Travel & Tourism Sector: Financial Analysis and Funding Strategies

This report provides a comprehensive analysis of finance and funding within the travel and tourism sector, focusing on the UK market. It examines the importance of costs, volume, and profit in management decision-making, utilizing examples from Carnival Corporation & plc. and Dalata Hotel Group Plc. The report further explores management accounting information as a decision-making tool, including training packages and financial statements. It interprets financial accounts and investigates various sources of funds, both public and private, available to businesses in the travel and tourism sector. The analysis covers pricing methods, factors influencing profitability, and the use of management accounting information for strategic decision-making within the industry.

2 Finance and Funding in the Travel and
Tourism Sector
1

Contents
Introduction................................................................................................................................3
TASK 1......................................................................................................................................4
LO1- Importance of costs, volume, and profit for management decision making....................4
Task 2.......................................................................................................................................10
LO2 Use of management accounting information as a decision-making tool.........................10
Task 3.......................................................................................................................................21
LO3 Interpret financial accounts..............................................................................................21
Task 4.......................................................................................................................................25
LO4. Sources of funds in travel and tourism sector (public and private)................................25
Conclusion................................................................................................................................27
Bibliography.............................................................................................................................28
2

Introduction
The given report has been prepared, to take into consideration particularly the tourism sector
currently being prevalent in the UK region. As such, an attempt has been made to gain a
detailed understanding of this particular sector. Also, this sector, being a multi-faceted,
involves various aspects and throws light on the dynamic characteristic of this tourism sector.
There is no doubt in the fact that this sector has seen many parameters and has achieved
many improvements during the past years but still, it is far behind the desired position and
share in the relevant industry. Since this sector is broad enough it is advisable to understand
this sector with the help of leading corporations operating and functioning in the given sector.
Thus, two major business enterprises belonging to tourism sector namely Carnival
Corporation and Dalata Hotel Group Plc has been taken.
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TASK 1
LO1- Importance of costs, volume, and profit for management decision making
Introduction
This task explains costs and volume and its importance in Carnival Corporation & plc. Then
the different pricing methods have been discussed along with factors which influence profit
for travel and tourism sector. The aim of the task is to explain the effect of these factors on
management decision making in Carnival Corporation & plc.
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P1.1 Importance of costs and volume in financial management
Cost
Cost is the amount paid or the expenses incurred on manufacturing a good or rendering a
service by Carnival Corporation & plc. These costs are a necessary part of the production
process. The cost includes payments made to the factors of production in the terms of rent,
interest, and wages. These payments allow the producer to carry out the process of production
(DRURY, 2013).
Direct costs
All the costs which are directly incurred to produce a good or service are called direct costs.
This includes fuel expenses, salaries of staff, etc. The analysis of these costs helps the
management of Carnival Corporation & plc.in analyzing the costs which are actually incurred
in the production process (DRURY, 2013)
Indirect costs
The costs which are incurred after the product is manufactured and is ready to be used by the
final users. These are the costs of administration and selling. It includes warehousing,
advertisement, etc. These costs are necessary for ensuring that the product manufactured is
able to find buyers in the market (DRURY, 2013).
Fixed costs
The costs of production which remain constant at the different level of output that is these
costs do not change with the change in output. These are rent, license fees, etc. which remain
constant as the production is being increased by using more variable factors rather than using
any fixed factors (DRURY, 2013).
Variable costs
Variable costs are those costs which increase with the level of output as the output increases
these costs also increases. The example of these costs are salaries, electricity expenses, etc.
As the manufacturer is increasing the production using more and more units of variable
factors, the variable costs increase with the level of output (DRURY, 2013).
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Cost and volume analysis will help Carnival Corporation & plc. in controlling costs and
ensuring that the production is at the right level that is the volume is kept at a level which will
keep the costs at lowest and ensure revenue is highest. This will help the firm to maximize its
profits. This analysis ensures that the production is increased at a pace where the company is
able to earn profits rather than losing the existing profits. This analysis also helps in making
future forecasts regarding increasing the production level (Hall, 2012).
The important criteria for analysis of volume are -
Economies of scale
The term economies of scale are used in reference to production level. When the producer
raises the production activity he goes through several stages these include increasing returns
to factor, diminishing returns to factor and negative returns to factor. When increasing the
production level help the manufacturer in saving costs that are called economies of scale.
This includes the stages of increasing and diminishing returns to factor that is when for using
each additional unit of the variable factor, the producer is able to increase the total output at
increasing rate and then at diminishing rate this helps Carnival Corporation & plc. to increase
the output but keeping the total costs low that is increasing the level of profit (Polkinghorn,
2016).
Diseconomies of scale
When increasing the output of the Carnival Corporation and plc results in higher costs and
lower profits then this is called diseconomies of scale. This means instead of reducing costs
starts increasing. As discussed above this stage is called “stage of negative returns” (Hoyle, et
al., 2015).
Break Even point
It is a point in the production process where total expenses of production overlap with the
total revenue that is total revenue are equal to total expenses. At break-even point the firm
does not earn any profit nor does it suffer any losses (Hall, 2012).
Break-even point = Fixed costs / Contribution per unit
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P1.2 Analyze pricing methods used in the travel and tourism sector.
The pricing methods help the Carnival Corporation and plc to decide the selling price of the
services being offered by them. This analysis helps the company to maximize that the sales
and profit of the firm that is this strategy are based on price optimization strategy. This
strategy ensures that the prices of the products are kept at a level where the sales and profit of
Carnival Corporation & plc. are kept at a maximum. There are a number of ways of deciding
the prices of the services offered.
Market-led pricing
This strategy is based on keeping the prices of the services at the rate at which the
competitors of Carnival Corporation & plc are offering. This will help the firm to maintain
the costs at a level beyond which the company cannot charge as it will face price competition
and charging at lower rates will reduce the profits. This strategy is used when the services
being offered are homogeneous. This will help Carnival Corporation & plc. to compete
without lowering its prices and focusing on qualitative and other promotional measures
(Hoyle, et al., 2015).
Cost-plus pricing
This strategy is based on charging the price which will allow Carnival Corporation to charge
a price that will include profit above the costs of production. this strategy aims to recover
both the fixed and variable costs of production. This will enable the firm to make a profit
over the costs and ensure the long-term growth of the firm. It used when the firm has market
standing and is able to sell its products at a price which may be higher than its competitors.
Carnival Corporation & plc can use these additional profits to carry out expansion and
inverse its revenue (Hoyle, et al., 2015).
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P1.3 Analyze factors influencing profit for travel and tourism sector
Profit is the difference between the costs and revenue. This the reward which the Carnival
Corporation & plc. gets for carrying out business activities. The profits are the indicator,
which is used by the investors to analyze the financial health of the firm the rising profits
indicate better financial health. There are a number of factors which can affect the
profitability of Carnival Corporation & plc. these are –
 There are certain seasons which include a lot of holidays. During this time the
demand for the cruise is the highest. Carnival Corporation & plc. can change its prices
to meet the increased demand. It can also launch a number of schemes to attract more
customers (Mason, 2015).
 The political environment also affects the traveling plans to specific country and
tourists traveling from that country. The economic environment includes the financial
position of the people in the country. Rising middle-class points towards prosperity
and they will be making more pans. Similarly, rising GDP and rising national income
is a sign of development and it will help Carnival Corporation & plc to attract more
customers.
 The social environment of the country affect the traveling plans of its citizens. If the
people are concerned with traveling to more religious places, then the company
should provide similar plans to meet the demands. On the other hand, if they are
interested to travel to specific countries then the company should prepare similar
plans to meet these demands (Mason, 2015)
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Conclusion
After completion of the task, it can be established that the Carnival Corporation & plc. incurs
multiple types of costs while carrying out its business activities. The volume of services is
decided on the basis of profitability. The company follows a number of pricing methods for
meeting the demand for its services and there are a number of factors in the market which
affect the company’s profitability.
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Task 2
LO2 Use of management accounting information as a decision-making tool
P2.1 Different types of management accounting information
P2.2 Use of management accounting information as a decision-making tool
Introduction of the presentation, which is about Dalata group and methods of training the
employees of the company. Further management accounting information tools have been
discussed and decision-making methods have been explained.
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Training package helps the management of Dalata Group to prepare for the training of the
employees to develop their skills for the job they are performing and help them to improve so
their productivity can increase. The training system makes the hotel business more efficient
and helps in reducing the costs. This also helps in improving the customer satisfaction.
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Information in training package helps the management of Dalata group in making decisions
regarding training. What will be the guidelines, evaluation of gap, deciding the trainers
whether they will be internal or external and assessing the skill level of existing employees.
Dalata Group has decided to get the training from external sources.
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The training package helps the management of the company in training its employees. This
improves the productivity of the employees and ensures the overall growth of the company.
Using this system management of Dalata group can train its employees as per the
requirements of the job.
13

