Finance

Main aim of this report is to analyse the sources of funds that are required to an organisation who is operating business under hospitality industry. The organisation which is chosen for this report is Belgravia Hotels who is operating in lodging, contract services and restaurants. This business entity based in UK and operating business there successfully. In this assignment different topics are discussed including sources of funds and income, understanding the business in terms of the elements of cost and evaluation of business accounts. Analysis of business performance and application of the concept of marginal costing are also covered under this report.

TASK 1

1.1 Sources of funds available for business and service industry

A UK based hospitality company Belgravia Hotels operates in different sectors including lodging, contract services and restaurants. Now the hotel is willing to be developed and enhance position of all its divisions. For this purpose three different goals are decided by the organisation. All of them are as follows:

• Make investments in such projects that increase shareholders values (Vasquez, 2014).
• Manage assets of the organisation.
• Improve decision making so that profits can be enhanced.

To achieve all the above described objectives organisation needs to have sufficient funds that can be acquired from following sources:

Sources of funds: 

These are the funds that are required by an organisation in order to execute business. Following are the sources that can be used by Belgravia Hotels who is operating business under service industry:

• Bank loan:It is the most common source of fund which can be adopted by Belgravia Hotels in order to develop its business. Bank require a collateral security from the borrower so that if the money is not received on time than bank may sold the asset and recover all the amount of loan. Borrower have to pay an interest on the loan on a fixed rate for a fix period (Papargyropoulou and et.al., 2016).
• Selling old and unusable assets:This is the another option which can be used by  Belgravia Hotels in order to get funds for the future development of the organisation. When a company is having some old assets that cannot be used for business purpose than these can be sold to raise funds. Acquired finance can be used for enterprise's perspective.

Both the above described options of sources of funds can be used by Belgravia Hotels in order to enhance position of all the divisions of the company.

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1.2 Evaluation of contribution made by range of methods of generating income

For every business like Belgravia Hotels there are various methods that helps to generate incomes all of them are described below:

Grants: 

These are the non repayable funds that are provided by one party to another. Belgravia Hotels can generated incomes from grants by acquiring them from outsider parties like government, trusts, corporations etc.

Sales:

 It is the main source of generating income in which services are delivered to the clients in order to increase sales. Higher incomes can be acquired by Belgravia Hotels by selling or rendering good quality services to the customers (Wood, 2013).

Sponsorship: 

It can be defined as the financial support which provided by sponsors to an organisation. Belgravia Hotels can generate income from sponsors by attracting them through impressive presentation of business plan. If the company is having higher number of sponsors than higher income can be acquired from them.

Sub letting: 

It can be defined as the process of letting a business concern to other outsider parties. Belgravia Hotels can generate income by letting some parts of the hotel to externals. It will help to increase overall income of the organisation.

All the above described methods are used to generate income from different sources so that business can be developed and all the divisions can be enhanced.

TASK 2

2.1 Elements of cost, gross profit percentages and selling prices for products and services

Cost:

It can be defined as the combination of the expenses that are faced by Belgravia Hotels in order to deliver services to the customers (Elements of cost, 2018). All the elements of cost that may take place for Belgravia Hotels are described below:

• Labour:These are the persons who are used in service industry to deliver services. In case of Belgravia Hotels labours can be defies as waiters, managers, security staff, cleaning staff etc. it is not possible to operate business without labour as they are concerned with the delivery system of services (Detotto, Pulina and Brida, 2014).
• Overheads:These are the expenses that may take place while services are delivered to the clients. In Belgravia Hotels various overheads can take place while rendering services to the visitors or to operate organisational activities. It includes rent, legal fees, supplies, taxes and advertisement expenses.
• Material:It is the material which is used by service industry to deliver their services. In Belgravia Hotels the material that are utilised to render services are food items, beverages etc.

Role of setting selling price: 

Prices in service sector are decided according to the cost which has been faced by the organisation. If the price is not set according to the cost by Belgravia Hotels appropriately than it is not possible to attract large number of clients. When customers found that a product is not suitable than they will not get attracted towards the hotel. In Belgravia Hotels price is set by the managers according to the expenses, material and employees cost which is involved in each service. It helps to set right or proper price that result in higher profits as it is affordable for the customers (Harms, Memili and Steeger, 2015).

