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Unit 2 Finance Funding in Travel Tourism Assignment ME
Diploma in Business
Unit Number and Title
Finance Funding in Travel Tourism Assignment ME
Travel and tourism industry one of the most fast growing industry that contribute major funds in their respective economy. But then also in order to run the activities of the travel and tourism finance is adequate requirement. There are huge capital investments are required in order to run the travel and tourism industry. As there are lots of development, improvements and safety arrangements are made and all these demand huge capital investment. Organisation perform their activities within this industry also need to follow different pricing methods as well as need to take care of their costs incurred in order to earn adequate profits. In order to discuss such different aspects two organisations such as Merlin Entertainment Plc and The Restaurant Group Plc is utilised taken into consideration as they help in getting better understanding.
Merlin Entertainment Plc having three different segments including Midway Attractions is their smaller segment in which they provide indoor attractions within resorts or city centres, The Resort Theme Parks include services related to rides, shows and accommodation and The LEGOLAND Parks which include services related to their ride, shows and accommodations on theme basis. They render adequate services in order to get the profits and the charge adequate prices for their purpose. All these aspects get discussed in the below report.
1.1 Explain the importance of costs and volume in financial management of travel and tourism businesses using Merlin Entertainments Plc as your case study.
Merlin Entertainment Plc run their business activities in three different segments and all of these segments incurred adequate set of costs that helps in getting adequate funds out of which they generate adequate profits. For them costs and volume within their financial management plays a important role for the purpose of evaluating their overall profitability. Merlin Entertainments Plc follows the different aspects such as Break-even point and cost-volume profit analysis in order to make evaluation of their profitability (Medlik, 2012). As per the cost-volume profit analysis they evaluate the measures that how fluctuating costs and volume put effect over their profit earning capacity. With this they make use of the break-even point analysis in which they set a point where they realise that their incurred cost is recovered and after that point the revenues are their complete profits. There are various costs that get recognised in two different aspects such as variable cost and fixed cost.
- Variable costs: Merlin Entertainment Plc incur various costs and many of them are keep on changing with the change in the activity. The cost that paid by them in order to purchase raw materials, paying out labour and many more. The cost associated with these activities is keep on changing due to the changes made among them (Evans, et. al., 2012).
- Fixed costs: Merlin Entertainment Plc paid many costs that remain same for the whole tenure and didn't get changed with the change in their activities. The cost paid by them in the form of rentals is fixed as it can't get changed with the change in activity (Evans, et. al., 2012).
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.
There are various different pricing methods are utilised by the travel and tourism sector and some of these get discussed below such as: -
- Price Skimming method: -Merlin Entertainment Plc make use of this pricing method as they are well known brand. As per this method they set high prices for their product and the motive behind this is to recover their incurred cost as soon as possible from their respective market. Once they recover their cost after that the revenues earned by them is their pure profit (Petrevska & Serafimova, 2016).
- Price penetration method: - Merlin Entertainment Plc make use of this pricing method when they tend to increase their sales and earn adequate level of profits through it. As per this method they set very low prices as compare to their competitors so that they attract huge number of customers towards them and helps in increasing their sales (Petrevska & Serafimova, 2016).
- Cost plus pricing method: - Merlin Entertainment Plc utilise this method for the purpose of setting adequate price for their products. In this they add up adequate profit margin in their total cost for the purpose of getting desired profits as well as they satisfy the need of their respective customers (Waller, 2016).
- Per person Pricing method: -Merlin Entertainment Plc make use of this method for pricing. As per this method they set the prices on the diverse situations such as senior citizen, number of members, kids, couples and many more. In this method the profit share is effectively low but they attain adequate level of customer base (Waller, 2016).
P1.3 analyse factors influencing profit for travel and tourism businesses using Merlin Entertainments Plc businesses as your case study.
There are various factors that influence profit for Merlin Entertainments Plc businesses and some of these get discussed below such as: -
- Weather/Climate: -It is the most effective factor that influence the profits as for tourism summer is the best period and it is also termed as the peak season for tourism. During summers Merlin Entertainment Plc earned huge profits as they render diverse services to their respective customers. Whereas in the winters the tourism is low then they can't able to earn adequate funds in order to support their business processing (Clarke & Merlin, 2013).
- Political stability: - Most influencing factor that influence profits of Merlin Entertainment Plc as if the political parties are stable then their policies, rules and regulations also remain stable and tourists easily visit tourists sports but if the political parties are unstable then their policies, rules and regulations are not clear and due to effect tourists doesn't want to visit their nation as they can't make proper decision in order to set their budgets (Clarke & Merlin, 2013).
- Terrorism: - With the increase in the activities related to the terrorism there is adequate fall is noted down in the tourism activities. When tourists didn't feel safe to visit the place then they can't make such plans. With the effect of the terrorism activities profit earning capacity of Merlin Entertainment Plc get adversely influenced (Kim, et. al., 2014).
- Season: -Tourism season categorised as two such as peak season and off-season. Peak season is that time duration in which number of tourists visit tourist destinations and during this time period the profit earning capacity of Merlin Entertainment Plc get increased effectively. Whereas off season is that time period in which there are very few number of tourists are there and the profits of Merlin Entertainment Plc get influenced adversely (Kim, et. al., 2014).
It is analysed that Merlin Entertainment Plc incur lots of costs in order to run their business strategy and some of them are variable in nature and some of them are fixed nature. They make adequate use of these costs in their pricing decisions so that they set adequate prices for their products in order to benefit their customers as well as their profit earning capacity. The earning capacity of Merlin Entertainment Plc is influenced with the different factors that include weather/climate, season, terrorism activities and many more.
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).
