UK College BTEC Unit 2 Finance and Funding Report: Travel Sector

This report examines the crucial role of finance and funding in the travel and tourism industry, focusing on Carnival plc and Dalata Hotel Group Plc. It delves into Cost-Volume-Profit (CVP) analysis, emphasizing its significance in cost control and profit maximization within the travel business. The report explores various pricing methods, including profit-led, market-led, cost-plus, and seasonal pricing, and their impact on profitability. It further analyzes factors influencing profit, such as seasonal variations, market trends, political and economic environments, and marketing effectiveness. The report also covers the use of management accounting information, interpretation of financial statements, and sources and distribution of funding for capital projects within the travel sector, providing a comprehensive overview of financial management in the industry.

UNIT 2 FINANCE AND
FUNDING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Discuss significance of costs and volume in the travel business......................................1
1.2 Explaining pricing methods for tourism sector................................................................3
1.3 Factors influencing profit for travel sector.......................................................................4
TASK 2............................................................................................................................................6
2.1 Types of management accounting information in travel business...................................6
2.2 Discussing use of management accounting information..................................................7
TASK 3............................................................................................................................................9
3.1 Interpretation of financial statements...............................................................................9
TASK 4 .........................................................................................................................................11
4.1 Sources and distribution of funding for capital projects................................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................14

INTRODUCTION
Finance and funding plays essential role in travel and tourism business. It is required so
that operational tasks can be achieved with much ease. The present report deals with Carnival plc
which is engaged in providing global cruises in various nations and as such, operates business on
large basis to satisfy travellers. While other company is Dalata Hotel Group Plc which is
engaged in the hospitality sector and satisfying customers with exotic facilities to them. CVP
analysis is discussed which is much importance to travel business in estimating costs so that
desired profit may be attained quite effectively. Various pricing methods and factors influencing
profits are also discussed in the report. Moreover, use of management accounting information in
making enhanced decisions is explained along with computation of financial ratios. Sources of
funds are discussed so that travel business may accomplish tasks in effective way.
TASK 1
1.1 Discuss significance of costs and volume in the travel business
Cost and volume are quite important for company so that it may be able to control costs
in effective way and garner profits. For overcoming this problem, Cost Volume Analysis (CVP)
is helpful technique which can provide accurate results. Carnival Plc which is engaged in the
travel and tourism business having ten global cruises. It is operating in various countries and as
such, it is required to arrive at break-even point so that it may not incur any loss while operating
business.
Various costs such as direct, indirect, fixed, variable, allocation and apportionment is
required to be controlled in effective manner so that profits can be achieved by Carnival Plc in
the best possible way. This will help to achieve break-even point and economies of scale in
effectual way (Kumar, 2018). CVP analysis is useful for assessing cost of goods sold which are
tour packages in global cruises and break-even point can be assessed with the help of this
analysis and useful for management to take better and effective decisions with much ease. Sales
volume is required to be discover by Carnival Plc so that it may be able to concentrate on costs
and as such, profits may be predicted in the best possible way. In addition to this, importance of
CVP analysis is discussed below-
1. Main importance of CVP analysis is that it help management of Carnival Plc to take
effective decision by estimating expenditures such as overheads, administrative costs are
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predicted and as such, sales are achieved in the manner which results in desired profits.
Moreover, break-even analysis is also done which help to assess profitability level and as
such, costs are assessed and profit is made which helps firm to enhance and maximise
value and as a result, expenditures are covered with much ease.
2. CVP is also useful for maintaining sales volume in effective way. In relation to this,
margin of safety is used which is good technique for Carnival Plc. Margin of safety is
excess of planned or actual sales over break-even volume and it provides useful
information to company that it could become unprofitable. Thus, sales volume is
maintained so that sales may not decrease and profit level is maintained in the best
possible way (Bellavitis, Filatotchev, Kamuriwo and Vanacker, 2017).
3. Carnival Plc is engaged in travel business and as such, it is required to control costs
involved in packages of cruises so that profit may be maintained in effectual way.
Volume of sales should be increased so that more and more services are being sold to
customers and as a result, profit can be maximised as well.