2.2 Methods of controlling stock and cash in a business and service environment

For all the business entities it is very important to control stock and cash so that business can be operated in appropriate manner. Following are the methods that are used by Belgravia Hotels in order to control its inventory and monetary resources:

FIFO (First in First out): 

This method is mainly used to appropriately utilise the inventory which is used to deliver services to the customers. In this technique earlier received stock is used to render services first. In Belgravia Hotels, FIFO is used as it can help to manage the inventory and save funds by using old material first for services.

• Cost: The cost for this method is very low as it does not require a skilled accountant to keep appropriate record of the inventory because it is an easy and simple technique. The organisation will not have to pay extra cost to the use this method.
• Benefits: It is very simple method hence it will not create complexities for the managers and also help to analyse accurate result (Singal, 2014).

Contingency planning:

 It is a technique which is used by the organisations to plan for future complexities that may take place. In Belgravia Hotels this method is used by the managers in order to manage its stock and cash because it can help to make plan so that future consequences may not result in loss of cash and stock.

• Cost:This technique does not cost for the company as it is done by the managers.
• Benefits:It is very beneficial for the company as it can help to forecast possible future events that can affect the organisation negatively. The managers may plan inn advance to resolve all the problems so that it wont harm the organisation in future.

TASK 3

3.1 Sources and structure of trial balance

Trial balance:

It is a statement which is formed by accountants of the organisation in order to record all the credit and debit balances of different ledger accounts. In Belgravia Hotels trial balance is formed to analyse that all the transactions that are recorded in ledger and journal.

Source for trial balance:

All the ledger accounts that have credit or debit balance are the sources for trial balance as it can help to form it in appropriate manner. Different accounts that are recorded in trial balance are revenues, incomes, capital, assets and liabilities. Assets and expenses have debut balance and liabilities, equities and revenues have credit balance (Stephenson, 2014).

Structure of trial balance:

Particular	Debit amount	Credit amount
Cash and cash equillents	Xxx	Â
Bills receivables	Xxx	Â
Building	Xxx	Â
Machine	Xxx	Â
Rent	Xxx	Â
Wages and salaries	Xxx	Â
Legal fees	Xxx	Â
Bank loan	Â	Xxx
Bills payables	Â	Xxx
Stocks	Xxx	Xxx
Consulting earnings	Â	Xxx
TOTAL	Xxx	Xxx

3.2 Evaluation of business accounts, adjustments and notes

Business accounts of an organisation includes income statement and balance sheet. Both the statements of  Belgravia Hotels are as follows:

Income statement:

Particulars	Amount
Sales	£12,000
Cost of Goods Sold	£7,800
GROSS PROFIT	£4,200
Expenses	Â
 - Salary	£1,500
 - Rent	£1,200
OPERATING PROFIT	£1,500
Depreciation	£200
PROFIT BEFORE TAX	£1,300
Taxes - 20%	£260
NET PROFIT	£1,040

Balance sheet:

ASSETS	Amount
Cash/Banks	£12,200
Inventory	£11,800
Acc Receivable	£6,500
Fixed Assets	Â
 - Gross	£4,000
 - Acc Depreciation	£200
 - Net Value	£3,800
TOTAL ASSETS	£34,300
LIABILITIES	Â
Bank Loans	£14,000
Accounts Payable	£8,800
TOTAL LIABILITIES	£18,800
EQUITY	Â
Capital	£10,460
Retained Earnings	£1,040
TOTAL LIABILITIES	£15,500
TOTAL EQUITY + LIABILITIES	£34,300

Adjusting entries:

These are the entries that are used to resolve the problem of imbalance in the trial balance (Yoo and Bai, 2013). Main purpose of them is to match trial balance and form final accounts of the company. Some examples of adjustment entries are as follows

 Depreciation:

X corporation records the 400 of depreciation associated with their fixed assets during the month. The entry for this transaction is:

Depreciation a/c………………. Dr. 400

To accumulated depreciation a/c…………………. Cr. 400

Accrued revenue:

