appropriate for the organisation in order to
identify those areas by which is making negative impact on the organisational performance in the
industry effectively. In terms of getting positive outcome in the business entity, they need to find
out the best aggregation between fixed and variable costs which could be cost effective for the
organisation efficiently (Evans, Stonehouse and Campbell, 2012). Cost and volume control could
be more beneficial for the organisation because they can reduce the production and service
provision cost at the workplace and an appropriate costing method could be applied on the
business in terms of reduction of costing of overall operational process of the company.
P 1.2 Explain pricing methods used in travel and tourism sector
In case of Merlin Entertainments Plc organisation, they are needed to proper pricing
analysis of their product and services in the organisation in order to identify their expenses and
available volume of the fund in the organisation. So proper profitability could be identified
within the business environment efficiently. Pricing is directly concerned to the profitability of
the business in the industry and these process must be done carefully by their professionals at the
workplace in order to identify their appropriate margin in the company after selling their existing
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product and services effectively. Multiple variety of pricing method are presented here in order
to proper examination of pricing in the company effectively, which is as following:
Cost oriented pricing method: This is also called cost plus pricing in the company, this is
the most useful pricing method for Merlin Entertainments organisation in order to proper
analysis of their pricing method in the industry effectively. The manager of the company need to
select as aim of specific gross margin that will generate predetermine profitability level to the
company efficiently (Heung, Kucukusta and Song, 2011). Gross margin review about to different
between what is the actual cost of the product and services in the company and at what prices it
is going to be sold in the market. This margin is formulated by a percent of net sales of the
organisation effectively. This pricing method is effortless to apply on the business in order to get
appropriate margin in the business effectively.
Market oriented pricing method: This is a method which is associated with pricing
approach depends on current competition in the market and according to them market pricing t
be set up. This pricing method define about to market oriented pricing which is compares to the
similarities' product and services which is being offer by their other competitors in the market
effectively (Spenceley, 2012). According to the market trends on a particular products and
services, there is specific pricing is to be set up according to the competition level in the market.
While implementation of market based pricing method in the company, this is essential for the
organisation to assess the price sensitivity of their customers on their particular products. After
that, the enterprise's manager need to set up their pricing of according to parks and resort theme
parka and themed accommodation in the market which will give them effective profitable
advantage within the organisation efficiently.
Marginal costing method: Marginal costing also could be more beneficial for Merlin
Entertainments organisation's different products and services in the market effectively. This is an
approach in which variable cost is charged to cost units. In case of marginal costing the cost is
categorised into tow section which is fixed costs and variable costs. The marginal costing
method is grounded on the nature of costs that change with the volume of the outputs of the
company. The organisation can apply this pricing method on their process of pricing examination
in order to get proper growth in the business effectively.
Merlin Entertainments Plc is making plan for the conduct a tour in London and the
company has been set up the price which is 90,000, this amount of money would be charged by
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the company to their customer to organise this tour and other part and resort theme parks services
of the organisation. In this tour package of the company, 1000 will be charged on food products
in the restaurant expenses of the firm. Moreover, some basic facilities charges also included in
this tour (Pike, 2012). The cost oriented pricing approach would be used in this projection and
appropriate margin of Merlin Entertainments company can be computed after examining costing
pricing of all services to the prices of the services which is going to be changed to their
customers in this tour. So the corporation need to set up all product and facilities prices in this
tour according to current market trends of travelling and tourist sector in the UK. This exercises
will give profitable advantage to the company effectively.
P 1.3 Analyse the factors influencing profit for travel and tourism business Merlin
Entertainments Plc
Seasonal variation: Seasonal variation is one of the crucial factor for the organisation
which play important role in travelling and tourism business within the country effectively.
Variety of locations are presented in the country which is mostly explored by peoples. In mostly
people prefer to vision in winter and rainy season so that customer demand in travelling and
tourism sector increased in these seasons (Papatheodorou, Rosselló and Xiao,2010). Hotel and
presort theme part is usually used by the people on specific seasons in the country and many
times by organisation of wedding and other business related parties in the company. So this is
one of the major factor for Merlin Entertainments organisation which influences its profitability
in specific season more efficiently. They need to provide attractive offers at the mostly seasonal
times, so their sales would be raised effectively.