Ratio analysis is made for the purpose of interpreting financial accounts of The Restaurant Group (TRG) PLC. In order to interpretation ratios are calculated for two years such as 2015 & 2014 in order to get their current status. Below is the calculation made in order to get ratios such as: -
Profit Margin ratio
(Net profit/sales revenue) * 100
(66,999/635,225) * 100
(68,886/685,381) * 100
Return on equity
(Net income/ Total shareholders' equity) * 100
(66,999/244,524) * 100
(68,886/283,560) * 100
Current assets/current liabilities
Quick asset/ Current liabilities
Inventory turnover ratio
Cost of goods sold/average inventory
Asset turnover ratio
Sales revenues/Total assets
Earnings per share
Dividend per share
Interpretation over the calculated ratios as follows: -
- Profitability ratio: -These below ratios helps in analysing the capacity of the TRG Plc in order to generate their profits.
- Profit margin ratio: - This ratio analyse the fall or increase in the revenue generating capacity as with the help of it, it is analysed that there is dip in their capacity because in 2014 their ratio was 10.55% which decreases to 10.05% in 2015. As there is fall in their overall revenue earning capacity (Ahrendsen & Katchova, 2012).
- Return on equity ratio: - This ratio analyse the increase or decrease in the capacity of getting return with the use of equity funds. As per the results it is analysed that there is fall in their capacity as the rate of return fall from 27.40% in 2014 to 24.29% in 2013. The capacity get decreased significantly and there is need to took corrective actions (Ahrendsen & Katchova, 2012).
- Liquidity ratio: -These below ratios helps in knowing the liquidity balance of the TRG Plc as they are having sufficient funds to meet out their liabilities or not.
- Current ratio: - This ratio analyse the fall or rise in the liquidity balance attain by TRG plc to meet out their current liabilities. The results of ratios stated that their liquidity status is poor as they can't able to maintain adequate funds with them but it shows adequate increment in their ratio as compare to last year's performance as in 2014 their ratio was 0.24 that get increased in 2015 to 0.28 (Maricica & Georgeta, 2012).
- Quick ratio: - This ratio evaluate the availability of the immediate liquid funds hold by the TRG plc and for this purpose two elements such as inventory and prepaid expenses balance get removed from current assets. By looking at the ratio results it is analysed that their situation is not good as they can't meet out adequate liquid funds but then also there is increment shown in their funds availability. In 2014 there ratio was 0.20 which get increased slightly to 0.23 in 2015 (Maricica & Georgeta, 2012).
- Efficiency ratio: - These below ratios shows the efficiency of the organisation in the form of selling inventories, utilising their assets and many more.
- Inventory turnover ratio: -This ratio is utilised for knowing the time period in which inventory get sold. There is adequate enhancement is noted down within their efficiency as the ratio get decreased which get termed as beneficial for them. In 2014 their ratio was 94.27 which get reduced to 87.41 which is beneficial for them as they enhance their efficiency to sold out their inventories (Maricica & Georgeta, 2012).
- Asset turnover ratio: - This ratio analyse the efficiency of using their assets in order to get adequate rate of returns and as per the results of ratios it is observed that there is slight decrease in their efficiency as the ratio in 2014 was 0.16 which get decreased in 2015 to 0.15 (Maricica & Georgeta, 2012).
- Earnings Per share: -It is the profit share that paid by the company to their respective shareholders over their shares. It shows the efficiency of the organisation as they are earning adequate profits due to which they share profits with their shareholders. By looking over the results of the ratio it is analyse that there is adequate increase in the efficiency as in 2014 their ratio was 33.39 that get increased to 34.55 in 2015.
- Dividend per share: - It is that amount that paid by the TRG plc to their shareholders in the form of dividend on the basis of per-share. The results of calculated ratios shows that there is increase in their dividend amount shared because in 2014 their ratio was 15.4 which get increased to 17.4 in 2015 (Maricica & Georgeta, 2012).
In the end it is interpreted that Merlin Entertainment Plc make use of adequate pricing method such as cost plus pricing method in order to set their prices and put adequate control over their costs so that they earn adequate level of profits. There are some set of factors that influence their profit earning capacity and out of these some are favourable as well as some are adverse. Management accounting information become an effective decision making tool as it rendered combined set of information from different department and it maintains complete record of the information. Ratios are calculated and analysed in order to interpret the financial accounts of TRG Plc and for this purpose 2 years data is utilised. There are various capital projects in the travel and tourism industry for the enhancement of tourism sector. Along with this there are various adequate sources are available from where funds get arranged for meeting the objectives of capital projects.
Ahrendsen, B.L. & Katchova, A.L. 2012, "Financial ratio analysis using ARMS data", Agricultural Finance Review, vol. 72, no. 2, pp. 262-272.
Clarke, R.C. & Merlin, M.D. 2013, Cannabis: Evolution and Ethnobotany, 1st edn, University Of California Press, US.
Evans, N., Stonehouse, G. & Campbell, D. 2012;2003;2002;, Strategic Management for Travel andTourism , Taylor and Francis, Jordan Hill.
Kim, M.J., Lee, C., Chung, N. & Kim, W.G. 2014, "Factors Affecting Online Tourism Group Buying and the Moderating Role of Loyalty", Journal of Travel Research, vol. 53, no. 3, pp. 380-394.
Maricica, M. & Georgeta, V. 2012, "Business Failure Risk Analysis using Financial Ratios", Procedia - Social and Behavioral Sciences, vol. 62, pp. 728-732.
Medlik, S. 2012;2003;, Dictionary of Travel, Tourism and Hospitality, 3rd;3; edn, Taylor and Francis, Jordan Hill.
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