Today's business environment is filled with various opportunities where companies can earn high profit margins through building up different strategies that may aid them in attaining all desired goals and objectives right on time. But, it has been analysed that organisations that are looking forward to expand their business requires both finance and funding in an appropriate sense. This may help business organisations to grab good position at marketplace of United Kingdom. On the other hand, it has been located that business firms requires high funds along with finance as well. Through making appropriate plan requirement of business firms can be fulfilled in effective and efficient manner. Firm which has been taken under this report i.e. Thomas Cook which is doing business in all over world. Assignment will include various things like: concept of CVP, various pricing methods, interpretation of financial accounts utilising various ratios and lastly financial statements are also been includ
Task 1: Importance of Cost, Volume and Profit in the Tourism Sector
A. Concept of CVP Analysis and its Importance in Travel Sector
Travel and tourism sector of United Kingdom is helping this nation in improving its economical conditions. On the other hand, government of UK also help these firms through which business of these organisations can be improved this includes various policies and many more. In present context, Cost-Volume-Profit (CVP) comes under those methods through which travel and tourism sector of United Kingdom can be measure in an appropriate sense. It has been located that this method is pretty much enclosed with various factors of finance and funding and these are: volume, cost, prices, and profits. Connection in between these element is much needed so that to pull out favourable conditions. In other words, it has been analysed that this concept is can also be known as marginal costing system.
In any case, formal benefit arranging and control includes the utilization of spending plans and different gauges, and the CVP examination gives just a general thought of the benefit arranging process. Additionally it evaluates the reason and sensibility of such spending plans and conjectures. Thomas Cook in this manner, can utilize CVP examination on a persistent premise to anticipate and evaluate the suggestions of its short run choices about settled costs, minimal costs, deals volume and offering cost for its benefit designs.
B. Analysis of Pricing Methods
In modern era, business organisations of Travel and Tourism Sector under United Kingdom has adopted various pricing methods through which they can grab attention of consumers where they can provide various sort of products and services with attractive pricing strategies. It is essential for an organisation to set the correct price for its products and services so that they can maximise on its profits. In order to set product's prices, it is important to know the unit cost of its every item. Unit cost is computed by partitioning complete cost (settled and variable) by the quantity of units created. Thomas Cook is into friendliness industry. The settled cost for the inn will incorporate land and building charges, pay rates to the representatives, publicizing cost, yearly upkeep charges.
The settled cost for the Thomas Cook won't get much influenced by the volume of offer directed by the inn. Variable cost for the lodging will incorporate cost like cost of provisions for sustenance and drink, cost for housekeeping supplies, blossoms plans and many more. Henceforth, through keeping mark-ups relying on the pinnacle season Thomas Cook can set aggressive cost for its rooms.
C. Analysis of the factors that will Influence Profit of Thomas Cook
It has been located that there are ample number of factors through which Thomas Cook can introduce enhance their profit ratios and some of them are mentioned beneath:
- Degree of competition in the market:Thomas Cook has already gathered good reputation in all over world. Therefore, it has been located that this business firm has introduced their products with various sort of strategies which has helped them in giving high competition to their rivals. On the other hand, Thomas Cook, if raises its prices of services which is being delivered by them, it is may be possible that firm may not go through any risk which is related to profit margins of this organisation.
- Strength of Demand:If a company carries good reputation at marketplace of United Kingdom, it is may be possible that demand of products and services of a firm rapidly enhances profitability of Thomas Cook.
- State of the economy: In the event that there is monetary development at that point there will be expanded interest for most items particularly extravagance items like travel to remote goal with a high-wage versatility of interest.
Task 2: Use of Management Accounting System for Decision Making
A. Different Types of Management Accounting Information
Human resource, operation, finance, IT, marketing, sales and R&D are various departments which every organisation have to execute business operations effectively. Management accounting system will be able to function in quality way if all units are integrated and functioned with each other. Current sales reports, cash on hand, number of sales calls per day, delivery deadline dates, order backlog, current inventory levels of raw material and finished goods, account receivables and payables are various tactics which are components of traditional financial data. These are various techniques that help administration to have complete information about key performance indicators that are used by them to judge capabilities of company and acknowledge potentialities of system.