This system provides the management of Dalata Group with necessary information that will
guide the decision-making process in the company. The information in these statements
assists the management of the company in managing the company and ensure that Dalata
Group is able to meet the competition in the industry.
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The management accounting information system include financial statements, budgets, and
variance analysis. This system helps the management of Dalata Group in managing the
company. They provide the management information, assist in guiding the future activities of
the firm and monitor the deviations from the budgeted goals.
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Apart from the tools mentioned above, the other tools include forecasts and Management
Information System (MIS). This helps the management of the company in making the
budgets and predicting the future of the company. Further, these tools assist the management
of the company in the decision-making process by providing them with information.
16

The decision-making tools assist the management of Dalata Group in the decision making
process. It includes comparison with trends, forecasting and raising capital. This means the
comparison of the company’s financial statements with the current trends in the market,
predicting the future, raising capital to meet future needs and launching new products and
services.
17

The other decision-making tools include solvency, profitability, meeting budgets and meeting
objectives. This includes ensuring that the company is solvent and profitable, ensuring that
the company is able to meet its budgeted target and fulfill the overall objectives.
18

These tools help the management of Dalata Group in their decision-making process. They
help the management in achieving the budgeted goals, meeting the overall organizational
goals, preparing and forecasting budgets and check for any variances from the budgets.
19

