Financial Decision Making for Travel and Tourism presentation.pptx

Financial Decision Making for Travel and Tourism

1. Financial Decision Making for Travel and Tourism

2. Introduction Company Overview Investment Decisions Conclusions References Content

3. In the travel and tourism industry, finance plays a very strategic role in stimulating the business, increasing outputs and contributing to competitiveness. Considering the nature of the industry, the sources of fund and preferred funding channel is hugely dependent on the costs and pricing strategy adopted for financial decision by the organisation. Introduction

4. TUI UK formerly Thomson Holidays is a UK-based travel operator and a member of the Thomson Group, a global leading tourism corporation with an integrated business that spread across stages of customer’s holiday trip. TUI offers a wide range of travel and tourism products and services that includes charter and scheduled passenger airlines, cruise line, hotels and resorts, package holidays and travel agency services. Company Overview

5. The company financial decisions and funding sources employs is dependent on the size, nature, stage of development and financial needs of the company (Watson, 2013). With the expansion plans of TUI UK; covering digitalisation, new market growth, increase turnover and widen customer base, it is imperative to consider both short and long term source of finance. These sources in opinion of Frank and Alan, (2012) includes: TUI Financial Decisions

6. Equity vs Debt Capital Equity capital : TUI can raise fund for its expansion and growth activities through investment by the owners including the issueing shares, profit retention, and bond issueance Debt capital : These are sources of fund or financing that TUI borrowed and will have to repay with interest, this includes bank loans

7. Sources of Equity and Capital Funds Equity Funds Profit retention Bonds issuance Partnership agreement Venture capital Public stock sale Capital Funds Commercial banks loans Non-banks loans Government sponsored Loans Factoring accounts receivable Leasing Credit cards

8. Equity Fund Advantages and Disadvantages Advantages Ability to raise large amounts of capital Improved corporate image Improved access to future financing Use of stock for acquisitions Listing on a stock exchange Disadvantages Dilution of ownership Loss of control Loss of privacy Reporting to SEC Filing expenses Accountability to shareholders Pressure for short-term performance Demands of time and timing

9. Capital Funding Advantages and Disadvantages ADVANTAGES Retain control: lender has no say in how TUI manages the company. The business relationship ends once the loanis repaid in full. Tax advantage.  The amount pay in interest is tax deductible, effectively reducing the net obligation. Easier planning.  TUI knows well in advance exactly how much principal and interest it will pay back each month. This makes it easier to budget and make financial plans. DISADVANTAGES Qualification requirements: TUI requires a good enough credit rating to receive financing. Discipline Collateral.  By agreeing to provide collateral to the lender, TUI could put some business assets at potential risk.

10. Types of Investments Debt Gov’t . Bonds Corp. Bonds Equity Preferred Shares Common Shares Options Warrants Short-term Investment Long-Term Short Term

11. MBA 2006 Capital Budgeting (1) | 11 Investment decisions Review IRR is the “yield to maturity” of the investment i.e the rate that set the present value of the expected cash flows equal to the net investment Payback: payback period is the number of years it takes before the cumulative forcasted cash flows equals the initial investment. Profitability Index = PV(Future Cash Flows) / Initial Investment

12. MBA 2006 Capital Budgeting (1) | 12 Investment decisions…… NPV: measure change in market value of company if project accepted. As market value of company V = PV(Future Free Cash Flows) ROCE: this describe the Return on Capital Employed. This is a financial ratio for measuring a company’s margins of profit and the efficiency with which its capital is employed. Break-Even: This is described as the point at which the company’s total cost and revenue are equal. i.e. there is no loss or gain. Break even point = Total fixed cost ÷ Contribution per unit

13. ROCE: this describe the Return on Capital Employed. This is a financial ratio for measuring a company’s margins of profit and the efficiency with which its capital is employed. Break-Even: This is described as the point at which the company’s total cost and revenue are equal. i.e. there is no loss or gain. Break even point = Total fixed cost ÷ Contribution per unit Investment decisions……..

14. Travel and tourism industry in UK is a fiercely competing market, to remain competitive as a market leader, TUI UK require enormous funding for plan execution. However, long term sources of finance such as equity and borrowing is recommended to be most appropriate funding mechanism for the travel giant Conclusion

15. Aidan Berry and Robin Jervis (2005), Accounting in Business Context, 4th Edn ., Hampshire: Cengage Learning  Anthony, R.N. and Govindarajan , V. (2007), ‘Management Control Systems’, 12 th Edn ., New York: Mc Graw Hill   Bhimani , A. (2002), ‘European management accounting research: traditions in the making’ European Accounting Review , 11:1, pp. 99-117   Bichler , S. and Nitzan , J. (2010), ‘Systemic fear, modern finance and the future of capitalism, Jerusalem and Montreal, pp. 8–11 References