Delivery in day(s): 5
Diploma in Business
Unit Number and Title
Unit 2 Finance and Funding in the Travel and Tourism– TRG
The aim behind conducting this program over Finance and Funding in the Travel and Tourism Sector is gaining knowledge of the different aspects related to finance and funding in the travel and tourism industry. This report has been conducted into four parts. Different scenarios are provided for each part. This report will discuss the role of cost and volume in financial management of the business operating in travel and tourism industry. Analysis will be done of the various pricing methods which are being used by the businesses and the elements which are affecting the profitability of the business. Ratios will be calculated so as to analyse the performance of the business.
A common scenario has been given for the first and second task in which an organisation of travel and tourism industry has been given and the name of the organisation is Merlin Entertainments plc. an entertainments company, which is operating its business in United Kingdom. It is operating its business in 23 countries of the world with more than 115 attractions in these countries. The operations of Merlin Entertainments plc. are being executed into three different segments and these segments are LEGOLAND Parks, Midway Attractions and resort theme parks. These segments are offering different services to the customers. For executing the third section of the program another scenario has been given according to which The Restaurant Group (TRG) Plc. operates more than 470 restaurants for providing quality services to the customers. For the task 4 a management consultant firm is taken which is providing advice to the various organisations on the fundingof the capital project which are related with the travel and tourism industry.
Cost is an important aspect as the cost is the total expenses incurred by the business for the purpose of producing the product or service. A business incurs different types of costs during the production process of the business. Merlin Entertainments Plc. is providing various services to its customers for which it is incurring costs and these different types of cost are direct cost, indirect cost, allocation and apportionment cost, fixed costs and variable costs which forms a part of the value of the service offered by the Merlin Entertainments Plc. volume is the quantity in which the services are offered by Merlin Entertainments Plc. to the customers (Bulin, 2014). The volume which Merlin Entertainments Plc. need to produce for enhancing the satisfaction level of the customers and enhancing the performance of business is analysed with the help of the break-even analysis, diseconomies of scale and economies of scale. Profit can be explained as the amount which is excess of selling value over the cost of the product or service which is the reward of the business for taking the risks. The cost-volume –profit analysis plays a crucial role for the business as it helps in determining the manner in which the cost and profit will react to the changes in the volume of the services for the purpose of deciding the level or volume of services should Merlin Entertainments Plc. produce (Carruth & Carruth, 2010).
There are various methods available for the deciding the pricing policy in the travel and tourism industry and these are cost-plus pricing, market-led, cost-led, competitive, and return on investment and absorption and marginal costing. All these pricing methods are used by the businesses for deciding the prices charged by them for the services offered by them to the customers. In the competitive pricing methods the prices of the products or services are decided by the analysis of the pricing strategies of the competitors. In market-led pricing methods the prices are set as per the market conditions (Herman bin Mohammad Afandi, et. al., 2013). In cost-plus pricing method prices are decided on the basis of the cost and the profit margin decided by the company. Star Alliance Company of United Kingdom is usingmarket-led pricing method so as to decide the pricing of the services offered by it to the customers. Simply Holiday is a company operating in travel and tourism sector of United Kingdom which is deciding the prices of its services by using competitive pricing method in which it is analysing the pricing policies of its competitors (Sánchez-Ollero, et. al., 2014).
Profit is the main motive of every business behind the execution of the operations of the business. There are various factors which create impact over the profit of Merlin Entertainments Plc. and these factors are as follows:
Total shareholders’ equity
Cost of goods sold
Earnings per share
Dividend per share
This ratio is used with a purpose of analyse the ability of the business in meeting the current liabilities of the business for smoothly operating the operations of the business. The ideal current ratio is 2:1. The current ratio of The Restaurant Group (TRG) Plc. is below the ideal ratio and is even less than 1 which shows that The Restaurant Group (TRG) Plc. is not able to meet its current liabilities effectively (Cui & Ryan, 2011).
