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Finance and Funding in the Travel and Tourism Sector

14 Pages 3623 Words 3213 Downloads

Introduction

Finance is act like a rescue ship which rescue the business entity from the financial wars and crisis faced by an entity. Financial resources are used by an entity in order to uplift their existing market position in relation to its competitors. Merlin entertainment services has been selected for this project who provide theme parks services and amusement services in order to please variety of customers. This project report is all about explain the importance of cost and the volume play an integral role in enhancing the current financial management situations. This emphasises on defining various pricing patterns which needs to be adopted by this enterprise. The factors which is influencing the whole profit which are explained throughout the report. The variety of MIS Tools has focused and it is assessed on a criterion of decision making tool. The interpretation of ratios has explained which is based on the business of Restaurant group plc. The arrangements of different sources of finance which will further used by an entity are explained with the help of preparing Poster.

Task 1

1.1 Explain the importance of costs and volume in financial management

Financial management is that concept which needs to be adopt by Merlin entertainment in border to identify its current costs incurred by them in a particular year (Kaoutar and Mohammed, 2016). The management of the financial resources in a unique concept which is required to be followed by this entity. The efficiency of the existing financial resources are improved by nurturing their current skills in taking new business opportunities related to the financial aspects. There are two important concepts which helps in explaining the importance of financial management which is given as below:

Cost- 

The cost is the basic element incurred in an entity in order to grab new market opportunities in order o gain competitive advantage over variety of rivals. The amount invested by the owner in this travel and tourism sectors is given as follows:

Fixed cost- 

The cost which is not affected with the changes takes places in the total output produces by an entity as it incur even in zero units produced by the business. For instance, rent of premises, utility bills.

Variable cost-

the amount of this cost is parallel to the units produces by an entity as the external changes takes places in the unit will create significant changes in the variable cost. For Example, Advertising cost and the commission is associated with the sales and the revenue incurred by Merlin entertainment services.

Volume-

The sales and the revenue earned by an entity in a financial year are dependent on several changes which will determines the actual position of an entity. The Break even analysis will be used in order to explain the concept of Volume which is give as below:

Break-even analysis-

It is one of the important method used in accordance with standard costing in which the relationship will be formed among the cost and the sales incurred in a business entity (Schmidt, Mason, Bruwer and Aspeling, 2016).  The break even point is that point at which an entity will earn no profit or loss as at this level the business is just meeting their cost applied by them in a business. This break even point will be shut down point for the business users as this will not generate no profit or loss situation for the business enterprise.  This will determine the total sales in units or amount earned by an enterprise in the future. The sales units in advance identified by an organization will be helpful for the business as the future sales generation will cover up- the total costs consisting fixed and variable cost.

The break even point is used as forecasting tool which helps in assessing the current facts and figures in order to determine the future sales (Benson and Marks, 2016). The break even point is the trap further analyzed by an entity to beat the current point in order to earn higher amount of profit. The value of break even point will not be taken as the permanent value as this value ,ay vary according to the different nature of the business. The business complexities will vary the amount generated by an entity in a particular year. The sales and the contribution amount will be identified by an entity in a particular year to meet their fixed cost by paying off all the existing obligations.

1.2 Analyse pricing methods used in travel and tourism sector

Price is essential components used by an entity in order to attract price sensitive customers towards their business (Locatelli, Fedele, Fayolle and Baglee, 2016). The price of the product will reflect the actual performance of an entity as it showcases the efforts of an individual in developing the products. The strategic analyst who designs price of a product will include all fixed and variable costs in a product along with the profit margin. The presentation of the products is different as it will steal the interest of wide number of customers. There are various pricing methods which can be used by an entity which is given as below:

Cost plus pricing- 

This is commonly used technique in which fixed and the variable costs are taken into consideration to count the efforts applied by the users in development of the products or services. The better development of products will help in catering the needs and the expectations of different individuals. The profit is to be included along with the total cost incurred by an enterprise owner (Benson and Marks, 2016). The Merlin entertainment includes rental cost, flight lease cost, tickets cost, accommodation provided on airport, food cost, servicing cost and taxation costs. The specific profit margin will be included by the owner according to their convenience and aspiration to earn higher profit as compared to its rival member.

Differentiation pricing-

The increasing competition in the external market has raises the scope of the current entity who provides amusement parks and them park services in order to cater the needs of individuals. This attraction services are influenced kids which in turn attract the whole family to visit these places. The prices are set by an individual different for varied customers as the variety of services are offered at different prices. The pricing strategies are crafted by an entity owner by analyzing the prices of its competitors. The prices are set by analyzing the prices of all the competitors in order to produce unique strategies in front of all kinds of customers.

