In this report, pricing strategy, ratio analysis tool and cost-volume-profit analysis have been taken into consideration. The main focus of this company to evaluate the whether the pricing strategy implemented and financial performance of ATC company is effective or not.
In order to determine the tours and travel packages, cost plays an imprint role. The cost of the tours and travel packages is accompanied by the direct, indirect, variable and fixed cost.
|
Direct cost |
Indirect cost |
Variable cost |
Fixed cost |
|
The cost which is directly related to the tour expenses. Example- payment to labour and staffs |
The cost which is not directly related but as much important as direct cost. Example- Payment for advertisement. |
It is the cost which varies with the changes in total revenue of the company. Example- tours operation units |
It is the cost which is fixed in nature and does not vary with the increased units. Example- Supply chain cost Lighting and contract expenses. |
CPV analysis of ATC
Importance of cost in the financial management decision making
It helps in determining the break-even point of the business.
It assists in reducing the overall price of the tours and travel packages.
It is also used to pre-determine the profit of the business.
Importance of volume or tours and travel packages units in the financial management decision making
The pricing strategy is used to increase the overall profitability of the company. There are several pricing strategies which are given as below.
Market leading pricing strategy
Penetration pricing strategy- This strategy is used to penetrate the market with the low price of tours and travel packages.
Price skimming strategy- This pricing skimming strategy is used by branded tours and Travel Company to sell its high-quality packages at the high price.
Profit-oriented pricing strategy
|
Rival based pricing |
Client’s based pricing |
|
In this pricing strategy, the price of the tours and travel packages is set as per the rivals offering (Dalata, Carnival, TUI group) |
This pricing strategy is followed to increase the overall market share by keeping the price of the tours and travel low. |
Return based pricing strategy
This pricing strategy is used to earn the stipulated profit from the business.
This pricing strategy is followed to sell the tours and travel operations at very low cost.
However, there are several companies which have followed different pricing strategy (Jacob, 2017).
|
Name of the company |
Price setting methods |
|
Carnival Corporation |
Customer-based pricing |
|
Dalata |
Penetration strategy |
|
TUI |
Skimming strategy |
|
Other small tours operators |
Cost leading pricing strategy |
With the changes in economic, there are several factors which may impact the profit of ATC.
Economic factor
The GDP rate of the UK has increased by 2.47% which shows strong value creation of the UK currency value on the international level. The increased inflation rate and strong purchasing power of the people in UK is the positive indicator for the growth the tourism busienss in UK (Taylor, 2017).
Support from government bodies
The UK government promotes the tours and travel business by providing capital funding to tours and travel operations for their tourism operations. It increases the overall balance of trade of the organization at large.
Seasonal based selling
It is analyzed that at the time of high peak season, the tours and travel operators keep their tour package price high which shows the positive impact on the profit earning capacity of the company.
Joint venture
Entering into the joint venture with the other companies will increase the overall tours and traveling operation program and services in the market.
The case study shows that total cost of the tours and travel operation would be £ 6, 12,500.00
|
Cruise yacht and the beach chalets |
£ 5,00,000.00 |
|
Meal cost |
£ 1,12,500.00 |
|
Total cost |
£ 6,12,500.00 |
If this project is accepted then the profit would be £ 62,500.
|
Computation of the profit earned by ATC |
|
|
Particular |
Amount |
|
Total sales amount for 90 tourist |
£ 6,75,000.00 |
|
The total cost of the tour packages |
|
|
Cruise yacht and the beach chalets |
£ 5,00,000.00 |
|
Meal cost |
£ 1,12,500.00 |
|
Total cost |
£ 6,12,500.00 |
|
Net profit |
£ 62,500.00 |
If ATC wants to earn £ 1, 00, 00 profits then it should not accept this project.
The below-given information shows the type of management accounting information of the ATC.
Balance Sheet- It shows the resources and liabilities of the company (Jacob, 2017).
Cash flow statement- It reveals the inflow and outflow of cash in the business in the particular year.
Budget- It is prepared with a view to estimating the future income and expenses of the company. It assists in the arrangement of the funds and capital.
