Financial Management in Travel and Tourism: Comprehensive Report

This report provides a comprehensive analysis of finance and funding within the travel and tourism industry. It begins by exploring the importance of cost and volume in financial management, differentiating between fixed, variable, and semi-variable costs and their impact on pricing decisions. The report then delves into various pricing methods such as cost-led, market-led, cost-plus, absorption, marginal, competitor-based, and return on investment, evaluating their suitability in different market scenarios. Furthermore, it examines the factors influencing profit, including seasonal variations and the economic environment. The report also covers management accounting information and its role in decision-making. Finally, it addresses sources and distribution of funding for capital projects in tourism, providing a holistic view of financial management in the sector.

FINANCE AND FUNDING
IN TRAVEL AND TOURISM

TABLE OF CONTENTS
INTRODUCTION.......................................................................................................................................3
TASK 1.......................................................................................................................................................3
1.1Importance of cost and volume in financial management of travel and tourism.................................3
1.2 Analysis of pricing methods used in the business..............................................................................4
1.3 Analysis of factors affecting profit for travel and tourism business...................................................6
TASK 2.......................................................................................................................................................8
2.1 Different type of management accounting information that can be used in the business...................8
2.2 Use of management accounting information as decision making tool...............................................9
TASK 3.....................................................................................................................................................10
3.1 Ratio analysis...................................................................................................................................10
TASK 4.....................................................................................................................................................12
4.1 Sources and distribution of funding for development of capital projects associated with tourism...12
CONCLUSION.........................................................................................................................................12
REFERENCES..........................................................................................................................................13
Table 1Ratio analysis................................................................................................................................10

INTRODUCTION
Travel and tourism business is growing a fast rate across the globe. In the current report,
varied issues in respect to travel and tourism business are discussed in detail. Significance of cost
and volume in respect to financial management is discussed briefly. Apart from this, varied
pricing policies and ratio analysis is done in the research report in order to evaluate company
performance. In middle part of the report, management accounting information is also discussed
in detail. At end of the report, sources of finance are explained from which huge amount of fund
can be raised by the firm for its business. In this way, entire research work is carried out in
report.
TASK 1
1.1Importance of cost and volume in financial management of travel and tourism
Cost and volume have due importance for the business firms because it help them in
deciding price of their products. Cost can be classified in to different categories like fixed,
variable and semi variable cost. Fixed expenses are those expenses which remain constant at all
point of time irrespective of whatever is production level. Fixed costs remain unchanged with
variation in production level. However, in case fresh investment is made in the business on fixed
expenses then in that case fixed cost get increased in the business. Variable expenses on other
hand belong to other category of expenses (Buckley and et.al., 2012). Variable expenses are
those that alter every time day by day and year by year. Expenses of mentioned type do not
remain same and always keep on fluctuating consistently in the business. Hence, it can be said
that there is huge difference between fixed and variable expenses in the business. On other hand,
semi variable expenses are also incurred in the business. Semi variable expenses are those
expenses whose some portion remain fixed and some part remain variable. It can be said that
expenses that are made in the business comes in these categories (Eagles,, 2014). There is huge
importance of these costs in financial management of travel and tourism firms. This is because
different sort of expenses are made in the business in specific proportion. Accordingly, working
capital is needed in the business. As per requirements accordingly fund is raised by the business
firm from the market. Companies that are operating in travel and tourism sector incurred these
expenses in specific combinations. By considering these combinations business firm determine

that what amount of fund they required in their business. Hence, it can be said that there is huge
importance of cost for the firms in terms of financial management. At same time volume also
have significant importance for the firms. This is because it is the volumes that determine
whether firm will be able to cover its service cost in the business. In case firm observe that there
will be less sales of its tour packages then accordingly it make an estimation of its fund
requirements. Hence, financial management of the business firm is heavily affected by cost and
volume that is observed in the business (North, Baldock and Ullah, 2013). Salamander
adventures is one of the travels and tourism company of UK and it is growing its business at very
fast rate. Due to this reason cost is also increasing in the business consistently. This is the reason
due to which firm is paying due attention on financial management of its business so that cost
and volume can be managed in the business and according to change that happened in both
changes can be made in the financial management of the business. It can be said that cost and
volume in the business have significant impact on financial management of the firm.
1.2 Analysis of pricing methods used in the business
Pricing methods used in the business are of different type and it is very important for the
firm to select any specific pricing policy in its business. Some of the pricing policies that are
available in the business are given below. Cost led pricing: It is one of the most important pricing strategies and under this tactic
main emphasis is one cost of product and services. Means that by considering cost that is
incurred in the business price of product is determined. It can be said that it is one of the
most important pricing strategy as this ensured that at least cost will be covered in the
business and profit will be earned in the business operations. It can be said that cost led
pricing is one of the important pricing strategy. Market led pricing: Market led pricing strategy is one of the important strategies and
under this price of product is determined by considering price that usually other firms are
charging for the product in the market (Morrison, Simpkins, Castley and Buckley, 2012).
This strategy is followed in order to ensure that in alignment to other firm’s price will be
charged on the product. This strategy help firm in competing with rival firms in the
market. It can be said that there is very huge importance of market led pricing strategy in
the business.