Marginal costing-

This is essential pricing pattern adopted by an individual by focusing only on variables cost incurred by an entity in a particular year. The fixed cost are included in the pricing strategies crafted by an entity (Ezeanata Walter and Parimoo, 2016). The marginal costing is applied while designing pricing which focuses on that type of cost which induces the sales and the revenue as these cost are highly affected by the units produces by an entity over different period.

Absorption costing-

The current pricing strategy is taken as the best appropriate pricing strategies in which both fixed and variable costing are taken into account while crafting strategies. The costs are absorbed over the number of units produces by an owner in their business tenure. The higher and the lower production of unit is based on the ultimate goal adopted by an organization. The Merlin entertainment will develop its pricing according to the external market changes which will be included as a guiding factor. The flexibility will be included in the pricing in order to ensure all the business users to consider the changed prices by not affecting the existing organizational structure. The structure will be protected by considering that kind of cost which will not affect an entity's performance.

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1.3 Analyse factors influencing profit for travel and tourism businesses

The basic obligation of an enterprise is to achieve profit by conducting their business operations in a proper format in order to cater the needs and the expectations of an individual (Finch, Goff and Houck, 2016). The profit is regarded as the final outcome generated by an entity after applying their hardest efforts by facing turbulent situations like financial crisis. There are various factors which affects the performance of an entity and the overall profit earned by Merlin entertainment are given as below:

Seasonal Variations- 

The Services offered by Merlin entertainment includes amusement parks and theme parks services which steals the interest of different kids and all other age groups. The services offered by this entity will only work in the weekend or during vacations. The business of this entity is based on the seasons where school holidays are there. The amalgamation of this entity will provide commission to this entity for giving wide number of customers to use the services in the Toy land and attractive places.

Political Environment-

The political party of the attraction places will affect the current business of Merlin entertainment as changes takes places in the political environment will further create trouble for all the tourists who visit the places. The reliance of customers on Merlin will be broken as this spoil their current image (Squires and Hutchison, 2016). The visa cost increases will affect the current profit level earned by an entity. The taxation burden on Merlin will, increases the prices of amusement parks tickets and the whole tour packages. This will affect the regular customers of this entity as no one will travel on the higher prices. This problem will rectify by offering additional facilities in the tour packages to attract customers to purchase the packages even on the higher prices.

Social Environment-

The tastes and the preferences are need to be taken into consideration as without which the tour packages designed by an entity will all goes in vain. The religious needs of all individuals will be fulfilled by providing these kinds of facilities at all the places. The superstitious person will firstly focus on the pilgrimage centers before selecting a particular destination. The lifestyle of an individual will not be compromised by offering non-vegetarian food to non-vegetarian individual (Moran, Porter and Curth‐Bibb, 2016). This type of food offered to variety of customers in order to spoil the current image of the business.

Staffing Issues-

The employees play an integral role in the business as their actions are reflected in the external business environment. In the service industry like Merlin entertainments where offering variety of service. The staff members play an important role in an entity who help an entity in order to cater the needs and the expectations of several customers. The issues lie in the internal staff of the business will further create difficulty for the existing business. The staff can change the existing situation of an enterprise as the good performance of an enterprise is based on the actions taken by an employee or employer in the favor of the firm. The qualification of an employee should be higher in order to meet the requirements of the business in relation to the external market.

Current Trends-

The external market trends need to be followed by Merlin entertainment as this is currently operating in a hospitality sector (Squires and Hutchison, 2016). The hospitality sector has constantly changing the trends which are required to be followed by this entity in order to accomplish their goals and the objectives. The current hospitality trend whether positive or negative trend will affect the existing business performance' of Merlin entertainment. The current trends are affected by the tastes and the preferences of different customers in which the existing obligations are required to be met by an individual. The accommodation services provided by this entity will further increase the price of the tour packages which reduces the number of customers for this entity.

