Unit 2 Finance and Funding in TT Sector Assignment Copy

Program	Diploma in Travel and Trousim
Unit Number and Title	Unit 2 Finance and Funding in TT Sector
QFC Level	Level 4

Introduction

With the effect of globalisation there are eliminated the boundaries of countries and making it easy to travel in different countries and know about their culture. This is beneficial for the tour and travel industries and makes impact on the overall growth of the country. Finance and Funding in TT Sector is defining the effective manner to take significant and appropriate decisions in the tour and travel industry, which can help to lead the industry in the direction of growth. In every industry there is essential role of the sales, cost, profits and volume and there must be effective management between them. There are explained various financial information which makes impact on the overall growth of the tour and travels. There are defined various issues which must be considered while managing the overall working of the tour and travel industry to achieve effective growth of the country.

Task 1

The importance of costs, volume and profit for management decision making in travel and tourism

In every industry role of strategic and scientific decision making is crucial which leads to positive results and ensures success of any industry. In the industry of tour and travel there are high consideration of effective decision making including decisions taken for cost, volume and profit in this industry. Travel and tourism industry covers huge part of costs which are fixed and essential covering the expenses of accommodation, food, vehicle and staff compensation. These costs are required to be managed by the marketing management by taking most effective decision for effective execution of activities which can make impact on the overall growth of this industry. Merlin Entertainments Plc is Entertainment Company which is providing its services in 23 countries around 4 continental with 115 attractions and this data shows that the company is working on a huge level and providing its services to huge number of customers (financial analysis 2016). The company is working in three segments which include Midway Attractions, Legoland parks and Resort Theme Parks which is defining that the company is diversified and there are profits are also diversified in accordance with each segment. The company have to achieve its breakeven point by which it can achieve and determine effective level of profits and their reliability. There are various aspects which must be considered while calculating the cost involving direct cost and indirect cost and nature of cost making impact and break-even point is estimated for each and every activity which can be possible by the increase in the profitability from the operations of loss making activities. The entertainment company Merlin Entertainments Plc is diversified in its operations and its geographical areas and different segments of tour and travel industry. The cost volume profit analysis or break even analysis plays essential role in the process of taking strategic and effective decisions in this tour and travel industry. There are various terms which are involved in the process of this cost estimation like direct and indirect cost, variable and fixed cost which can be estimated by using various techniques and tools like marginal and absorption costing, activity based costing. These help in taking effective business decisions and lead to achieve the break- even point and economies of scale.

Pricing methods used in the travel and tourism sector: In the present business environment there are various methods which are used in organisations and industries to define prices of their products. In the travel and tourism industry the tour and travel packages are treated as products of the company and pricing of the tour and travel packages are done by adopting different and various product pricing methods and these prices are offered to customers of the industry and the effectiveness of the pricing of products makes impact on the overall sales and volume of the industry (Cihangir, et. al 2014). Following are different methods of pricing which can be adopted by the travel and tourism industry is as follows.

Cost plus pricing or Accountant pricing: In this a simple method of pricing in which there are included total fixed cost in the prices and then profit margin is added to the price and this leads to define the price of the product which is tour packages in case of the travel and tour industry. The main element of this type of cost is total cost of product so this pricing methods is effective for the company’s which are operating on a huge level like hotel industry (Singh, 2010).

Rack rates and seasonal pricing: Rack rates are defined as the full rate which excludes any kind of discounts and offers which are printed on the brochures and treated as the original prices of the products and help in attracting different customers. Seasonal pricing are flexible which influences with the change in the market and demand of the tour and travel packages.

Per person pricing: In this method there are defined prices by the company in accordance with per person and there are included adults and children segregation in defining the per person pricing of products of this industry.

Per unit pricing: In the method of per unit pricing there are considered units which are sold by the organisation in the process of the product pricing. The total sales price is distributed in the expected unit sales and also included the total cost.

Market derived pricing: In this pricing method pricing of products can be done in accordance with the market position and pricing of a competitive product or a substitute available. This pricing method is a strategic plan also making impact on the overall effectiveness of the pricing method.

Factors influencing profit for travel and tourism businesses:

Merlin Entertainments Plc is a multinational company which is providing its services all around the world in different segments of the tour and travel industry and involved in activities of huge level and generates profits which are influenced from different factors of travel and tourism industry which are as follows.

• Seasonal changes- In the travel and tourism industry seasonal variations make impact on the overall sale of the products of the industry (Li, et. al 2013). There are various aspects of seasonal changes and dynamics which make impact on the overall sales of the industry. Merlin Entertainment Plc in involved in the seasonal business which is making impact on its profitability margin as in different segment of this industry is based on different seasons and increases in the effective season like hill stations packages gets on boom in the season of snow fall, and theme parks and resorts of the company earn effective and huge profits in the season of monsoon and school holidays (Hanaki, et. al 2011).
• Purchasing power of customers – In the entertainment and travel and tourism industry profitability depends on the effectiveness of the purchasing power of the customers. Profitability of travel and tourism industry have direct relationship as in increase in the purchasing power will be resulted as increase in the sales of the travel and tourism industry.
• Business, social and political Environment- Effective and positive environment is very important and make impact on the overall effectiveness of the travel and industry travel and tourism.