 Cost plus pricing: Cost plus pricing strategy is one under which on cost specific margin
is added to arrive at specific price. It is the pricing strategy which is followed by all sort
of firms in all industries. This is because it is very easy to apply this approach in
business. It is well known fact that in every business specific amount of cost is incurred
and every firm intends to earn specific net amount on each unit it sold to the customers.
Thus, it becomes easy for company to identify per unit cost of its products and services
and then margin amount is added to it in order to identify sales price of the product
(Ballesteros and et.al., 2010). Due to ease of application mentioned costing method is
used by all sort of business firms. Absorption pricing: In case of absorption costing approach both fixed and variable
expenses are taken in to account in order to determine sales price of the product. Usually,
first of all variable and fixed expenses amount is computed separately and then added to
compute overall cost of the product. At end margin percentage is added to the cost of the
product in order to compute sales price of the product. It can be said that it is right
approach to compute sales price of the product. This is because fixed cost incurred in the
business is indirectly associated to production of goods and services at workplace. Hence,
it is very important to take in to consideration fixed expenses that are incurred in the
business. From this point of view it can be said that absorption costing method is one of
appropriate approach of doing costing of products in the business. Marginal pricing: Marginal pricing is one of important strategy that firms can follow in
its business in respect to pricing of its products and services at workplace. In marginal
costing method only variable expenses are taken in to account. Means that in calculation
process fixed expenses are not considered. This is because it is assumed that fixed cost
time to time already covered in business and due to this reason inclusion of same cost
always in cost of product cannot be considered reasonable (Demonja, 2013). Hence,
marginal costing method is assumed appropriate because under this only variable
expenses are considered in costing of products and services in the business. Competitor based pricing: Competitor based pricing is another pricing strategy that is
followed in the industry in which there is high competition in the market between firms.
This pricing strategy is suitable for Salamander adventures. In such condition competitor
based pricing strategy is followed in the business. Under this strategy price that is set be

competitors is taken in to account while determining price for self products. This is done
in order to ensure that firm will remain in competition with its rivals. Return on investment: Return on investment is another method that is used to determine
price for the products. Under this strategy investment amount is determined and on same
return percentage that company intend to earn is determined and by doing so good
amount of profit is earned on investment amount (Horodnikova and Derco, 2015). It can
be said that return on investment is also one of good pricing policy but it is not widely
used in business because competitor factor cannot be ignored by the firm. However, this
strategy can be used when company product is innovative and unique in nature.
Customers are already prepared to pay more for innovative products.
It depends on the firm that which of pricing strategy it used in its business. Selection of any
pricing strategy depends on what sort of situation firm is facing in its business. Sometimes
competition is very high and in order to survive in the market it is very important to sale product
at low or same price. Same pricing strategy cannot be followed by firm in other situations.
Hence, it can be said that each pricing strategy is suitable in specific situation and same must be
cautiously selected in the business because it is one of the big weapon that help firm in
competing with rivals.
1.3 Analysis of factors affecting profit for travel and tourism business
There are number of factors that affect profit of firms operating in travel and tourism
sector. It is every important for the firms operating in this sector to take in to account multiple
factors in order to make wise decisions so that business can be managed in proper manner.
 Seasonal variation: Seasonal variation is the one of the most important factor that firms
operating in travel and tourism sector needs to take in to account. Seasonal variation
refers to the situation where in specific time sales of Salamander adventures are on pick
and in specific duration same declined at sharp rate. This fluctuation is considered as
seasonal fluctuation. It is very important for firms operating in this sector to manage
seasonal variation in proper manner (Hall and Page, 2014). It can be observed that
during seasons consistently good earning is observed in the business. It is the time by
which firms have to make best use of resources in their business. On other hand, when
there is lack of proper demand in the market there is need to reduce price of tour

packages so that more customers can be attracted towards business and at least moderate
profit can be earned in business. Low profit in off season is compensated by high profit
that is earned during on season. Hence, it can be said that profit is affected by seasonal
fluctuations.
 Economic environment: Economic environment is another factor that has heavy
influence on travel and tourism business. Economic environment refers to the economic
condition of any nation. If in any nation economic condition is not good then in that case
sluggish demand is observed. This affects firm employment in the nation and create fear
factor among people. Due to fear of failure of economy in terms of maintaining stability
it is observed that saving rate increased in the nation (Aref, 2011). Hence, this lead to less
spending on travel and tourism packages by the people. It can be said that economic
environment have heavy impact on people intention to visit any place through tour
package. This is the reason due to which when economic environment is unstable firms
like Thomas Cook struggle to maintain profit in the business.
 Political environment: Political environment is another factor to which there is need to
give due importance in the business. Political environment refers to political parties and
their ideologies. Every ruling government have specific thinking and by considering
specific ideology it run a nation. If there is any party government that support corporate
then in that case travel and tourism firms benefit a lot because country government
establish contact with other nation government to ease its strict rules and regulations and
also try to increase cultural ties with people. It can be said that political environment have
impact on the firms. It can be observed that in UK government is laying down much
emphasis on growth of travel and tourism business in the nation. This is because there are
large numbers of people that are getting employment in mentioned sector and there is
wide scope of growth in the mentioned industry. It can be observed that alone travel and
tourism industry cover 9% of UK GDP which is very huge percentage relative to other
industry. UK government is focusing on improving tourist sites so that more and more
people can be attracted towards tourist destinations (Pechlaner and Volgger, 2013).
Thus, it can be said that political environment have very high impact on the business
firms.