Task 2

3.1 Interpretation of ratios

Particulars

Formula

2014(Values in millions)

2015 (Values in millions)

Profitability ratios

Net sales

 

635

685

Gross profit

 

114

127

Operating profit

 

80

89

Net profit

 

67

69

Gross profit ratio

GP/Net sales*100

17.95%

18.54%

Operating profit ratio

Operating profit/Net sales*100

12.60%

12.99%

Net profit ratio

Net profit/Net sales*100

10.55%

10.07%

Liquidity ratios

Current assets

 

29

38

Current liabilities

 

122

136

Inventory

 

6

6

Quick asset

Current asset-inventories

23

32

Cash and cash equivalent

 

1

3

Short term securities

 

7

11

Current ratio

Current asset/Current liabilities

0.237704918

0.2794117647

Quick ratio

Quick asset/Current liabilities

0.1885245902

0.2352941176

Cash ratio

Cash+short term securities/current liabilities

0.0655737705

0.1029411765

Profitability ratios- 

the income statement are assessed in order to identify the profit earned by an entity in a particular year. The earning profit is the basic objective of the business concern as they perform their business functioning to achieve their goals and the objectives.

Gross profit-

This profit helps in building the base of the profit as this is initial step taken by an entity in order to reach its final station. This is derived by deducting the cost of sales from the  main figure of sales and the revenue incurred by the business. The raw profit which further helps in enhancing the net profit (Stewart, 2014). The good gross profit will alert management to earn higher amount of profit. The GP ratio of The restaurant group Plc is increasing over the year which shows the less imposition of cost of sales incurred by an entity.

Operating profit-

The operating income earned by an entity is generated after meeting all kinds of operating expenses borne by an individual in their business. The operating expenses just like selling and distribution, general administration expenses are deducted from the gross profit of the corporation. This shows The total amount earned by an entity from its current trade as the income received by an entity from other sources other than its current trade. It shows the higher efficiency of the current trade as it is increasing from one period to another.

Net profit-

This ratio is decreasing which is regarded as the complete profit in the corporate terms for an entity. The decreasing ratio reflects the higher imposition of the taxation which suppresses the current ability of this business concern.

Liquidity Ratios-

The cash is one of the important components held in an entity in order to meet the obligation incurred in a firm (van Es, 2016). The cash available with an entity will help in meeting the cash obligations incurred such as cash credit.

Current Ratio-

The current assets are assessed in relation to the current liabilities in order to recognize its importance in the external market. The internal ability are compared in relation to the external obligation faced by the firm. It is increasing from one period to another which shows that current enterprise is strong enough in order to deal their existing obligations.

Quick Ratio-

This ratio excludes the amount of inventory from the total current assets as it will not convert easily into cash. The efficiency of the whole current assets are assessed by deducting the inventory components from the total figure.  This is increasing which ensures that an entity is able to meet its current obligations that is current liabilities. The trade payable are reduced y using current assets such as cash in paying off the existing holders.

Cash Ratio-

The efficiency of the business is reflected by showcasing the current cash position of an entity in meeting its external cum internal obligations (Vazquez and Federico, 2015). The cash ratio is combined with the short term securities held in form of current assets are proportionately compared with the current liabilities. The capability of the cash is judged in meeting its existing current liabilities incurred in the concern. The cash ratio is increasing which shows the significance of the business in relation to the external enterprise. The good financial position is reflected in form of better cash position of the whole firm in relation to its external market competitors.

Task 3

4.1 Enclosed in poster

Conclusion

It can be articulated from the above assessment that financial decision making tools are used by an entity in order to accomplish their desired aims and the targets. The current report is based on defining different concepts that is related to the ascertainment of cost for the benefit of the organizations. The Break even analysis will be beneficial for an entity in order to know the future sales value. The ratio analysis is used by an entity are producing results in the favor of the business. The arrangements of finance are done by this entity by preparing poster to meet the needs and the expectations. The MIS tools are used by an entity in order to comply the needs and the expectations of different business users.

References

  • Finch, M. A., Goff, P. and Houck, E., 2016. Opting Out of the Bill: Voluntary Adequacy Funding in Maryland. Journal of Education Finance. 42(1). pp.28-48.
  • Ezeanata Walter, C. and Parimoo, D., 2016. Leadership Development In The Nigerian Micro Finance Banks And Its Effects On The Banks Performances.Leadership. 1(2), pp.15-24.
  • Wong, G., Angelsen, A., Brockhaus, M., Carmenta, R., Duchelle, A., Leonard, S., Luttrell, C., Martius, C. and Wunder, S., 2016. Results-based payments for REDD+: Lessons on finance, performance, and non-carbon benefits (Vol. 138). CIFOR.
  • Khan, M. A., Sajid, M. A., Waseem, M. A. and Shehzad, M. W., 2016. Capital Structure Composition Demeanour towards Corporate Financial Performance Potential. International Journal of Innovation and Applied Studies. 14(1). p.210.
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