Corporation accrues 8700 of earned but un-billed revenue. The entry for this transaction is:

Accounts receivable- accrued a/c………………Dr 8700

To, Sales a/c……………………………………. Cr. 8700

Prepaid assets:

A payment of 7900 is made towards the next month’s rent. The company used to record all this as prepaid expense. The entry for this transaction is:

Prepaid expenses a/c…………Dr. 7900

To Rent a/c………………...Cr. 7900

3.3 Process and purpose of budgetary control

Budgetary control: 

It is the process of setting financial goals for the organisation so that all the tasks can be accomplished successfully. In Belgravia Hotels budgetary control is done as it is required to operate business appropriately. Process and purpose of budgetary control is as follows:

Process of budgetary control:

The process which is followed by the accountants of  Belgravia Hotels for budgetary control is as follows:

• Preparing the budget: First of all a budget is prepared by the managers and accountant of the company in which all the incomes and expenses of future are recorded.
• Communicating the budget: In next step the budget is communicated to the higher authority of the organisation for their approval. When their approval is marked then it is implemented within the organisation (Chen, 2012).
• Measuring results:In this process the results for the implementation are measured  by the managers so that it can be analysed that it is implemented properly or not.
• Comparison of results:In this stage the budget is compared with prior years to determine that organisation is performing well or not.
• Reporting and taking collective actions:In this stage analysed results of comparison are presented in front of top management and ask them to take appropriate action if the performance of the company is not good.

Purpose of budgetary control: 

• Main purpose of budgetary control is to control the overspending of the organisation is order to save monetary funds for contingencies.
• Budgetary control is conducted to successfully operate the business in limited resouces to enhance the performance.

3.4 Analysis of variances from budgeted and actual figures

Variances: 

It can be defined as the comparison of actual and budgeted results of the organisation. The main purpose of the variances is to determine that organisation have attained growth in current year or not. In Belgravia Hotels variances are calculated to enhance performance by comparing actual and standard figures (Pacheco and Tavares, 2017). A calculation of material and labour variance for Belgravia Hotels is as follows:

Actual units sold= 1500 Actual selling price= 50

Budgeted Units= 1800 Budgeted selling price= 40

Actual labour hours= 400 Per hour rate= 100

budgeted labour hours= 500 Per hour rate= 80

Calculation of variances:

Material cost variance= Total standard cost- total actual cost

= (1800*40)-(1500*50)

=72000-75000

= -3000(A)

Labour usage variance= Total standard hours- Total actual hours

= (400*100)-(500*70)

=40000-35000

=5000(F)

From the above variances it can be analysed that MCV of the organisation is adverse and LUV is favourable which means the organisation needs to control all its resources that are involved in material. It is suggested to the managers of  Belgravia Hotels to reduce the usage of resources.

TASK 4

4.1 Calculation and analysis of all ratios

Ratio analysis: It can be defined as the process of analysing different ratios of an organisation in order to analyse that organisation is performing well or not. Some important ratios that are calculated for Belgravia Hotels are as follows:

Name	Formula	Calculation
Current ratio	Current assets/ current liabilities	30500/8800= 3.47
Quick ratio	Quick assets/ current liabilities	18700/8800= 2.13
Net profit ratio	Net profit/ sales*100	1040/12000*100=8.67%
Gross profit ratio	Gross profit/ sales*100	4200/12000*100=35%
Debt equity ratio	Debts/equities	18800/15500=1.21

From the above calculations it has been analysed that organisation is having good liquidity condition which has resulted in a high current and quick ratios. Net profits and gross profit ratio of the organisation is also very high which means that it is having good profitability. Debt equity ratio of the company is 1.21 which is lower than ideal ratio. The business entity is suggested to use external funds more than internal funds.

4.2 Recommendation on appropriate future management strategies

From the above ratios it has been analysed that  Belgravia Hotels is having low debt equity ratio. It is very important for the company to use external funds to conduct business activities so that internal funds can be saved for future contingencies. The managers of the organisation are suggested to use appropriate management strategies in order to successfully operate the business. The strategy which is recommended to the company is differentiation which is described below:

Differentiation strategy: 

According to this strategy the companies should offer unique products and services to the customers so that they can be retained and large market area can be captured. This method can be used by  Belgravia Hotels in order to attract large number of clients by offering them such services that are unique as compare to the competitors. It will help to expand the business successfully and also increase profitability (Brotherton, 2012).

