Unit 2 Finance and Funding in Travel and Tourism Assignment - GDP

Program	Diploma in Business
Unit Number and Title	Unit 2 Finance and Funding in Travel and Tourism Assignment - GDP
QFC Level	Level 5

Introduction

Finance and Funding in Travel and Tourism is based on various aspects of the travel and tourism industry and their impact on the overall effectiveness of the GDP of the company. Globalisation plays effective role in the increasing scope of the tour and travel industry in which there are eliminated the boundaries of countries and it becomes easy to travel within different countries and making impact on the overall effectiveness of the company. There can defined various aspect related to the decision making in the travel and tourism industry which is included in the strategic management of the company making impact on the overall effectiveness of the company. The impact of the relationship between the cost, sales, and profit of the company and the management between them define the level of effectiveness of the organisational structure. There is analysed various aspects of UK based company involved in the entertainment and travel and tourism industry Merlin Entertainments Plc.

Task 1 Understanding the importance of costs, volume and profit for management decision making in travel and tourism

P1.1 Explain the importance of costs and volume in financial management of travel and tourism businesses using Merlin Entertainments Plc.

Financial management is essential and important from the point of view of analysing various aspects related to the analysis of the organisational performance and effective decision making in the organisation related to the expansion of the company. Strategic decision making is a part of the strategic management in the organisation and make impact on the effectiveness of the company(Huggett, et. Al 2010). Financial management can be defined as effective management, application and selection of sources for the collection of funds in organisation. In travel and tourism industry there are involved different types and cost diversified in different factors and make impact on the effectiveness of the organisational effectiveness. Cost in travel and tourism industry is defined as the cost of accommodation, transportation, food and beverages, human resource compensation and other costs.

Merlin Entertainments Plcis a British company providing services in travel and tourism industry operating in 124 attractions, 16 hotels and 3 holiday villages in more than 25 countries around the globe and making a net profit of $170 millionin the year 2015 with the 25000 employees working for the company. The main segments in which the company is providing its services are Midway Attractions, Legoland parks and Resort Theme Parks. The company is making its revenue from these three segments. The company Merlin Entertainment Plc is focused on achieving the break-even-point on which the company can achieve the no profit and no loss situation and income on this point treated as the actual profits of the company. This can be achieved by increasing the volume of sales of the company and decreasing the cost of the company. The cost volume profit analysis and the break even analysis make impact on the strategic decision making in the Travel and Tourism Company and help in achieving effective results in the company(Huggett, et. Al 2010).

There are included various costs in the total cost of the company like fixed and variable cost, direct and indirect cost which are defined as important for the calculation of the overall organisational effectiveness and achieving profits making situation in the organisation. There are various methods and techniques which are used to provide effective financial condition and help in effective and strategic decision making in the organisation which leads to effective results in travel and tourism industry. Merlin Entertainments Plc is using various methods and techniques for costing like marginal costing, absorption costing and activity based costing for effective results of financial management in organisation and to achieve the breakeven point for the travel and tourism company(Laursen, 2013).

P1.2 Analyse pricing methods used in the travel and tourism sector. You need to use examples from different types of businesses in travel and tourism.

In every travel and tourism industry products of the company are defined as the different packages which are offer by the company to its customers and make impact on the overall effectiveness of the company in which there are considered various aspects while determining price of products and also there are used different methods and techniques for determination of prices in the travel and tourism industry. The following are the pricing methods which can be adopted in organisations like Merlin Entertainment Plc.

Cost oriented methods:

These are the methods of pricing in which cost is defined as a base of the determination of product prices in which there are adopted various cost oriented methods some of them are as follows.