Variance analysis- It is described as quantitative analysis which is used to identify the gap between actual and expected results (Jacob, 2017).
Investment appraisal tools assist in identifying and evaluating the available project and give an idea of the project whether it should be accepted or not.
Net present value- It shows the positive present value of cash inflow over its present value of cash outflow (Zhang, Cullen, & Kilpatrick, 2017).
IRR- It reflects the % of the internal rate of return at which ATC will have zero net present value.
Payback period- It divulges the period which will be required to collect the infused capital in the business.
This above-given tool could be used by ATC tour and travel company to accept the particular project. For instance, if a one tour package gives NPV of £ 1, 00,000 and other one give £ 890000 then the first project should be accepted by company (Chen, Tsai, & Liu, (2018).
The below-shown table reflects the financial accounts of the tours and travel operations (Dhar, 2018).
|
Particulars |
2017 |
2016 |
|
Current assets |
98,771 |
1,62,278 |
|
Inventories / Stock |
1,817 |
1,349 |
|
Current liabilities |
68,821 |
56,238 |
|
Prepaid expenses |
5,266 |
3,315 |
|
Average Inventory |
1583 |
971 |
|
Sales revenue |
2,90,551 |
2,25,673 |
|
Cost of sold |
(1,09,864) |
(86,907) |
|
Credit Purchases |
||
|
Gross profit |
1,80,687 |
1,38,766 |
|
Net sales |
2,90,551 |
2,25,673 |
|
Net profit |
34,923 |
21,626 |
|
Capital employed |
9,16,555 |
8,05,098 |
|
Interest |
(11,496) |
(10,363) |
|
Total assets |
9,85,376 |
8,61,336 |
|
Variable cost bearing capital |
6,41,673 |
5,46,729 |
|
Fixed cost bearing capital |
2,64,681 |
2,50,168 |
|
Administrative expenses |
10 |
0 |
|
Computed ratio |
Applicable formula |
2016 |
2015 |
Discussion |
|
Current ratio |
Current assets / Current liabilities |
1.435 |
2.886 |
This ratio shows that ATC corporation has decreased its liquidity position by decreasing the overall investment in the current asset (Ozturk, et al. 2017). |
|
Acid Test Ratio |
Current assets – (stock + prepaid expenses) / Current liabilities |
1.332 |
2.803 |
The quick ratio has also decreased by 1 point which shows that company is investing fewer amounts in its operating assets. |
|
Stock turnover ratio |
Cost of goods sold / Average Inventory |
(69.40) |
(89.50) |
The stock turnover has gone down by 20 points in 2016 as compared to last year data. It shows that company has reduced its amount blockage in its tours and travel packages. |
|
Gross profit ratio |
Gross profit / net sales X 100 |
62.19% |
61.49% |
This ratio divulges that company has decreased its overall gross profit by 1% in 2017 which is 1% lower as compared to last year data. It shows the positive indicator for the growth of the business (Vogel, 2016). |
|
Net profit ratio |
Net profit / net sales X 100 |
12.02% |
9.58% |
This ratio shows that profit of the company is increasing by 3% in 2017. It reveals that company has been increasing its overall profit by increasing its overall turnover (Zhang, 2015). |
|
Return on capital employed |
Net profit/capital employed X100 |
3.81% |
2.69% |
The return on capital employed by the company is not high. It has increased by 1% since last one year. It divulges that company has efficiently used its assets of the company. |
|
Return on total assets |
Net profit after tax / total assets X 100 |
3.54% |
2.51% |
The return on total assets of the company has increased by 1% which is the good indicator. It has efficiently used its total assets to infer good return. |
|
Capital gearing ratio |
Variable cost bearing capital / fixed cost bearing capital |
2.424 |
2.185 |
The gearing ratio shows company’s ability to cover up its variable cost by increasing its EBIT. It shows that company is meeting its interest expenses. |
|
Interest expenses / Operating profit X 100 |
-20.67% |
-28.04% |
The administrative ratio of the company has decreased to 20% which shows that company has reduced its variable expenses ratio by decreasing its overall operating profit. |
|
RATIO |