Task 2

Use of management accounting information as a decision making tool in travel and tourism businesses

Task 3

Financial accounts to assist decision making in travel and tourism businesses- A case study of The Restaurant Group (TRG)

The Restaurant Group plc is a big food chain which is handling a wide range of restaurants and pubs which are huge in number 470 within different countries and territories with effective management. Every company analyses its financial position and effectiveness before taking organisational decisions important from the point of view of the organisation. We will analyse the financial position of the company based on its financial ratios as on the the year ended 27 December 2015 (Laursen, 2013). The information is extracted from the annual report of the company including all the essential financial resources data and structure.

Profitability Ratios of the company- There are analysed and calculated Profitability ratios which can help in evaluating the capability of the company to earn profits. Following are some examples of profitability ratios-

Profit Margin Ratio = Net profit/ Total Revenue

Return on Equity = Net income / Total shareholders’ equity

Ratios	2015	2014
Profitability Ratio
Profit Margin Ratio(%)	10.05076	10.54729
profit	68,886	66,999
Revenue	685,381	635,225
Return on Equity (%)	24.29327	27.39976
Net income	68,886	66,999
Total shareholders’ equity	283,560	244,524

There is used spread sheet for the calculation of the ratios of the company.

From the above calculation of profitability ratio there has been analysed that the profitability of the company is decreasing from the last year profits which can make impact on the effectiveness of the company’s performance and can lead to unsuccessful further investments. The profit margin ratio and return on equity of the company is showing decrease in the year 2015 which is showing that the company is not effective in making profits but it can make by effective handling of operations (Medlik, 2012).

Liquidity ratios: For analysing the financial position of the company there is required to calculate the liquidity ratios which are showing solvency of the company in financial terms which helps in making effective and efficient decisions in the organisation. Liquidity ratios are calculated as follows for the company.

Current Ratio = Current Assets/ Current liabilities

Acid Test Ratio = Current assets – Inventory – Prepaid expenses/ Current liabilities

Ratio	2015	2014
Current Ratio	2.786229	2.417909
Current Assets	38,005	29,410
Current liabilities	136,403	121,634
Acid Test Ratio	0.231784	0.196327
Current assets	38,005	29,410
Inventory	6,389	5,530
Prepaid expenses	0	0
Current liabilities	136,403	121,634

Calculation of the ratios has been done by using the spread sheet method.There are various aspects which have identified in this analysis of company’s liquidity which is making impact on the overall decision making of the company (Papatheodorou, et. al 2016). The currentratio of the company is increasing with the increased assets and liabilities and also defining that there are required more assets for the effective business event of liabilities in the company. The acid test ratio of the company is also proving that the company is insufficient to pay his liabilities and this is making impact on the solvency and liquidity of the company which can make impact on the investments of the company.

Efficiency ratios: Efficiency can be defined as the effectiveness of the operations of the company and their impact on the overall decisions of further growth of the company (Huggett, et. al 2010). There are calculated some efficiency ratio which are defining the level of effectiveness in the activities and capability of the company.

Inventory Turnover Ratio = Cost of goods sold/ Average Inventory

Asset Turnover Ratio = Revenue/ Total Assets

Ratio	2015	2014
Inventory Turnover Ratio	87.41446	94.27215
Cost of goods sold	558,491	521,325
Average Inventory	6,389	5,530
Asset Turnover Ratio	1.464245	1.496693
Revenue	685,381	635,225
Total Assets	468,078	424,419

There has been used the spread sheet method for calculation of the ratios.

The analysis shows the efficiency ratios of the company which are decreasing in the subsequent year from the last year. This shows that the assets and liabilities are increasing but showing the inefficiency of the funds in the company.

Chart showing profitability of the company of last two years-

Earnings per Share: The Earnings per Share of the company which is extracted from the annual report for the year 2015 is 34.55 pounds which is increased from the last year and showing the growth and increased earning capacity of the company (cost-volume-profit analysis 2010).

Dividend per share: The company is giving dividends to its shareholders of the company which is extracted from the annual report of the company for the year 2015 is 17.40 pounds which is showing increase in the DPS and  its ability to provide dividend to the shareholders of the company.

Task 4

Sources and distribution of funding for public and non-public tourism development

Conclusion

This report has defined the various aspects related to the financial and management factors of the travel and tourism industry in which there are defined that there are required to manage the cost, profit and volume to achieve effective results in the company. For taking effective and strategic results there should be effective analysis of financial ratios of the company by which there can be analysed effectiveness and efficiency of the company which can make impact on the overall productivity of the company.

References

Cihangir, M. & Kara, E. 2014, "THE REASONS FOR FINANCIAL FAILURE IN ACCOMMODATION FACILITIES-- AN ANALYSIS OF THE ACCOMMODATION FACILITIES IN THE CAPPADOCCIA REGION / TURKEY", European Scientific Journal, vol. 10, no. 22, pp. 95.
cost-volume-profit analysis 2010, , 4th edn, Oxford University Press.
financial analysis 2016, , 6th edn, Oxford University Press.
Hanaki, K., Moriguchi, Y. & Morioka, T. 2011, Establishing a Resource-Circulating Society in Asia: Challenges and Opportunities, United Nations University Press.
Huggett, C. & Pownall, D. 2010, Teaching Travel And Tourism 14, 1st edn, Open University Press, GB.
Laursen, F., Dr 2013;2012;2016;, The EU's Lisbon Treaty : Institutional Choices and Implementation, 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, 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 and tourism, Routledge Ltd, Farnham.
Singh, S. 2010;2009;, Handbook of business practices and growth in emerging markets, World Scientific Pub Co Pte, GB.