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Finance Funding in Travel Tourism Assignment ME

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Author : Adverd Muzoo

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Introduction

Finance is the basic requirement of business organisation that helps in performing routinely
activities. There are different sources available for the organisation that helps in getting adequate
level of finance for short term as well as for long term. There are two different organisations get
followed in order to answer different aspects such as Merlin Entertainment Plc and The
Restaurant Groups Plc. Merlin Entertainment is used for discussing pricing method followed by
them, factors that affecting their profit earning capacity. On the other hand TRG Plc is followed
in order to utilise the ratio interpretation for the purpose of knowing their overall efficiency as
well as compare it internally.

Task 1

Introduction: -

Tourism sector is fast growing business and Merlin Entertainment Plc is one of them and they are
having three different segments. These three different areas are Midway Attractions, The Resort
Theme Parks and The LEGOLAND Parks. In these areas they provide different services in order
to attract number of tourists. With the help of activities they earn adequate revenues and there are
different methods that get utilised for setting prices. And there are factors that influence their
profit earning capacity.

P1.1 explain the importance of costs and volume in financial management of travel
and tourism businesses using Merlin Entertainments Plc as your case study

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Costs: - There are different costs such as direct costs, indirect costs, fixed costs and variable
costs.

Volume: - Break-even analysis, cost-volume-profit analysis.

Direct costs: - The costs that paid for purchasing direct material, labour and expenses. These
costs are directly related with the unit (Medlik, 2012).

Indirect costs: - These costs are indirectly related with the unit. Indirect costs are also termed as
overheads. These costs are referred as property rents, cleaning costs, energy costs, etc (Medlik,
2012).

Fixed costs: - These costs get paid regardless activity level as these costs remain unchanged for
all activity levels. Fixed costs include rent amount, depreciation, insurance amount and many
more.

Variable costs: - These costs get increased with the increase in activity level. With the change in
sales volume there is effective change is noted down within variable cost. There are various costs
that get included under variable costs such as cost of material, etc (Medlik, 2012).

Break-even analysis: - It is used for the purpose of determining that point where Merlin
Entertainment plc recover their all incurred costs and from where they earn adequate level of
profits. It is effective enough in order to identifying their costs so that they effectively meet out
their expenses.

Cost-Profit-Volume analysis: CPV analysis get utilised for the purpose of determining changes in
costs and volume affect Merlin Entertainment Plc operating income and their profits. There are
effective assumptions made within this process such as sales price remain constant, variable
costs remain constant, total fixed costs remain constant, every produced unit get sold
(Papatheodorou, et. al., 2016).

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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.

Pricing methods are such methods that get utilise in order to set prices for the different products
which get paid by the customers easily and organisation attain adequate level of profits from it.
Below are the different pricing methods followed by the different organisation in order to set
their prices such as: -

Cost plus pricing method: - Merlin Entertainment Plc make use of this pricing method in order to
set their prices. As per this pricing method they make inclusion of all the available costs (variable
cost + fixed costs). Once they add up all costs then they add mark-up amount in it which is their
profit share. With the use of this method they set reasonable prices for their product and services
and earn adequate level of profits through it (Papatheodorou, et. al., 2016).

Skimming pricing method: - The market leaders follows this pricing method as according to this
method they set high prices for their respective products and services. With the help of high
prices they become capable to recover their incurred cost as soon as possible as they set higher
profits in their prices. In short time duration they recover their cost and after that they enjoy
higher level of profits (Evans, et. al., 2012).

Penetration pricing method: - The small organisations available in the market follows this
method as they set low prices for their respective products and services. With the help of the low
prices they attract number of customers and it results into increase in their sales. The share of
profit is bit lower but with the increase in the sales they earn adequate level of profits (Petrevska
& Serafimova, 2016).

Per person pricing method: - New entrants follow this method as they evaluate the market trend
and set their price accordingly in order to facilitate their customers. As per this method they
charge on the basis of the number of visitors. They also segregate the charges among Senior
citizen, children and couples that helps in attracting number of tourists towards their business
activities (Petrevska & Serafimova, 2016).

