Unit 2 Finance Funding in Travel Tourism Assignment ME

Introduction       

Finance is the basic requirement of business organisation that helps in performing routinely activities. There are different sources available for the organisation that helps in getting adequate level of finance for short term as well as for long term. There are two different organisations get followed in order to answer different aspects such as Merlin Entertainment Plc and The Restaurant Groups Plc. Merlin Entertainment is used for discussing pricing method followed by them, factors that affecting their profit earning capacity. On the other hand TRG Plc is followed in order to utilise the ratio interpretation for the purpose of knowing their overall efficiency as well as compare it internally.

Task 1

Introduction

Tourism sector is fast growing business and Merlin Entertainment Plc is one of them and they are having three different segments. These three different areas are Midway Attractions, The Resort Theme Parks and The LEGOLAND Parks. In these areas they provide different services in order to attract number of tourists. With the help of activities they earn adequate revenues and there are different methods that get utilised for setting prices. And there are factors that influence their profit earning capacity.

P1.1 explain the importance of costs and volume in financial management of travel and tourism businesses using Merlin Entertainments Plc as your case study

• Costs: - There are different costs such as direct costs, indirect costs, fixed costs and variable costs.
• Volume: - Break-even analysis, cost-volume-profit analysis.
• Direct costs: - The costs that paid for purchasing direct material, labour and expenses. These costs are directly related with the unit (Medlik, 2012).
• Indirect costs: - These costs are indirectly related with the unit. Indirect costs are also termed as overheads. These costs are referred as property rents, cleaning costs, energy costs, etc (Medlik, 2012).
• Fixed costs: - These costs get paid regardless activity level as these costs remain unchanged for all activity levels. Fixed costs include rent amount, depreciation, insurance amount and many more.
• Variable costs: - These costs get increased with the increase in activity level. With the change in sales volume there is effective change is noted down within variable cost. There are various costs that get included under variable costs such as cost of material, etc (Medlik, 2012).
• Break-even analysis: - It is used for the purpose of determining that point where Merlin Entertainment plc recover their all incurred costs and from where they earn adequate level of profits. It is effective enough in order to identifying their costs so that they effectively meet out their expenses.
• Cost-Profit-Volume analysis: - CPV analysis get utilised for the purpose of determining changes in costs and volume affect Merlin Entertainment Plc operating income and their profits. There are effective assumptions made within this process such as sales price remain constant, variable costs remain constant, total fixed costs remain constant, every produced unit get sold (Papatheodorou, et. al., 2016).

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.

Pricing methods are such methods that get utilise in order to set prices for the different products which get paid by the customers easily and organisation attain adequate level of profits from it. Below are the different pricing methods followed by the different organisation in order to set their prices such as: -

• Cost plus pricing method: - Merlin Entertainment Plc make use of this pricing method in order to set their prices. As per this pricing method they make inclusion of all the available costs (variable cost + fixed costs). Once they add up all costs then they add mark-up amount in it which is their profit share. With the use of this method they set reasonable prices for their product and services and earn adequate level of profits through it (Papatheodorou, et. al., 2016).
• Skimming pricing method: - The market leaders follows this pricing method as according to this method they set high prices for their respective products and services. With the help of high prices they become capable to recover their incurred cost as soon as possible as they set higher profits in their prices. In short time duration they recover their cost and after that they enjoy higher level of profits (Evans, et. al., 2012).
• Penetration pricing method: - The small organisations available in the market follows this method as they set low prices for their respective products and services. With the help of the low prices they attract number of customers and it results into increase in their sales. The share of profit is bit lower but with the increase in the sales they earn adequate level of profits (Petrevska & Serafimova, 2016).
• Per person pricing method: - New entrants follow this method as they evaluate the market trend and set their price accordingly in order to facilitate their customers. As per this method they charge on the basis of the number of visitors. They also segregate the charges among Senior citizen, children and couples that helps in attracting number of tourists towards their business activities (Petrevska & Serafimova, 2016).

P1.3 analyse factors influencing profit for travel and tourism businesses using Merlin Entertainments Plc businesses as your case study.