Current assets/current liabilities
The motive behind calculation of this ratio is to analyse the ability of the business to meet the short-term liabilities of the business. The quick ratio of The Restaurant Group (TRG) Plc. is below 1 which represents that The Restaurant Group (TRG) Plc. is not able to meet the short-term liabilities in an effective manner (Cui & Ryan, 2011).
Quick asset/ Current liabilities
Profit Margin ratio
It is a profitability ratio which is used for calculating the profits of the business. When the profitability ratio increases then it depicts that the effectiveness in the performance of the business and the profitability of the business has increased and on the other hand when the profitability ratio of business decreases then it depicts the decrease in the performance of the business and the profitability of the business. The profitability ratio of The Restaurant Group (TRG) Plc. has decreased in 2015 as per the profitability ratio of 2014. This shows the depletion in the profitability and the performance of The Restaurant Group (TRG) Plc (Cui & Ryan, 2011).
(Net profit/sales revenue) * 100
(68,886/685,381) * 100
(66,999/635,225) * 100
Inventory turnover ratio
Inventory turnover ratio is used with a motive to analyse the times business is able to sell the inventory in a fixed duration or period. A decreasing inventory turnover ratio shows that the inventory is being hold by the business for a longer period and is less effective in converting the inventory into sold units and on the other hand increase in the inventory turnover ratio shows the effectiveness of business in converting its inventory into sold units and the inventory is hold for a short period. The inventory turnover ratio of The Restaurant Group (TRG) Plc. is decreasing which depicts that company is holding its finished products or services for a longer period(Coshall, et. al., 2013).
Cost of goods sold/average inventory
Return on equity
This profitability ratio is being used by the business for measuring the effectiveness of business in generating the profits over the investments made by the business. The increase in the return on equity ratio shows the effectiveness of business in generating profits on the investments made by the business and on the otherhand decrease in the return on equity shows the lack of effectiveness in generating profits. Return on equity of 2015 of The Restaurant Group (TRG) Plc. has decreased in comparison to 2014 which depicts that the lack of effectiveness in earning profits on the investments of the business made by The Restaurant Group (TRG) Plc. (Cui & Ryan, 2011)
(Net income/ Total shareholders' equity) * 100
(68,886/283,560) * 100
(66,999/244,524) * 100
Asset turnover ratio
Asset turnover ratio is used for analysing the effectiveness of the business in increasing the sales of the business by using the assets of the business. Increase in the asset turnover ratio shows theeffectiveness of business in increasing sales by making use of assets and on the other hand decrease in the asset turnover ratio shows the lack of effectiveness of the business in increasing its sales by making use of the assets of the business. The asset turnover ratio of The Restaurant Group (TRG) Plc. has decreased when comparison is made between the asset turnover ratio of 2015 and 2014 which depicts that the business is less effective in increasing its sales by using its assets(Coshall, et. al., 2013).
Sales revenues/Total assets
Earnings per share
Earnings per share can be understood as that portion of the profits which is being allocated by the business to the share of the stock of business which is outstanding (Coshall, et. al., 2013). The increase in the earnings per share shows that the price of the stock has increased and on the other hand decrease in the earnings per share shows the decrease in the price of the stock of the business. The earnings per share of The Restaurant Group (TRG) Plc. has increased which help in analysing that the price of the stock of business will increase (Cui & Ryan, 2011).
Dividend per share
Dividend per share can be explained as the amount which is being provided or given to the shareholders of the business in the form of the dividend over the shares hold by them.Increase in the dividend given by the business to the shareholders shows the situation of profitability of the business. The dividend offered by The Restaurant Group (TRG) Plc. to its shareholders has increased in 2015 in comparison to 2014 (Cui & Ryan, 2011).
Finance is an important aspect for every business as for the execution of the activities of the business funds is needed. The requirement and the use of the funds of the business are made on the basis of the cost of the product or service, volume and the profits. All these aspects are crucial for the business as business operates with a motive to earn profits by satisfying the needs of the customers. In this program ratios are being calculated, compared and interpreted so as to analyse the position of the business in utilising the resources available with it.