After the completion of the presentation, it can be established that training package helps the
management of Dalata Group in training its employees, it will increase the productivity of the
organization, management accounting information assists the process of decision making and
decision making tools help in achieving organizational goals
20

Task 3
LO3 Interpret financial accounts
3.1 Interpret financial accounts of Dalata Hotel Group plc
Introduction
The give report covers the profitability position of Dalata Hotel Group Plc for the financial
year ending on 31st December 2017 along with the position prevailing on 31st December
2016. Such comparison will help to understand the financial statements in a better way or
manner since increase or decrease in the amount or value of the financial variable. In this
manner, suitable financial decisions can be taken accordingly so that higher profits can be
earned.
21

2017 2016
Particulars The amount
in '000
The amount in
'000
Current assets € 38,214 € 98,771
Quick assets € 36,449 € 96,954
Current liabilities € 83,410 € 68,821
Operating profit/ EBIT € 86,923 € 55,607
Gross profit € 220,216 € 180,687
Net profit € 68,308 € 34,923
Net sales € 348,474 € 290,551
Total assets € 1,101,088 € 985,376
Total liabilities € 363,695 € 364,994
Debt € 280,285 € 296,173
Equity € 737,393 € 620,382
Capital employed € 1,017,678 € 916,555
The above table explains the basic detail about the financial variables pertaining to Dalata
Hotel Group Plc for the financial year 31st December 2017 as well as 31st December 2016.
From the above information, several ratios have been computed. Also, these computed ratios
have been categorized and classified into distinct types of ratios since it may be possible that
the concerned business enterprise is good at solvency and liquidity ratios but may not be
good in profitability or debt ratios. Thus, ratio analysis reflects the true position of the
concerned business enterprise.
Key financial ratios of Dalata Hotel Group Plc
Profitability Ratios
Ratios 2017 2016
Gross profit ratio 63.19% 62.19%
Net profit ratio 19.60% 12.02%
Return on total assets 6.20% 3.54%
Return on capital employed 8.54% 6.07%
Liquidity Ratios
Current ratio 1.05 1.02
Quick ratio 2.29 0.71
Debt Ratio
Debt Ratio 33.03% 37.04%
Turnover Ratio
Asset turnover ratio 31.65% 29.49%
The above ratios indicate the complex position of Dalata Group and thus it is advisable to
study each and individual ratio independently. It can be observed that profitability ratios have
increased in relation to the previous year 2016 and as a result, all the different types of profits
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namely, gross profit, net profit and operating profit indicating improvement in the
performance. For instance, the net profit ratio has increased from 12.02% to 19.60%
indicating a significant increase of 63.06%.
In the same manner, the current ratio of Dalata Group has increased. However, it is important
to note that the current ratio of both the years 2017 and 2016 are below the standard ratio of
2:1 indicating that the current assets of Dalata Group are not capable enough to generate
sufficient funds to repay off the current liabilities.
The slighter decrease in the debt ratio indicates that it has repaid some debts during the
current financial year 2016. This is a positive sign for the Dalata Group. This also leads to the
conclusion that financial performance of Dalata Group is quite satisfactory in relation to the
previous year 2016. Thus, the top management of Dalata Group can relax and can continue
with the present strategy.
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Conclusion
The given report indicates that ratio analysis is the most important part of the financial
statement analysis. This is because the ratio analysis helps to find out the increase or decrease
in the financial performance. Thus ratio analysis is the relative measure of measuring and
evaluating the financial performance of a business enterprise.
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Task 4
LO4. Sources of funds in travel and tourism sector (public and private)
4.1. Sources of distributing of the capital projects
The leaflet contains information about capital projects which have been initiated in the UK.
Capital projects are those projects which help in maintain an asset or improving its condition.
These projects are also called infrastructure projects. This includes both new capital projects,
expansion and repair works in the existing ones. These projects help the UK to improve its
tourism sector as capital projects ease the difficulties of tourists while traveling. These
projects also serve as a tourist hotspot by attracting more tourists in the country (Mason,
2015). The heritage sites in the UK attract millions of tourists globally and serve as a cultural
sign of the UK. The railway projects which have been initiated by both public and private
sector ease the traveling difficulties. The tourists who are out for vacation are looking for
exciting things to do and due to this reason, the theme parks in the UK serve as an excellent
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method to attract tourists. Tourists travel to those place where they can find places to visit
and the traveling process does not involve any hurdles. This means smooth transportation
facilities along with a place to visit. The heritage sites and theme parks will help the UK in
attracting the customers while the railways will ease the traveling process (Swarbrooke &
Page, 2012).
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Conclusion
The given report is prepared to explain the concepts, and aspects pertaining to travel and
tourism sector particularly known as tourism sector. Although two major organizations have
been taken for reference, financial statement analysis in Task 3 has been done only for one
organization namely Dalata Hotel Group Plc. Computation of ratios is a better approach than
simply interpreting financial statements. This is because the computation of ratios involves
the comparison between two financial variables. As such, it gives a clearer and better picture
of the financial performance.
27

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