Formula |
2016 |
2015 |
|
Current ratio |
Current assets / Current liabilities |
1.435 |
2.886 |
|
Acid Test Ratio |
Current assets – (stock + prepaid expenses) / Current liabilities |
1.332 |
2.803 |
|
Stock turnover ratio |
Cost of goods sold / Average Inventory |
(69.40) |
(89.50) |
|
Gross profit ratio |
Gross profit / net sales X 100 |
62.19% |
61.49% |
|
Net profit ratio |
Net profit / net sales X 100 |
12.02% |
9.58% |
|
Return on capital employed |
Net profit/capital employed X100 |
3.81% |
2.69% |
|
Return on total assets |
Net profit after tax / total assets X 100 |
3.54% |
2.51% |
|
Capital gearing ratio |
Variable cost bearing capital / fixed cost bearing capital |
2.424 |
2.185 |
|
Administrative expenses ratio |
Interest expenses / Operating profit X 100 |
-20.67% |
-28.04% |
The funding and distribution of the capital project with the tourism is promoted by the regional development bodies, UK government and foreign exchange department. There are several acts which are used by tours and travel government bodies to promote tours and travel industry such as Setting up of new online business mechanism, developing historical places, installing online channels and improving the area (Taylor, 2017).
Equity funding- It is the source of finance in which equity shares are issued to investors for the particular consideration. In this equity funding, ownership is given to investors in place of capital (Vovchenko, et al. ).
Debt funding- In this debt funding, bonds and debentures are issued to investors for the company.
Conclusion
The ATC Company has been growing its business with the drastic rate. However, with the changes in economic, company has to prepare different attractive tours and travel plans packages which will attract the high number of clients. The main focus of company should be to keep the tours and travel packages prices low to increase the overall turnover and return on capital employed.
References
Jacob, M. (2017). Entrepreneurships and Startup Programmes: Opportunities in Travel and Tourism. Atna Journal of Tourism Studies, 12(2), 51-65.
Zhang, B., Cullen, M., & Kilpatrick, T. (2017). Fracture toughness of high performance concrete subjected to elevated temperatures Part 2 The effects of heating rate, exposure time and cooling rate. ADVANCES IN CONCRETE CONSTRUCTION, 5(5), 513-537.
Chen, Y. J., Tsai, H., & Liu, Y. F. (2018). Supply chain finance risk management: Payment default in tourism channels. Tourism Economics, 1354816618762187.
Dhar, S. (2018).Best Small Business Tips and Ideas.
Dhar, S. (2018). Using Owner Financing-For Buying a Home, The New Rule.
Ozturk, Y., Allahyari San, R., Okumus, F., &Rahimi, R. (2017). Travel motivations of Iranian tourists to Turkey and their satisfaction level with all-inclusive package tours. Journal of Vacation Marketing, 1356766717725562.
Zhang, J. (2015). A Preliminary Study of Barriers to Bank Financing of Ethnic Chinese Entrepreneurs in the UK. Open Journal of Social Sciences, 3(07), 105.
Vogel, H. L. (2016). Travel industry economics: A guide for financial analysis. Springer.
Selinger, E. (2018). Ethics and poverty tours.In Culture and civilization (pp. 157-175).Routledge.
Ozturk, Y., Allahyari San, R., Okumus, F., &Rahimi, R. (2017). Travel motivations of Iranian tourists to Turkey and their satisfaction level with all-inclusive package tours. Journal of Vacation Marketing, 1356766717725562.
Vovchenko, N. G., Andreeva, A. V., Orobinskiy, A. S., &Filippov, Y. M. (2017). Competitive Advantages of Financial Transactions on the Basis of the Blockchain Technology in Digital Economy. European Research Studies, 20(3B), 193.
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Roberts, R. M., Jones, K. W., Seidl, A., Ek, A., & Smith, H. (2017). Conservation finance and sustainable tourism: the acceptability of conservation fees to support the Tambopata National Reserve, Peru. Journal of Sustainable Tourism, 25(10), 1353-1366.
Taylor, N. (2017). 21 The Role of Pioneering Tour Companies. Tourism an
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