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P1.3 analyse factors influencing profit for travel and tourism businesses using
Merlin Entertainments Plc businesses as your case study.

There are numerous factors with the effect of which the profits of Merlin Enterprise get
influenced in effective manner. Some of these factors are discussed below such as: -

Tourism season: - When the tourism season is at peak then Merlin Entertainment earn higher
level of profits from their business activities and easily meet out their expenditure and other
needs. Whereas in the off tourism season they are not able to get adequate revenues in order to
meet out their fixed nature expenditure. So tourism season influence the profit earning capacity
of the Merlin Entertainment Plc (Petrevska & Serafimova, 2016).

Terrorism: - It is the effect factor that influence the profit earning capacity of the Merlin
Entertainment. With the increase in the terrorism activities there is effective reduction in the
tourism related activities and the business engaged into tourism activity such as Merlin
Entertainment Plc can't get adequate funds to run their business (Harris, et. al., 2012).

Political stability: Political stability of the nation also influence the profits of Merlin
Entertainment Plc as with the effect of it they charge adequate charges for their respective
services and earn adequate level of profits with the effect of it. On the other hand if the political
party is unstable then they can get fix rate of taxes due to which they can't finalise their prices
that results into failing in attractive tourists towards them (Harris, et. al., 2012).

Climate: - The pleasant climate always attract number of tourists towards it and in this case
Merlin Entertainment become able enough in order to get the adequate set of profits. But if the
climate is not pleasant then it might reduce the number of tourists and adversely impact the profit
earning capacity of the Merlin Entertainment Plc (Harris, et. al., 2012).

Conclusion: -

Merlin Entertainment Plc make effective use of different techniques in order to segregate their
costs and evaluate their overall profitability. They set effective prices with the help of different
methods in order to attain higher level of profits as compare to others along with higher level of
sales. There are so many factors that influence the profit earning capacity of the Merlin

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Entertainment Plc and these are terrorism activities, Climate, political stability, tourism season
and many more.

Task 2

Presentation

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Task 3

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).

Ratios are calculated for two years such as 2014 and 2015 in order to interpret financial accounts
of The Restaurant Group (TRG) PLC that shows their two years performance. With the help of it
adequate performance analysis is made whether they are performing better or not.

Ratio calculations: -

Ratios 2015 2014

Amount Amount in
in
Profitability Ratio
Profit Margin Ratio(%) (A/B) 10.05 10.55
profit (A) 68,886 66,999
Revenue (B) 685,381 635,225

Return on Equity (%) (C/D) 24.29 27.40

Net income 68,886 66,999
Total shareholders equity (D) 283,560 244,524

Liquidity Ratio
Current Ratio (%) (E/F) 0.28 0.24
Current Assets (E) 38,005 29,410
Current liabilities (F) 136,403 121,634

Acid Test Ratio [(G-H-I)/J)] 0.23 0.20

Current assets (G) 38,005 29,410
Inventory (H) 6,389 5,530
Prepaid expenses (I) 0 0
Current liabilities (J) 136,403 121,634

Efficiency Ratio
Inventory Turnover Ratio
(K/L) 87.41 94.27

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 Cost of goods sold (K) 558,491 521,325
Average Inventory (L) 6,389 5,530

Asset Turnover Ratio (M/N) 1.46 1.50

Revenue (M) 685,381 635,225
Total Assets (N) 468,078 424,419

Earnings per Share 34.55 33.39

Dividend per share 34.24 33.35

(Ahrendsen & Katchova, 2012)