• Cost plus pricing- there are involved a fixed part of the cost in the prices of the product and make impact on the overall pricing.
• Mark-up pricing- This method includes a part percentage of the sales price in the variable pricing of products.
• Break- even pricing- In this pricing method there is considered the no profit no loss point which is breakeven point and the company focuses on covering all the costs in the company.
• Target Return pricing- This pricing method is focused on achieving a level of return on investment (ROI) in the organisation.
• Target return price - Total costs + (Desired % ROI investment)/ Total sales in units
• Early cash recovery pricing- In this method of pricing there is conducted market forecasting in which there are analysed and based on that plan for the recovery is made in which there are defined fixed prices(Li, et. Al 2013).

Market oriented methods:

In this pricing method there are considered market conditions and their impact on the organisation and the customers are considered for the determination of prices of product.

• Perceived value pricing- In this method company determines the prices based on the perception of customers of company and there has been provided priority to customers and cost is considered as secondary in the company and make impact on the various aspects of customer satisfaction and also increases sales of the company.
• Going Rate pricing- In this pricing method there are set benchmarks for pricing within competitors which make impact on the prices without getting influenced with the costs and demands. There are three sub-methods like competitor parity method, premium pricing, and discount pricing.
• Sealed- bid pricing- In this pricing methods there are collected different tenders and quotations for expecting best prices in the process and there are defined various policies and procedures which are required to be followed in this process.
• Differentiated pricing- In this method there are defined different prices for different products in organisation which have sub-methods like customer segment pricing, time pricing, Area pricing, Product from pricing(Li, et. Al 2013).

P1.3 Analyse factors influencing profit for travel and tourism businesses using Merlin Entertainments Plc businesses.

In travel and tourism industry the business environment is dynamic which make impact on the overall effectiveness of the business. Merlin Entertainments Plc is working in this industry on huge level and providing effective services to its customers who are spread in different countries around the globe. Following are the factors making impact on the profits in travel and tourism industry.

• Economy- Economy of a country makes impact on the overall productivity and profitability of the travel and tourism company. The economy aspect includes the stage or phase of economy and its different factors like flow of money in the market and government spending and level of customer spending or purchasing power of customers makes impact on the profits of the company by making impact on the sales of the company(Medlik, 2012).
• Environmental and whether conditions- Profits in the travel and tourism industry are impacted from the various conditions of environment and whether which defines the level of footfall of customers and sale of the company is also impacted by this. Natural disasters and disease outbreaks also make impact on the sales of the company by influencing the sales and demand.
• Lack of promotions- In case of ineffective and inefficient promotional strategies of the products and services of the company there can be made impact on the sales and profitability of the company(Medlik, 2012).

Task 2 Understanding the use of management accounting information as a decision making tool in travel and tourism businesses

Task 3 Interpreting financial accounts to assist decision making in travel and tourism businesses

3.1 interpret financial accounts of The Restaurant Group (TRG) Plc for the year ended 27 December 2015 showing at least two years performance.

The Restaurant Group Plc is leading food chain Company which is spread in all over the world and having effective level of productivity and profitability. Company takes all its important decisions by effective analysis and strategic decision making in the various aspects of the company(cost-volume-profit analysis 2010). Financial analysis includes analysing different ratios and statements of the company which can influence the decision making for essential organisational decisions. Following are the various ratios of the company for the year ending 27 December 2015.

Profitability Ratios: These ratios are defined to analyse various aspects related to the profitability position of the company and various aspects by which the capability of the company to make profits can be identified.

Ratios	2015	2014
Profitability Ratio
Profit Margin Ratio	10.05076	10.54729
Profit	68,886	66,999
Revenue	6,85,381	6,35,225
Return on Equity	24.29327	27.39976
Net income	68,886	66,999
Total shareholders’ equity	2,83,560	2,44,524
Gross profit ratio	0.185138	0.179307
Gross profit	1,26,890	1,13,900
Revenue	6,85,381	6,35,225
Gross profit ratio	0.179306545	0.185137901
Operating Profit ratio	0.13745051	0.129695746
Operating profit	88,891	87,312
revenue	6,85,381	6,35,225
Net profit as a percentage of sales	0.100508	0.105473
Net profit	68886	66999
Sales	685381	635225

 

These ratios are defining that the company is growing as in the profitability ratios of the company are increasing in the year 2015 in comparison with the year 2014. This is showing effectiveness of the company to make profits and efficient management in the company and its impact on the overall effectiveness of the company(cost-volume-profit analysis 2010).

