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Financial Management in TT Sector Assignment
Diploma in Business (Marketing)
Unit Number and Title
Financial Management in TT Sector
Business organisation manage different set of activities in order to run their overall business. Financial management in TT sector assignment is focused on that how the fianancial decisions are tken to run business in the desired manner. They manage their routinely activities so that they attain their set objectives in desired manner. Travel and tourism sector falls under service industry and they need to manage their costs and other factors in order to attract number of tourists towards their business. Tourism industry provide their services in different segments that include resorts, theme parks, etc. in order to attract them. To discuss the various points Merlin Entertainment Plc and The Restaurant Group Plc is taken into consideration.
Merlin Entertainment Plc is an multi service provider organisation as it get indulge into different activities and these activities include Resort Theme Parks, The LEGOLAND parks and Midway Attractions. They are well known name in the travel and tourism industryand with the help of their diverse business they attract number of tourists. They incur huge costs for different activities and make use of different volume methods in order to measure their productivity. Different aspects such as costs and volume, pricing methods and profit influencing factors get discussed in effective manner.
1.1 Explain the importance of costs and volume in financial management of travel and tourism businesses.
Cost and Volume both plays important role within the financial management of travel and tourism businesses. There are various activities include accommodations, transportation, entertainment, etc. get performed by Merlin Entertainment PLC in order to run their activities and over these activities they incur lot many costs (Hutchinson, 2015). Majorly the cost is segregated into two parts such as variable cost and fixed costs and meaning of these costs get discussed below such as: -
- Variable costs: - The cost which is paid by the Merlin Entertainment get changed due to their change in activity or due to its need then these types of costs get termed as the variable costs and it make inclusion of the raw material they purchased for preparing food, etc.
- Fixed costs: - The cost which is paid by the Merlin Entertainment remain same for every payment and there is no such impact put by any change in activity or something else. It include the payment of office building rentals (Hutchinson, 2015).
There are different segments in which Merlin Entertainment is performing their activities and among these segment they invest lots of costs so that they get adequate output from it in the form of profits. They make use of different methods in order to measure their overall profitability such as CVP or Cost-Volume-Profit analysis. They make use of this method in order to know the effect of change in costs and volume over their operating income as well as net income. For this purpose they assume that there are some features remain constant such as selling price, variable cost and total fixed cost, everything get sold and none remain left (Curran-Everett, 2013).They also make use of the Break-even point analysis in order to measure the level of their profitability. Break-even point is that point where their sales revenues become equals to zero. After that point their earnings would be pure profit (Curran-Everett, 2013).
1.2 Analyse pricing methods used in the travel and tourism sector.
Travel and tourism sector make use of different pricing methods and some of them are discussed below such as: -
Cost plus pricing
This pricing method get utilised commonly by the organisations and as per this method first total cost get measured after that they add up adequate margin of profits. The combination of two (cost + profit) results into final price (Dexter, et. al., 2011).
This pricing method is effective pricing method and get utilised by the market leaders or such businesses that has high brand image within their respective market as they set high prices for their respective budget as compare to others. Their motive is to fast recovery of their incurred cost and after that they enjoy huge profits with the sale of their products (Dexter, et. al., 2011).
This pricing method is focused over fixing low prices of their products in order to increase their sales as organisation set lower prices for their products as compare to other competitors. With the effect of it there is increase in sales that impact over others performance.
Merlin Entertainment Plc follows the "Cost Plus Pricing Method" in order to set their prices as with the help of it they set their prices reasonable as well as earn adequate profits with the help of it (Inkson & Minnaert, 2012).
1.3 Analyse factors influencing profit for travel and tourism businesses
Profit Margin: - The amount which remain left after the deduction of their expenses from their revenues is termed as profit margin (Michalczyk, 2014). There are various factors that influence the profit earning capacity of the organisation that get discussed below such as: -
This factor put adequate impact over the profit earning capacity of the Merlin Entertainment Plc as in the peak season they are efficient in order to get the high level profits whereas during off-season they might struggle to earn adequate funds in order to meet out their fixed costs.
Nature of Merlin Entertainment is service based activities as they effectively need to focused over their services. They need to enhance their services and remain attentive in order to satisfy their customers need. If they fail to do so it will direct impact over their overall profit earning capacity. If customers are not satisfied with their services they are not able to earn adequate funds.
Social, political and Cultural
Profit earning capacity of the Merlin Entertainment Plc get influenced highly with the impact of these factors as they need to strictly follow the imposed rules and regulations by their respective government. Along with this they need to take care of their culture and society while performing their activities as their activities didn't put adverse impact over their performance.