Forecasting: This technique is used by organisation to execute strategic planning to make system advanced and upgrade to make it competitive. Management of Thomas Cook conducts research and survey to acknowledge market situations and anticipate future trends; thereby design system and formulate strategies in according to market. Growth statistics, revenue and sales are various tools used by firms to assess past data to analyse current trend. Thus, as average revenue growth is about 10% than forecast model determine that annual growth rate would be 10 percent.
B. Use of Investment Appraisal Technique in Decision Making
Organisation need to acknowledge capital investments potential to have complete information about culture. For building appropriate investment proposal, it is essential that market opportunities are anticipated by making regular search. Strategy are formulated by management of Thomas Cook in respect to ideas generated by them. This helps finance department or accountant to frame adequate investment plan and make adequate decisions in respect to making changes in items and services. These are various analytical techniques which are used by firm to assess investment proposal financially. Hence, these are future cash flows estimates which have connection with project are as follows:
- Payback method – This component define information about number of years that are expected to get back original investment by assessing net cash inflows. This helps finance unit to acknowledge period when their amount will be recovered.
- Accounting rate of return – This tool specifies that organisation's existing return on capital employed is compared with standard defined by top personnels.
- Net present value – Future cash sums are transformed into present cash equivalents by using discount rate.
- Discounted payback – Payback period is obtained by assessing discounted cash flows.
- Internal rate of return – This tool is used to finance team to have information about adequaet discount rate of project. Thus, IRR is used with help of net present value which is zero used to define discount rate.
TASK 3: Financials ratio and its impact on business performance
Ratio analysis: Financial ratio can be define as tool to analysis organisation performance in which they are selecting two numerical value that taken from financial statements. There are several kind of financial ratio are available that used by firm in order to achieve goals and objectives in limited period of time. Some important ratio are current, quick, sales performance, return of capital employed, acid test, debtor ratio, stock turnover and many more. Each one ratio have their own strength and weaknesses so that, management of the firm has select ratio accordingly to identifying their performance with in work place of each one department. Here are explain both ratio profitability as well as liquidity for Thomas cook in detail as follows:
Sales profits ratio: Profits shows success of enterprise in long run so that they have build positive image in front of investors. Some sales profits ratio are explain as follows:
- Gross and net profits: Net profits ratio can be calculated as:
= Net Profit after Tax/Net Sales
- Return on capital employed:This ratio help investor to analysis their investment return effectively so that they are identify whether their decision is profitable or not, if not then how many loss they face when their ROI should be low. Return on capital employed can be calculated as:
= Earnings before interest and tax/Capital Employed
Liquidity ratio:This ratio help to analysis their cash inflow as well as outflow information, through this data, management has take appropriate decision which affect organisation positively in long run. It also determined capabilities of firm to repay their short as well as long term loans. Some important liquidity ratio are explain as follows:
- Current:It shows current status of all assets as will as associated liabilities. Through this, firm are able to identify their abilities. It calculated as:
= Current Assets / current Liabilities
- Acid test: In this covers cash or cash equivalents all things as assets and that is divided by current liabilities. Through this, analysis what is actual current status of Thomas cook related to cash whether they are able to full short term long and other cash liabilities. It can be calculated are as follows:
Acid test= Acidassets /current liabilities
Efficiency ratio:Efficiency ratio can be define as how efficiently organisation has utilise their available resources that help to achieve economical of scale in an effective manner. In this explain time that taken by organisations to collect cash from clients or vendors, also consider the time which are convert by enterprise into cash or its equivalents. This ratio help management to increase their performance as well as provide higher satisfaction to investor and creditors. Some of the important efficiency ratio are explain as follows:
- Debtor and creditor payment period: In this, firm are identifying their all debtor as well as outstanding accordingly they are analysis how may funds they receive from them through this enterprise are able to achieve goals and objectives in limited period of time appropriately.