 Social environment: Social environment refers to the social factors which cover people
attitude, thinking and beliefs. All these factors have very high influence on people
choices and preferences. It can be observed that in current time period there is common
belief among people that main focus must on increasing saving rate in the business. This
attitude of people is negatively affecting firms operating in travel and tourism business. It
can be observed that in current time period there is low growth in travel and tourism
business and there is big contribution of social environment behind this. It can be
observed that change in social environment is directly linked to economic environment of
any nation. This is because due to negative change in economic environment common
assumption formed among people that main focus must be on increasing saving rate
(Zapata and Hall, 2012). Hence, this leads to decline in people expenditure on tour
packages. Thus, it can be said that social environment have huge impact on people
preference to take tour packages.
 Staff: Staff is another factor that has huge impact on the travel and tourism business
firms like Salamander adventures. If there is sufficient size of staff then in that case it is
very easy to handle people and best service is also given to them and their needs are
satisfied. On other hand, if there is less size of staff in the business then it become
difficult to provide all required services on time to the customers. This lead to high level
of dissatisfaction among customers and less profit is gained in the business.
TASK 2
2.1 Different type of management accounting information that can be used in the business
Cost is the one of the important factor that has due significance for the firms. In today
era, biggest challenge in front of firms is to maintain control on cost in the business. There are
different sort of expenses that are made in the business. It is the management accounting
information that help any firm in controlling expenses in its business and help in identifying
areas where it need to work in order to improve its performance. Different sort of management
accounting information that can be used in the business are given below. Budget: Budget is the one of important management accounting tool that is used by the
firms in their business. In the budget cash inflow and outflow is made and on that basis
net balance is computed. Budget can be used in the business to make decisions. This is

because in the budget cash inflow and outflow is projected (Catibog-Sinha, 2010).
According to projected expenditures expenses are made in the business. This lead to strict
control on expenses in the business and earning of more profit in business. Thus, it can be
said that budget is the one of the most important accounting information that can be used
in the business to make cost control related decisions. Variance analysis: Variance analysis is also one of the most important tools that is used
in management accounting. Under this method deviation is identified between actual and
standard value and on the basis of difference deviation is identified which may be
considered good or bad in the business. Under this tool on quarterly or monthly basis
simple statement is prepared under which on one column there are actual results that are
obtained in the business (Wray and et.aal., 2010). On other hand, there are standard value
in other columns and on that basis difference is observed in variance. This reflect that in
which front firm need to work in order to improve its performance. In this way,
management accounting assist firm in making business decisions. Break even analysis: Break even analysis is another approach under which it is identified
that how many number of units need to be sold in the market to cover cost in the
business. It can be said that there is very huge importance of break even analysis
approach for the firms. On basis of break even analysis it is determined that what must be
sales target to achieve sufficient amount of profit in the business. In proper manner sales
target is allocated among workforce. It can be said that there is huge importance of break
even analysis for the business firms.

2.2 Use of management accounting information as decision making tool
Management accounting information is one of the powerful decision making tool for the
business firm. There are number of ways in which management accounting information help
business firms in making business decisions. Some of these ways are explained below. Cost control: Cost control is one of the most important objectives of any business firms.
Cost control can be achieved in business by using varied management accounting
methods. Management accounting information related to expenses made in the business
in comparison to standard is the one of the most important management accounting
information that need to be taken into consideration for making decisions (Scheyvens,
2012). By doing so good control is maintained on cost in the business which lead to
increase in profitability of the business. This reflect that there is due importance of cost in
the business. Best use of resources in the business: Every business firm gives much importance to
making best use of resources in the business. It is management accounting information
whose use ensures that resources will be allocated in best manner. In this regard budget is
used as manager review all sort of expenses that are made in the business and accordingly

resources are allocated in the business. This reflect that management accounting
information that is obtained through budget is one of the important decision making tool. Determining sales target: Sales target are also determined on the basis of management
accounting information (Hingtgen and et.al., 2015). In this regard break even analysis
method is used in the business and under this minimum units that need to be sold in the
market are determined. By considering multiple factors overall sales target for the firm is
determined. Thus, it can be assumed that there is great use of management accounting
information in respect to determination of sales target in the business.