Conclusion: -It is interpreted that Merlin Entertainment Plc running their business activities in three different segments and they incur different costs over these segments in order to attain adequate level of profits. With the help of different methods they evaluate their overall profitability. They follow cost plus pricing method out of the available pricing methods for the purpose of setting their final prices for their products. There are various factors in the form of season, business nature, etc. put impact over the profit earning capacity of Merlin Entertainment Plc
3.1 Interpret financial accounts of The Restaurant Group (TRG) Plc for the year ended 27 December 2015 showing at least two years performance
In order to interpret the financial accounts of the TRG PLC or The Restaurant Group PLC ratio analysis is made with the help of their two year's ratios. Ratio calculation is made in the below table such as: -
The Restaurant Group (TRG) Plc for the year ended 27 December 2015
Profit Margin Ratio(%)
Return on Equity (%)
Total shareholders’ equity
Current Ratio (%)
Acid Test Ratio
Inventory Turnover Ratio
Cost of goods sold
Asset Turnover Ratio
Earnings per Share
Dividend per share
Ratio Analysis: -
- Profitability ratios: -These ratios are calculated for the purpose of evaluating the capacity of the profit earning of organisation. In order to measure the capacity ratios such as profit margin and return on capital employed get measured.
- Profit margin ratio: This ratio helps in knowing the organisational capacity of earning profits through their activities. As per the above table in the year 2015 the company has profit margin ratio of 10.05 which is considerable low as compared to that of the last year is 10.55. The company needs to lower down its variable cost so as to increase the profit margin (Uechi, et. al., 2015).
- Return on equity: This ratio helps in knowing the organisational capacity in order to measure the efficiency of the organisation in order to get returns with the use of their equity funds. As per the above table in the year 2015 the company has return on equity of 24.29 which is low as compared to the last year i.e. 27.40. The company has to have to increase the profits by increasing the sales and also to reduce its fixed and variable cost (Uechi, et. al., 2015).
- Liquidity ratio: -These ratios are calculated for the purpose of evaluating the overall liquidity of the organisation. With the use of these ratios organisation evaluate and compare their liquidity status in order to operate.
- Current ratio: - With the use of this ratio TRG Plc evaluate their current liquidity status as they are able to meet out their current set of contract liabilities or not. As per the above mentioned table the current ratio of the year 2015 is 0.28 which is much higher than the ratio of the past year 0.24 which is considered to be good (Weaver & Lawton, 2014).
- Acid test ratio: - With the use of this ratio TRG plc evaluate their immediate liquidity status in order to know their liquidity status and for this purpose they exclude inventory and prepaid expenses from it. As per the above mentioned table the current ratio of the year 2015 is 0.23 which is much higher than the ratio of the past year i.e. 0.20 which mean the liquidity of the company is sound (Weaver & Lawton, 2014).
- Efficiency ratio: -These ratios are calculated for the purpose of evaluating the overall efficiency of the organisation in terms of inventory turnover and asset turnover ratio. With the use of these ratios TRG plc measure their overall efficiency as they are performing effectively or not.
- Inventory turnover ratio: - With the use of this ratio TRG plc evaluate their efficiency of selling their overall inventory in the set time period. As per the table above the inventory turnover ratio of the company of the year 2015 is 87.41 which is comparatively lower than that of the last year viz. 94.27 which implies that the inventory has been sold at a lower rate than that of the last year (Weaver & Lawton, 2014).
- Asset turnover ratio: - With the use of this ratio TRG plc measure their efficiency in order to utilise their overall assets in order to attain adequate set of returns. As per the analysis of the above table it implies that the ratio of the current year 2015 is comparatively lower than that of the last year, which implies the use of the asset is inefficient as compared to that of the last year (Weaver & Lawton, 2014).
Earnings per share: EPS measures the earnings that each equity shareholders are eligible to. EPS shall be calculated by dividing the net profit by the number of equity shares. As per the analysis of the above table it can be reported that the EPS of the current year 2015 is better as compared to that of the last year (Weaver & Lawton, 2014).
Dividend per share: DPS measures the dividend that each equity shareholders are eligible to. DPS shall be calculated by dividing the total dividend distributable earnings by the number of equity shares. As per the analysis of the above table it can be reported that the DPS of the current year 2015 is better as compared to that of the last year (Weaver & Lawton, 2014).The overall performance of the company has depreciated over the year as compared that of the last year. Analysing the performance of the company the investors looking for a short term investment can invest the funds in the company as there is an increase trend in the returns.
It is concluded that there are various methods get followed by the organisation in order to evaluate their overall performance. With the help of different methods such as marginal cost, contribution margin, break even analysis they effectively analyse their overall performance. The profit earning capacity of the travel and tourism industry get affected by the different factors. Management accounting information is the effective set that get utilised for gathering different information set in order to make use of it for their decision making. There are different sources of funds are available in order to support travel and tourism capital projects. Ratio analysis is made over the TRG Plc. in order to interpret their financial statements.
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