There are numerous factors with the effect of which the profits of Merlin Enterprise get influenced in effective manner. Some of these factors are discussed below such as: -

• Tourism season: - When the travel and tourism season is at peak then Merlin Entertainment earn higher level of profits from their business activities and easily meet out their expenditure and other needs. Whereas in the off tourism season they are not able to get adequate revenues in order to meet out their fixed nature expenditure. So tourism season influence the profit earning capacity of the Merlin Entertainment Plc (Petrevska & Serafimova, 2016).
• Terrorism: - It is the effect factor that influence the profit earning capacity of the Merlin Entertainment. With the increase in the terrorism activities there is effective reduction in the tourism related activities and the business engaged into tourism activity such as Merlin Entertainment Plc can't get adequate funds to run their business (Harris, et. al., 2012).
• Political stability: - Political stability of the nation also influence the profits of Merlin Entertainment Plc as with the effect of it they charge adequate charges for their respective services and earn adequate level of profits with the effect of it. On the other hand if the political party is unstable then they can get fix rate of taxes due to which they can't finalise their prices that results into failing in attractive tourists towards them (Harris, et. al., 2012).
• Climate: - The pleasant climate always attract number of tourists towards it and in this case Merlin Entertainment become able enough in order to get the adequate set of profits. But if the climate is not pleasant then it might reduce the number of tourists and adversely impact the profit earning capacity of the Merlin Entertainment Plc (Harris, et. al., 2012).
• Conclusion: - Merlin Entertainment Plc make effective use of different techniques in order to segregate their costs and evaluate their overall profitability. They set effective prices with the help of different methods in order to attain higher level of profits as compare to others along with higher level of sales. There are so many factors that influence the profit earning capacity of the Merlin Entertainment Plc and these are terrorism activities, Climate, political stability, tourism season and many more.

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Task 2

Presentation

Task 3

3.1 interpret financial accounts of The Restaurant Group (TRG) Plc for the year ended 27 December 2015 showing at least two years performance (for example comparing 2015 to 2014).           

Ratios are calculated for two years such as 2014 and 2015 in order to interpret financial accounting of The Restaurant Group (TRG) PLC that shows their two years performance. With the help of it adequate performance analysis is made whether they are performing better or not.

Ratio calculations: -

 

Ratios	2015	2014
	Amount in £	Amount in £
Profitability Ratio
Profit Margin Ratio(%) (A/B)	10.05	10.55
profit (A)	68,886	66,999
Revenue (B)	685,381	635,225
Return on Equity (%) (C/D)	24.29	27.40
Net income  ©	68,886	66,999
Total shareholders’ equity (D)	283,560	244,524
Liquidity Ratio
Current Ratio (%) (E/F)	0.28	0.24
Current Assets (E)	38,005	29,410
Current liabilities  (F)	136,403	121,634
Acid Test Ratio [(G-H-I)/J)]	0.23	0.20
Current assets  (G)	38,005	29,410
Inventory (H)	6,389	5,530
Prepaid expenses (I)	0	0
Current liabilities (J)	136,403	121,634
Efficiency Ratio
Inventory Turnover Ratio (K/L)	87.41	94.27
Cost of goods sold (K)	558,491	521,325
Average Inventory (L)	6,389	5,530
Asset Turnover Ratio (M/N)	1.46	1.50
Revenue (M)	685,381	635,225
Total Assets (N)	468,078	424,419
Earnings per Share	34.55	33.39
Dividend per share	34.24	33.35

Ratios	2015	2014
	Amount in £	Amount in £
Profitability Ratio
Profit Margin Ratio(%) (A/B)	10.05	10.55
profit (A)	68,886	66,999
Revenue (B)	685,381	635,225
Return on Equity (%) (C/D)	24.29	27.40
Net income  ©	68,886	66,999
Total shareholders’ equity (D)	283,560	244,524
Liquidity Ratio
Current Ratio (%) (E/F)	0.28	0.24
Current Assets (E)	38,005	29,410
Current liabilities  (F)	136,403	121,634
Acid Test Ratio [(G-H-I)/J)]	0.23	0.20
Current assets  (G)	38,005	29,410
Inventory (H)	6,389	5,530
Prepaid expenses (I)	0	0
Current liabilities (J)	136,403	121,634
Efficiency Ratio
Inventory Turnover Ratio (K/L)	87.41	94.27
Cost of goods sold (K)	558,491	521,325
Average Inventory (L)	6,389	5,530
Asset Turnover Ratio (M/N)	1.46	1.50
Revenue (M)	685,381	635,225
Total Assets (N)	468,078	424,419
Earnings per Share	34.55	33.39
Dividend per share	34.24	33.35