Social environment: Social environment element of the organisation also make impact in
the profitability of the organisation in the industry effectively. They need to provide some
effective services to various kinds of different cultural people who get attracted to utilisation of
travelling and tourism services according to their social event and other cultural festivals in the
country (Henderson, 2010). Variety of social events are being organised by several peoples in the
country. Merlin Entertainments organisation need to furnish effective offer in social events such
as wedding, marriage ceremony, social parties and business parties etc. they select different and
unique location according to requirements of their events. Merlin Entertainments may offer
different attractive part themes and other resort indoor attraction location at various resorts which
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can attract to use of Merlin Entertainments company's services so that it increase the profitability
of the company effectively within the business environment.
Current trends: Variety of trends are being generated in the UK according to demand of
the people. People prefer to celebrate that trends on some occasional time period in the company
effectively. People prefer to celebrate these current trends and events at unique places in the
country, Merlin Entertainments company can identify major current trend in their regions which
is being celebrated by people in the country (Vellas, 2011). At this time, the company can offer
them to make use of their existing and attractive resort and theme park services to them. So
people will prefer ti utilise of their services in effective manner, these activities could increase
the sales and profitability of the organisation appropriately.
Task 2
P2.1 Discussing types of management accounting information in travel business
P2.2 Use of management accounting information for decision-making
Covered in ppt
Task 3
3.1 Interpretation of financial accounts of The Restaurant Group (TRG) Plc
Ratios of The Restaurant Group (TRG) Plc
Financial Ratios Formula 2015 2014
Profitability ratios
GP ratio
Gross profit / Net
sales * 100 18.50% 17.90%
NP ratio
Net profit / Net sales *
100 10.05% 10.55%
Return on assets
Net income earned /
total assets 15.44% 16.28%
Return on Equity (ROE)
Net income /
Shareholders' Equity 26.09% 29.10%
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Liquidity ratios
Current ratio
Current assets /
Current Liabilities 0.28: 1 0.24: 1
Quick ratio
Liquid assets / Current
Liabilities 0.12: 1 0.08: 1
Efficiency ratios
Debtors Collection ratio
Net credit sales /
Average accounts
receivable 396.29 393.69
Stock Turnover ratio
Cost of Goods Sold /
Average inventory 93.71 98.22
Creditors Turnover ratio
Total suppliers
purchases / Average
accounts payable 34.85 34.37
Solvency ratios
Debt equity ratio Debt / Equity 0.12 0.17
Debt to assets ratio Debt / Assets 0.40 0.42
Financial ratios are computed for the company reflecting financial health in the best
possible way. It can be interpreted that financials of TRG Plc is taken into account and ratios are
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calculated with much ease. There are various ratios computed such as profitability, efficiency,
solvency, liquidity in order to assess financial performance of company for past two years which
are 2014 and 2015. Thus, comparison is done with reference to both years. It can be analysed
that profitability ratios of firm is declined in 2015 as compared to previous year. This is evident
from the fact that GP (Gross Profit) ratio was 17.90 % in 2014 which came down to 18.50 % in
next year. This means that TRG Plc is unable to control cost of goods sold in effective manner as
gross profit is declined. It is required that company should control upon it in order to achieve
good quantum of profits with much ease (Fundeanu, 2015).
Furthermore, NP (Net Profit) ratio is good as it was 10.55 % in 2014 and just slightly
decreased to 10.05 % in 2015 financial year. This means that firm is able to control upon its
expenditures in the best possible way. Another ratio is Return on Assets which implies how
effectively firm is utilising assets to generate sales. Ratio was 16.28 % in 2014 and in next year
was 15.44 %. This shows that firm is unable to produce sales by using assets in optimum
manner. Return on Equity is also calculated which shows that company is not utilising
shareholders' investment as ratio was 29.10 % in 2014 and reduced to 26.09 % in 2015 financial
year.