= Average payment period= Account payable * number of working days/ Net credit purchase
- Stock turnover:Enterprises want to make record of entire inputs as well as outputs of raw material or goods. Through this, they are able to identify their overall inflow and outflow of product. Stock turnover can be calculated as:
= Stock turnover= cost of sales / Average stock held
Financial ratio:There are wide display of quantitative relation used by capitalist to identify the attractiveness of potential as well as existing finance. Accordingly, they take decision of investment in the company. So that, it is a enterprise responsibility to enhance their financial ratio effectively which help them to build positive brand image in front of market. Investment valuation is a simplify evaluation process by comparing all relevant information which help to estimate value of work. Some important financial ratio are explain as follows:
- Return on investment: It is most important formula which are help investor to select best method of investing their fund in order to get higher return in long period of time appropriately. It also help management of Thomas cook to take effective decision resulted enhance their performance in long run.
ROI= Net profits / Total investment
- Gearing ratio: Management of the company has identify their all liabilities and capital employed through this how many outstanding work should be pendent and what is their own ability to full it in an effective manner. It calculated as follows:
= Gearing = Long term liabilities / Capital employed * 100.
Task 4: Sources and Distribution of Funding
There are various kinds of sources which can be utilised by Thomas cook so as to arrange funds for the activities which are being performed in the company. All these sources are very effective as funds can be raised from these sources in very effective manner.
RETAINED PROFITS – This is an easy source of finance which can be utilised by the company so as to conduct their activities in a proper manner. It will be a part of net income which is being retained by the company and is not being paid out so that it can be used by them in emergency situations.
LOANS – It can be considered as that part of the loans which is being collected from the financial institutions so as to start the long term projects of the company. Generally the rate of interest on loans are higher than any other source because it is giving guarantee as well and that is why it is being preferred more as well.
BANKS – This is also an institution which can be adopted by the company so as to arrange money for the functions performed in the company. It is a very effective and secure source which can be preferred by companies who are doing either long term or short term projects. They are always ready to help their clients in all the manner they want.
INVESTORS - These are the people who are normally approached if anyone needs funds to start their own business. But the investors also doesn't invest in each ad every business. They invest only in that business where they feel that the idea is having some unique feature and it will grow in the market as well.
SMALL BUSINESS SCHEMES – These are the type of schemes which are being introduced by the government so as to support the young entrepreneurs in starting their own business. Through these schemes, the government can collect enough funds so that they can at least start their business in a proper manner. Only they should be aware about these schemes so that they can make use of it.
FRANCHISE – This is a kind of strategy which is adopted by a person who has to start their own business. Franchise basically is a kind of business which is being run as a substitute of the main company or where the main company has given the permission to another dealer to run their business. The money which will be given by the main company will be considered as funds.
HIRE PURCHASE – It is a kind of system where something is taken on rent and for that regular instalments are also being paid by them since they are using it. This can be considered as a source of funding because through this the rent which will come can be considered as a source of fund.
SPONSORSHIP - This is a very effective scheme which is being utilised so as to collect the funds from the market. Normally the person who wants funds have to visit all the major stores in the market to take sponsorships i.e. money. The associations which gives funds receive promotion in return.
CREDITORS - They are the ones who gives funds to the company in various kinds of situations. They are the ultimate source which the company contacts if they are mnot able to arrange funds from any other place. They get various kinds of benefits from the company in return.
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From above mentioned project report it has been concluded that travel and torus is important source of attraction for people by using this means people can avail various areas, locations and other historical places. To maintain and operate their business company need appropriate funding which is covered through various sources like public and non public mode. Cost-Volume-Profit (CVP) comes under those methods through which travel and tourism sector of United Kingdom can be measure in an appropriate sense. It has been located that this method is pretty much enclosed with various factors of finance and funding and these are: volume, cost, prices, and profits. It is essential for an organisation to set the correct price for its products and services so that they can maximise on its profits. In order to set product's prices, it is important to know the unit cost of its every item.
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