(Ahrendsen & Katchova, 2012)

Ratio Interpretation: -

Ratios Heading	Description	2015	2014	Interpretation
Profit margin ratio	The ratio shows the efficiency of getting net profit with the help of their sales and administration.	10.05	10.55	It is interpreted that there is fall in their administration efficiency that results into lower profits as compare to 2014
Return on equity	The ratio helps in knowing the capability in order to get the return over their equity funds.	24.29	27.40	The rate of return over their equity is lesser than their previous one as they fail to attain last year's rate.
Current ratio	The ratio helps in knowing the liquid capacity of the organisation as they are to meet out their liabilities or not.	0.28	0.24	There is increase in the ratio as the ratio get increased in significant manner as compare to last year. But they are still failing to meet out the ideal liquid requirement.
Acid test ratio	This ratio helps in knowing that immediate availability of the liquid funds that get utilised for running their business activities.	0.23	0.20	The condition get improved as there is little bit increase in their ratio as compare to 2014's ratio.
Inventory turnover ratio	This turnover ratio helps in knowing the efficiency of organisation in completing their inventory lifecycle.	87.41	94.27	It is interpreted that there is increase in turnover efficiency as compare to the ratio of 2014.
Asset turnover ratio	This turnover ratio helps in knowing the efficiency of organisation in order to get adequate return with the use of assets.	1.46	1.50	It is interpreted that there is fall in their efficiency as they not able to utilise their assets in adequate manner.
Earnings per share	This ratio is focused over the share of profit that company earned and is available for stakeholders against their per share.	34.55	33.39	It is interpreted that there is adequate increase in the profit amount per share as compare to 2014
Dividend per share	This ratio is focused over the share of profit that get paid to the stakeholders against their per share.	34.24	33.35	It is interpreted that there is slight increase in the dividend amount that get paid to the shareholders as compare to 2014.

(Uechi, et. al., 2015)

Analysis: It is analyse that there is fall in their efficiency in order to get the adequate set of revenues with the help of their sales. But they manage their expenditure in order to maintain their liquidity position but then also they need to improve their overall liquidity position as they are not meeting their ideal liquidity requirements. There is adequate increase in their Earnings per share and Dividend per share that shows that there is increase in their overall earning capacity (Uechi, et. al., 2015).

Task 4

Poster

Conclusion

It is analysed that Merlin Entertainment Plc segregate their costs into different parts such as direct costs, indirect costs, fixed costs and variable costs as it helps in understanding as well as controlling the cost incurred over their process. With the help of this they follow adequate and suitable method for setting prices in order to meet out the needs and preference of respective customers as well as earn adequate share of funds. There are various factors available that influence their earning capacity in the form of terrorism activities, season, climate or weather, etc. Ratio analysis is utilised for the purpose of interpretation of the financial reporting statements of TRG plc. And according to the ratio analysis it is interpreted that their profit earning capacity is fallen down but there is slight increase in their liquidity ratio but they didn't meet out their ideal ratio.

References

Ahrendsen, B.L. & Katchova, A.L. 2012, "Financial ratio analysis using ARMS data", Agricultural Finance Review, vol. 72, no. 2, pp. 262-272.
Evans, N., Stonehouse, G. & Campbell, D. 2012;2003;2002;, Strategic Management for Travel and Tourism, Taylor and Francis, Jordan Hill.
Harris, R., Williams, P. & Griffin, T. 2012;2002;, Sustainable Tourism, 2nd;2;2; edn, Taylor and Francis, Burlington.
Medlik, S. 2012;2003;, Dictionary of Travel, Tourism and Hospitality, 3rd;3; edn, Taylor and Francis, Jordan Hill.
Papatheodorou, A., Dr, Forsyth, P., Professor & Graham, A., Dr 2016;2012;2008;, Aviation and Tourism: Implications for Leisure Travel, Routledge Ltd, Farnham.
Petrevska, B. & Serafimova, M. 2016, "ASSESSING ACCESS TO FINANCE FOR TOURISM DEVELOPMENT: ENTREPRENEURIAL APPROACH", International Journal of Information, Business and Management, vol. 8, no. 1, pp. 35.
Uechi, L., Akutsu, T., Stanley, H.E., Marcus, A.J. & Kenett, D.Y. 2015, "Sector dominance ratio analysis of financial markets", Physica A: Statistical Mechanics and its Applications,vol. 421, pp. 488-509.