4. Contribution margin is also attained by organization which is helpful so that amount can
be deducted for variable and fixed costs and after that remaining amount is taken as
profit. Thus, sales are to be achieved up to high extent so that all costs can be covered
quite easily and Carnival Plc may be accomplish profits with much ease. Thus, CVP
analysis has immense importance for travel and tourism business to control on various
costs and accomplish desired revenue quite easily.
5. CVP analysis provide clear picture about the services sold by company and as such,
management is able to take viable decisions if any deficiency is found in the products or
services sold so that profit level may be attained quite effectually. Carnival Plc is able to
maintain profit level by incurring fixed costs so that more packages of cruises may be
sold and profits may be achieved. Thus, it results into higher productivity and more
revenue (Gurtner, 2016).
6. Targeted income may be achieved by initiating control in effectual way. Cost, volume
and profit have greater impact on profitability aspect of the company and as such, desired
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profits can be achieved with much ease. Thus, it can be said that CVP analysis is quite
useful for business to achieve desired profits.
1.2 Explaining pricing methods for tourism sector
Carnival plc is required to achieve profits and as such, it is necessary that well-structured
pricing policy may be used so that customers' may get attracted. For overcoming this problem,
company can adopt any pricing methods depending on its functionality which are listed below-
Profit-led method-
This method of pricing can be used by Carnival Plc which is based on pricing strategy
followed by rivals and consumer based strategy (Petrova and Hristov, 2016). Profit-led method is
used so that company may be able to charge price of tour packages which quoted by competitors.
This is done so that customers may not be attracted to rivals and as such, profits get reduced. To
overcome this, Carnival Plc should quote price of various packages similar to rivals so that
market share can be attained and customers' may be satisfied as well. On the other hand,
customers' based pricing is followed by analysing needs and demands of them in effective way
and as such, prices are set up with relevance to income of customers so that they may buy
packages without any hesitation. In simple words, consumer behaviour is analysed with
reference to price.
Market-led method-
Market-led method is another useful pricing strategy which can be adopted by Carnival
Plc to achieve profits. However, this method is based on penetrating prices so that lower
packages cost can easily attract customers quite effectively. This method is based on charging
low cost so that more and more customers may be lured to purchase the same. It results in some
sort of loss to company but it is the best method to inject sales in effective manner. Thus,
customers are attracted and profits are also achieved. Thus, this method is quite useful way to
generate profits by injecting sales (Jacob, 2017).
Cost-plus pricing-
This method of pricing is commonly used one in the business. As the name suggests,
certain profit margin is added to the cost of product or service to arrive at total cost which is
provided to customers to buy the same. Thus, Carnival Plc is operating in North America,
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England, Australia, Germany and other countries and it can be able to quote price of cruise
packages by adding profit percentage in it. As such, cost-plus method help company to add profit
in the best possible way. All the costs are effectively assessed and allocated to tour packages to
arrive at total cost of the same. As such, it is simple to implement for the company.
Seasonal pricing-
Seasonal pricing method is another useful pricing tool which is helpful for company to
garner profits in the best possible way. Generally, there are good seasons and off-seasons for
company. It can opt for different pricing policies in both of the seasons. In peak season, Carnival
Plc can quote high price of tour packages to garner more profits and recover previous losses.
Firm intentionally set price much higher than usual price as customers are ready to buy packages
even at high cost (Camilleri, 2018). Thus, it is helpful technique of pricing to successfully
achieve desired range of profits with much ease. In simple words, skimming price principle is
followed so that skim of the market can be accomplished in terms of enhanced profits. On the
other hand, off-seasons are not useful for organisation as travellers do not visit to tourist
destinations and as such, losses are attained by it. These losses are recovered from peak seasons
and as such, Carnival Plc may adopt this pricing method to garner profits.
1.3 Factors influencing profit for travel sector
There are various factors which can affect profit of Carnival Plc are as follows-
1. Seasonal Variations-
There are various seasons in the travel and tourism business and as such, profit level is
affected up to high extent. In peak season, Carnival Plc is benefited by more profits as customers
prefer to travel places to spend quality time with their families and friends and as such, profit can
be achieved with much ease. Prices are kept high intentionally and as such, profits can be
accomplished quite effectively. Whereas, in off-season, profits are reduced as travellers are not
ready to buy packages which results into decreased revenue and as such, profit level is affected
up too much extent. Thus, seasonal variations become hurdle for attaining desired revenue for
tourism firm (Broome, Bowersox and Relf, 2017).