Liquidity ratios such as current ratio was 0.24: 1 in 2014 and increased to 0.28: 1 in next
year. This means that liquidity position is enhanced in 2015. Moreover, quick ratio was 0.08: 1 in
2014 and in next year was 0.12: 1. This shows that TRG Plc liquidity position is increased and
will be able to pay-off extreme short-term liabilities within stipulated time. Efficiency ratios such
as Debtors Turnover ratio is increased which implies that firm is not able to receive payments
from debtors within stipulated time and it is required to implement strict credit policies.
However, stock turnover ratio is good in 2015 as it shows that TRG Plc is able to utilise
inventory quite instantly and generating good output (Novelli, Morgan, Mitchell and Ivanov,
2016).
Creditors Turnover ratio is also good as it was constant in both years and shows that
organisation is making faster payments to suppliers against credit purchases in the best possible
manner. Next category of ratio is solvency such as debt equity ratio which should be less than
0.4 as recommended by market experts. The ratio of TRG Plc is 0.17 in 2014 and 0.12 in 2015
which is good. This means that it is making effective use of debt and equity to finance business
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activities. While, debt to assets ratio is around 0.42 in both years which is steady and company
has assets to pay debt. It can be interpreted that overall financial performance of TRG Plc is
average and it need to implement structured strategies to achieve higher profits in coming years
(Bos, Pressey and Stoeckl, 2015).
Task 4
4.1 Sources and distribution of funds for capital projects
Sources
National Lottery Commission (NLC)-
It is a government body which protects interest of lottery players in the best possible way.
The body ensures that fair lottery should be played in the nation. Interest of lottery players is
safeguarded quite effectively with the regulations provided by NLC. It also constantly seeks
whether resources are completely utilised or not.
European Social Fund (ESF)-
This body looks after whether social benefits are provided to EU (European Union)
people or not. Moreover, it also seeks regarding economic benefits to be imparted to people. In
simple words, employment is provided to citizens. In addition to this, ESF has taken capital
projects which help to allocate resources in optimum way.
Non-Public Funding
Equity financing-
Equity financing is required to company so that it may be able to raise funds in effective
way. shareholders invests money and as such, funds are raised by organisation to achieve daily
operational tasks in effectual manner. Shares are sold by company and necessary funds are made
available to it
Debt financing-
Debt financing carries payment obligation to creditor with principal amount along with
interest on the same. This help business to finance activities in the best possible way. Operational
activities are easily attained with the help of raising debt from creditors.
Various capital projects
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Tourism Information Point (TIP)-
TIP is useful centre which help visitors in extracting information with reference to
destination. In simple words, customer executives provide required information to the travellers
so that they may come to know about new place. Thus, queries of visitors are resolved in the best
possible manner. It assists travellers to explore new place in effective way.
Small-scale Tourism-
Small-scale tourism is another project where government of UK invests capital. This is
done so that rural areas are also explored by the travellers. This help small-scale tourism business
in order to achieve desired revenue which may remain unexplored by visitors. Thus, government
promotes small-scale tourism and as such, profits are garnered.
CONCLUSION
Hereby it can be concluded that finance plays important role in company so that it may
attain day-to-day tasks in effective manner. Cost Volume Profit analysis also helpful to company
in achieving desired output with much ease. Moreover, there are various factors which affects
profitability aspect of travel and tourism business quite adversely. In relation to this, profits of
business is affected as travellers refuses to visit destinations. Financial ratios are also calculated
which help to assess financial health of organisation in the best possible manner. Moreover,
performance of organisation is easily clarified whether it is earning profits or not. Management
accounting information is quite helpful to management as it assists in decision-making. This is
required so that business may become internally strong. Furthermore, there are various sources
and distribution of funds in travel and tourism business. Various capital projects undertaken by
government are required in order to strengthen tourism in rural areas as well. Thus, it can be
concluded that finance is required in tourism business to effectively finance its activities.
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Tribe, J., 2011. The economics of recreation, leisure and tourism. Routledge.
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Through: <https://bizfluent.com/about-6642170-role-accounting-management-decision-
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