TASK 5

5.1 Categorisation of costs as fixed, variable and semi variable

Cost: It is the total value of a particular product or service that include the cost of material, labour and overheads. In Belgravia Hotels costs are divided in three different parts that are fixed, variable and semi variable.

For example an event is going to be organised in the lodge of Belgravia Hotels. The event will be held in night and different type of food items including starters, main course and dinner are going to be served to the guests. The costs for this event are categorised in following parts:

• Fixed cost:These are the cost that are fixed and does not change with the number of guests and food items. It will be fixed for whole event.
• Variable cost:The cost that varies with the number of guests and the food and beverage items are called variable costs. This cost will vary during the event.
• Semi variable cost:The costs that are partially fixed and partially variable are called semi variable. It will be fixed for a certain level and will vary when the level is crossed.

5.2 Calculation of contribution per product and explanation of cost/ profit/ volume relationship

Calculation of contribution per units is based on assumption. All the figures that are required to calculate it are as follows:

Total number of guests= 100

Normal charges= 50

variable cost= 30

Total sales= 100*50

=5000

Contribution= Sales- variable cost

=50-30 =20

Profit volume ratio= contribution/ sales*100

30/50*100= 40%

Fixed cost= 1000

BEP = Fixed cost/ contribution per unit

=1000/20

BEP =50

margin of safety= actual sales – BEP

=100-50=50

From the above calculations it has been analysed that BEP of the organisation is 50 which means the organisation needs to sale at least 50 tickets to recover all the costs and expenses. Management of the company has taken appropriate decisions in prior year and it is suggested to the organisation make appropriate decision in future so that margin of safety can be enhanced up to 75 from 50.

Relation between cost volume and profit:

Cost volume and profits are interrelated with each other if cost which is set by Belgravia Hotels is appropriate than it will attract large number of customers. In this situation the profits of the company will be increased. It depicts that costs and profits are interrelated because they depends upon each other (Ariza-Montes and et.al., 2017).

5.3 Justification of short term management decisions

As the managers of the company has taken appropriate decision in previous year which has resulted in 50% margin of safety. The decisions have helped to reach the higher level of profitability. All of them are very beneficial for the organisation because it will also result in good financial condition.

Calculation of BEP:

BEP = Fixed cost/ contribution per unit

=2000/20

BEP =50

Total number of guests= 100

Normal charges= 50

variable cost= 30

Conclusion

From the above project report it has been concluded that finance is the main requirement of an organisation which is required to execute the business appropriately. If a company is not having sufficient monetary resources than it is not possible to perform operational activities successfully. Business entities can gather funds from various sources such as bank loan and selling old business assets. Sufficient monetary resources can help to execute business effectively and achieve all the goals so that organisational departments can be developed.

• References

• Ariza-Montes and et.al., 2017. Employee responsibility and basic human values in the hospitality sector. International Journal of Hospitality Management. 62. pp.78-87.
• Brotherton, B. ed., 2012. International Hospitality Industry. Routledge.
• Chen, M. H., 2012. The reaction of US hospitality stock prices to Fed policy announcements. International Journal of Hospitality Management. 31(2). pp.395-398.
• del Mar Alonso-Almeida, M. and Bremser, K., 2013. Strategic responses of the Spanish hospitality sector to the financial crisis. International Journal of Hospitality Management. 32. pp.141-148.
• Detotto, C., Pulina, M. and Brida, J. G., 2014. Assessing the productivity of the Italian hospitality sector: a post-WDEA pooled-truncated and spatial analysis. Journal of Productivity Analysis. 42(2). pp.103-121.
• Harms, H., Memili, E. and Steeger, J., 2015. Expert insights on the determinants of cooperation in family firms in tourism and hospitality sector. Journal of Co-operative Organization and Management. 3(2). pp.72-83.