2. Current trends-
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Current trends prevailing in the market also affects profits up to high extent. When more
of the customers prefer to visit various nations, Carnival Plc is able to make good quantum of
profits in the best possible way. As it can be seen that company operates in varied international
destinations and customers are lured up to high extent as global cruises are operating in nations.
Thus, customers are attracted to packages quite effectively and profits get maximised as well. In
contrary to this, if customers do not wish to travel to destinations, then eventually profit level
comes down and it affects company badly.
3. Political environment-
Carnival Plc operates cruises in various nations and as such, each of the country has
different political climate which affects profitability of the organisation. No two nations have
same political climate (Cohen, Hanna and Gössling, 2017). Thus, profits are adversely affected
as firm has to follow rules and regulations of various countries. Moreover, if uncertainty is likely
to prevail, then customers do not prefer for outing. While, there is a situation of commencing of
war between two nations, then also profits are affected as people are afraid of the situation and
do not go for trip. There are bad repercussions of political environment on Carnival Plc and as
such, profits are reduced up to high extent.
4. Improper promotions-
Marketing is essential factor for garnering customers' attention and achieve goals in
effective manner. Promotions play important role in travel business as marketing of tour
packages are achieved which help Carnival Plc to gain more profits in the best possible way.
Customers come to know about real picture of various destinations in different nations and as
such, they make up their mind to visit destinations with much ease. On the other hand, if
improper promotions are done then customers will have no knowledge about cruises and as such,
profit level will be affected.
5. Economic environment-
This is the biggest factor which affects profitability of Carnival Plc. This is because
income level of one nation is different from other nation and as such, consumption level differs
as well. Thus, rich nations are able to make good profits as comparison to poor nation as income
level differs (Tan and Tsui, 2017). Moreover, economic environment is affected by GNI (Gross
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National Income) and as such, distribution of income level and employment opportunities play
essential role. Thus, rich nations outreach poor nations and profit level of tourism business is
affected.
6. Natural factors-
Natural factors such as earthquake, floods and other factors affect tourism business up to
high extent. This is important as human factors are controllable whereas natural calamities are
not under control of Carnival Plc and as a result, profits get affected as measures can be taken to
resolve the same. Thus, above discussed factors affect profitability aspect of the business quite
adversely.
TASK 2
2.1 Types of management accounting information in travel business
2.2 Discussing use of management accounting information
Covered in ppt
TASK 3
3.1 Interpretation of financial statements
Financial ratios of Dalata Hotel Group Plc
Financial
ratios Formula 2016 2015 Interpretation
Liquidity
ratios
Current ratio
Current assets /
Current Liabilities
(99/69)
=1.44 : 1
(162/57)
=2.84 : 1
Current ratio is
decreased as company is
unable to meet short-
term obligations
Acid test ratio Quick assets /
Current Liabilities
(99- 2-8)
= 0.83: 1
(162-1-6)
= 2.72 : 1
Acid test ratio is also
decreased as
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organisation is not able
to meet extreme short-
term liabilities.
Solvency
ratios
Gearing ratio Debt / Equity
(265/ 620)
= 0.43
(250/ 537)
= 0.47
It is good as gearing
ratio should be less than
0.4 as guided by market
analysts.
Debt to total
assets ratio Debt / Assets
(265/985)
= 0.37
(250/861)
= 0.29
It is also good as it is
indicating leverage.
Profitability
ratios
Gross profit
margin ratio
Gross profit / Net
sales * 100
181/291*100
= 62.20%
(139/226)*100
= 61.50%
Gross profit ratio is good
which shows firm is able
to control expenses.
Net profit
margin ratio
Net profit / Net
sales * 100
35/291*100
= 12.02%
22/226*100
= 9.73%
This ratio is increased
which shows good
profitability of firm.