Ratio Interpretation: -

Ratios Description 2015 2014 Interpretation

Heading
Profit The ratio shows the efficiency of
margin getting net profit with the help of
ratio their sales and administration.
Return on The ratio helps in knowing the
equity capability in order to get the return
over their equity funds.
Current The ratio helps in knowing the
ratio liquid capacity of the organisation
as they are to meet out their
liabilities or not.
Acid test This ratio helps in knowing that
ratio immediate availability of the liquid
funds that get utilised for running
their business activities.
10.0 10.5 It is interpreted that there is
5 5 fall in their administration
efficiency that results into
lower profits as compare to
2014
24.2 27.4 The rate of return over their
9 0 equity is lesser than their
previous one as they fail to
attain last year's rate.
0.28 0.24 There is increase in the ratio
as the ratio get increased in
significant manner as
compare to last year. But
they are still failing to meet
out the ideal liquid
requirement.
0.23 0.20 The condition get improved
as there is little bit increase
in their ratio as compare to
2014's ratio.

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Inventory This turnover ratio helps in knowing 87.4 94.2 It is interpreted that there is
turnover the efficiency of organisation in 1 7 increase in turnover
ratio completing their inventory lifecycle. efficiency as compare to the
ratio of 2014.
Asset This turnover ratio helps in knowing 1.46 1.50 It is interpreted that there is
turnover the efficiency of organisation in fall in their efficiency as they
ratio order to get adequate return with the not able to utilise their assets
use of assets. in adequate manner.
Earnings This ratio is focused over the share 34.5 33.3 It is interpreted that there is
per share of profit that company earned and is 5 9 adequate increase in the
available for stakeholders against profit amount per share as
their per share. compare to 2014
Dividend This ratio is focused over the share 34.2 33.3 It is interpreted that there is
per share of profit that get paid to the 4 5 slight increase in the
stakeholders against their per share. dividend amount that get
paid to the shareholders as
compare to 2014.

(Uechi, et. al., 2015)

Analysis: -

It is analyse that there is fall in their efficiency in order to get the adequate set of revenues with
the help of their sales. But they manage their expenditure in order to maintain their liquidity
position but then also they need to improve their overall liquidity position as they are not
meeting their ideal liquidity requirements. There is adequate increase in their Earnings per share
and Dividend per share that shows that there is increase in their overall earning capacity (Uechi,
et. al., 2015).

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Task 4

Poster

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Conclusion

It is analysed that Merlin Entertainment Plc segregate their costs into different parts such as
direct costs, indirect costs, fixed costs and variable costs as it helps in understanding as well as
controlling the cost incurred over their process. With the help of this they follow adequate and
suitable method for setting prices in order to meet out the needs and preference of respective
customers as well as earn adequate share of funds. There are various factors available that
influence their earning capacity in the form of terrorism activities, season, climate or weather,
etc. Ratio analysis is utilised for the purpose of interpretation of the financial statements of TRG
plc. And according to the ratio analysis it is interpreted that their profit earning capacity is fallen
down but there is slight increase in their liquidity ratio but they didn't meet out their ideal ratio.

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References

Ahrendsen, B.L. & Katchova, A.L. 2012, "Financial ratio analysis using ARMS
data", Agricultural Finance Review, vol. 72, no. 2, pp. 262-272.

Evans, N., Stonehouse, G. & Campbell, D. 2012;2003;2002;, Strategic Management for Travel
and Tourism, Taylor and Francis, Jordan Hill.

Harris, R., Williams, P. & Griffin, T. 2012;2002;, Sustainable Tourism, 2nd;2;2; edn, Taylor and
Francis, Burlington.

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, Routledge Ltd, Farnham.

Petrevska, B. & Serafimova, M. 2016, "ASSESSING ACCESS TO FINANCE FOR TOURISM

DEVELOPMENT: ENTREPRENEURIAL APPROACH", International Journal of Information,
Business and Management, vol. 8, no. 1, pp. 35.

Uechi, L., Akutsu, T., Stanley, H.E., Marcus, A.J. & Kenett, D.Y. 2015, "Sector dominance ratio
analysis of financial markets", Physica A: Statistical Mechanics and its Applications,vol. 421,
pp. 488-509.

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