Liquidity Ratios: Liquidity ratio defines the level of solvency of the company and also defines various aspects which define the level of flexibility in the company. Following are some ratios defining level of solvency of the company.

Liquidity Ratio	2015	2014
Current Ratio (%)	0.278623	0.241791
Current Assets	38,005	29,410
Current liabilities	1,36,403	1,21,634
Acid Test Ratio	0.231784	0.196327
Current assets	38,005	29,410
Inventory	6,389	5,530
Prepaid expenses	0	0
Current liabilities	1,36,403	1,21,634
Total capital employed	1.106107	0.97765
profit before interest and tax	1,27,991	1,23,834
Share capital	56,518	56,433
Reserves	11,080	11,971
long term liabilities	48,115	58,261
Solvency Ratio	0.15786051	0.14716778
Equity shareholders capital employed	1.893414	1.810333
profit before interest and tax	127991	123834
Ordinary share capital	56518	56433
Reserves	11080	11971

The ratios are calculated by using spread sheet method. The ratios are showing the level of solvency in the company which is making impact on the flexibility of the company and it is showing that the company is having insufficient level of assets for covering the liabilities of the company(financial analysis 2016).

Efficiency Ratio: This ratio shows the level of efficiency of the company and its impact on the overall effectiveness of the profitability. Following are some efficiency ratios.

Efficiency Ratio
Inventory Turnover Ratio	87.41446	94.27215
Cost of goods sold	5,58,491	5,21,325
Average Inventory	6,389	5,530
Asset Turnover Ratio	1.464245	1.496693
Revenue	6,85,381	6,35,225
Total Assets	4,68,078	4,24,419
Average stock turnover of the company	1.218481753	1.227201513
Dividend Payout per share	1.12	1.19
P/E ratio	0.049985294	0.054754358

The efficiency ratios of the company are showing the actual position of the company and its operations management as in there is lack of sufficient capital in the company to meet its liabilities. The ratios are decreasing in the year 2015(Merlin Entertainment, 2015).

Task 4 Understanding sources and distribution of funding for public and non-public tourism development

Conclusion

Finance and Funding in Travel and Tourism is detailed study of various aspects related to travel and tourism industry in which different financial management and analysis is done for the effective decision making in the organisation(Half Year 2016). There are also defined relationship between the cost, profit and volume in the company to achieve effective results in the company. There are various aspects which can make impact on the different aspects related to the effectiveness of decision making in the organisation.

References.

cost-volume-profit analysis 2010, , 4th edn, Oxford University Press.
financial analysIs 2016, , 6th edn, Oxford University Press.
Half Year 2016 Merlin Entertainments PLC Earnings Call - Final 2016, , CQ-Roll Can, Inc.
Huggett. C. & Pownall, D. 2010, Teaching Travel And Tourism 14, 1st edn, Open University Press, GB.
Jacob, N. 2010, “Notnura freshens line-up ahead of charge into European equtv marketsw, Euroweek • no. 1170.
Laursen, F., Dr 2013;2012;2016;, The EU’s Lisbon Treaty : Institutional Choices and 1nzplemenration Ashgate, Farnham.
Li, Q., Xu, Q. & Li, H. 2013, Advanced Materials Research: Sustainable Development of Industry and Economy (1), Trans Tech Publishers.
Medlik, S. 2012;2003;, Dictionary of Travel, Tourism and Hospitality Provision 3rd;3; edn, Taylor and Francis, Jordan Hill.
Merlin Entertainments PLC Trading Statement Presentation - Final 2015, , CQ-Roll Call, Inc
1erIin Entertainments PLC Trading &aremenx Presentation - Final 2015, , CQ-Roll Call, Inc.