Return on
capital
employed
(ROCE)
Earnings Before
Interest Taxes
(EBIT) / Capital
employed
55/(985-
69)*100
= 0.07%
(34/861-57)*100
0.05%
It is good as firm is
getting better returns
over capital employed.
Return on
Equity (ROE)
Net income /
Stockholders'
Equity
(35/620)*100
=5.64%
(22/537)*100
=4.09%
It shows that firm is
utilising shareholders'
money quite effectively.
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Efficiency
ratios
Debtors
Turnover ratio
Net annual credit
sales / (Beginning
accounts
receivable) +
(Closing accounts
receivable)/2
291/[(6+8)/2]
= 41.57 days
226/[(3+6)/2]
= 50.22 days
It is also good as firm is
able to collect unpaid
amount in timely period.
Inventory
Turnover ratio
Cost of Goods Sold
/ Average inventory
110/ 1+2 /2 =
73.33 days
87/[(1+1)/2]=
87 days
It is good as company is
effectively using
inventory for achieving
production.
Payables
Turnover ratio
Total suppliers
purchases /
Average accounts
payable
(110/(12+13)/2
= 8.8 days
87/[(6+12)/2]
= 9.67 days
It is good as it paying
amount to suppliers' in
effective way and within
time.
Conclusion-
Hereby it can be concluded that financial position of Dalata Hotel Group Plc is overall
good. It has good profitability, efficiency, solvency ratios in both years 2015 and 2016.
However, it need to focus on liquidity ratios such as current and acid test ratio by implementing
well-structured strategies so that it may be able to pay off short-term liabilities with much ease.
On the other hand, overall financial health of company is good and is performing well in the
hospitality sector.
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TASK 4
4.1 Sources and distribution of funding for capital projects
Covered in leaflet
CONCLUSION
Hereby it can be concluded that finance is required in the travel and tourism business so
that it may be able to work with full efficacy in the best possible way. There are various termed
discussed such as CVP analysis which is required in the business so that it may be able to
analyse costs and volume so that adequate profit is generated by it with much ease. CVP analysis
has immense importance for travel business to meet objectives and targets quite effectively.
Various pricing methods can be used by the management so that it may garner profits in the best
possible way. Effective pricing method should be use by organisation to attain desired profits.
Various factors which influence profits of the company are important to be carefully analysed by
the business so that it may not get much affected and as such, well-structured strategies need to
be implemented. Sources of funds are required to achieve financial demand.
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REFERENCES
Books and Journals
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Bellavitis, C., Filatotchev, I., Kamuriwo, D. S. and Vanacker, T., 2017. Entrepreneurial finance:
new frontiers of research and practice: Editorial for the special issue Embracing
entrepreneurial funding innovations.
Broome, M. E., Bowersox, D. and Relf, M., 2017. A new funding model for nursing education
through business development initiatives. Journal of Professional Nursing.
Camilleri, M. A., 2018. Nurturing travel and tourism enterprises for economic growth and
competitiveness. Tourism and Hospitality Research. 18(1). pp.123-127.
Cohen, S. A., Hanna, P. and Gössling, S., 2017. The dark side of business travel: A media
comments analysis.Transportation Research Part D: Transport and Environment.
Gurtner, Y., 2016. Returning to paradise: Investigating issues of tourism crisis and disaster
recovery on the island of Bali.Journal of Hospitality and Tourism Management. 28.
pp.11-19.
Jacob, M., 2017. Entrepreneurships and Startup Programmes: Opportunities in Travel and
Tourism. Atna Journal of Tourism Studies. 12(2). pp.51-65.
Petrova, P. and Hristov, D., 2016. Collaborative management and planning of urban heritage
tourism: Public sector perspective. International Journal of Tourism Research. 18(1).
pp.1-9.
Tan, D. and Tsui, K., 2017. Investigating causality in international air freight and business
travel: The case of Australia. Urban Studies. 54(5). pp.1178-1193.
Online
Kumar, 2018 Cost-Volume-Profit (CVP) Analysis: Concept and Its Importance [Online]
Available Through: <http://www.yourarticlelibrary.com/cost-accounting/cvp-analysis/cost-
volume-profit-cvp-analysis-concept-and-its-importance/62507>
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