Tourism Finance Planning

8/17/2019 Tourism Finance Planning

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Tourism Finance Mgt


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Planning process

Identify goals. (what do you want to accomplish?)

Inventory resources. (what do you have to work

with?)Analyze business performance. (ow have you

done in the past?)

Assess the environment and the potential. (whatmight you do in the future?)

!ecide on actions. (what will you do now?)Implement strategies. (how will you do it?)

"valuate the plan. (is it working?)

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,eed for planning

growth patterns- and their responses tochanges in the business environment

best way to thrive and achieve business goalsin the changing environment.

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Always consider

three things to improve performance

Improve e/ciency (do a better 0ob of whatyou do now)1

Increase 2olume (do more of what you do nowto spread 34ed costs)1 or

5eorganize the business (do somethingdi6erent).

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7hink strategically

strategic8 standpoint individual 3rms focuson

9ost :eadership (be the low cost producer of

whatever commodity you are producing)1!i6erentiation (produce some attribute that

others are unwilling or unable to duplicatethat will garner a market premium)1 or

9reating barriers to entry (perhaps throughbrand loyalty or legal mechanism such

patenting).

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>perational planning

>perational plans typically outline how toachieve very speci3c and very short run (thisyear) goals and ob0ectives.

>perational plans are very @tactical8 in nature-meaning that they describe how speci3c goalswill be achieved through daytodayoperations.

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>perational plan

Cinancial plan assist in evaluating current

3nancial position- and the potential for future3nancial performance.

*arketing plans assist in evaluating where your

business is positioned in the marketplace- and

formalize risk management strategies.

Cinancial and marketing plans can certainly havea tactical component- however- they also can be

@strategic8 in nature.

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Meaning of Financial Management

Cinancial *anagement means planning- organizing- directing andcontrolling the 3nancial activities such as procurement andutilization of funds of the enterprise. It means applying general

management principles to 3nancial resources of the enterprise.

Scope/Elements

Investment decisions includes investment in 34ed assets (calledas capital budgeting). Investment in current assets are also a part ofinvestment decisions called as working capital decisions.

Financial decisions 7hey relate to the raising of 3nance fromvarious resources which will depend upon decision on type ofsource- period of 3nancing- cost of 3nancing and the returnsthereby.

Dividend decision 7he 3nance manager has to take decision with

regards to the net pro3t distribution. ,et pro3ts are generallydivided into two!ividend for shareholders !ividend and the rate of it has to be decided.5etained pro3ts Amount of retained pro3ts has to be 3nalized which

will depend upon e4pansion and diversi3cation plans of the enterprise.

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7here are three key elements to the process of 3nancial management

(1) Financial Planning

*anagement need to ensure that enough funding is available at the right time tomeet the needs of the business. In the short term- funding may be needed to investin euipment and stocks- pay employees and fund sales made on credit.

In the medium and long term- funding may be reuired for signi3cant additions tothe productive capacity of the business or to make acuisitions.

(2) Financial ontrol

Cinancial control is a critically important activity to help the business ensure thatthe business is meeting its ob0ectives. Cinancial control addresses uestions such

asAre assets being used e/ciently?Are the businesses assets secure?!o management act in the best interest of shareholders and in accordance with business

rules?

(!) Financial Decision"ma#ing

7he key aspects of 3nancial decisionmaking relate to investment- 3nancing anddividendsInvestments must be 3nanced in some way F however there are always 3nancing

alternatives that can be considered. Cor e4ample it is possible to raise 3nance fromselling new shares- borrowing from banks or taking credit from suppliers

A key 3nancing decision is whether pro3ts earned by the business should be retainedrather than distributed to shareholders via dividends. If dividends are too high- thebusiness may be starved of funding to reinvest in growing revenues and pro3ts further.

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Estimation of capital re$uirements% A 3nance manager has to make estimation with regards tocapital reuirements of the company. 7his will depend upon e4pected costs and pro3ts and futureprogrammes and policies of a concern. "stimations have to be made in an adeuate manner whichincreases earning capacity of enterprise.

Determination of capital composition% >nce the estimation have been made- the capitalstructure have to be decided. 7his involves short term and long term debt euity analysis. 7hiswill depend upon the proportion of euity capital a company is possessing and additional fundswhich have to be raised from outside parties.

&oice of sources of funds% Cor additional funds to be procured- a company has many choiceslikeIssue of shares and debentures

:oans to be taken from banks and 3nancial institutionsPublic deposits to be drawn like in form of bonds.

9hoice of factor will depend on relative merits and demerits of each source and period of 3nancing.

Investment of funds% 7he 3nance manager has to decide to allocate funds into pro3table venturesso that there is safety on investment and regular returns is possible.

Disposal of surplus% 7he net pro3ts decision have to be made by the 3nance manager. 7his can bedone in two ways

!ividend declaration It includes identifying the rate of dividends and other bene3ts like bonus.5etained pro3ts 7he volume has to be decided which will depend upon e4pansional-

innovational- diversi3cation plans of the company.

Management of cas&% Cinance manager has to make decisions with regards to cash management.9ash is reuired for many purposes like payment of wages and salaries- payment of electricity andwater bills- payment to creditors- meeting current liabilities- maintainance of enough stock-purchase of raw materials- etc.

Financial controls% 7he 3nance manager has not only to plan- procure and utilize the funds but he

also has to e4ercise control over 3nances. 7his can be done through many techniues like ratioanalysis- 3nancial forecasting- cost and pro3t control- etc.

Cunctions of Cinancial *anagement

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Importance

(i) success of Promotion Depends onFinancial 'dministration >ne of the most

important reasons of failures of businesspromotions is a defective 3nancial plan. If theplan adopted fails to provide su/cient capital to

meet the reuirement of 34ed and Huctuatingcapital an particularly- the latter- or it fails to

assume the obligations by the corporationswithout establishing earning power- thebusiness cannot be carried on successfully.

ence sound 3nancial plan is very necessaryfor the success of business enterprise.

(ii) Smoot& *unning of anEnterprise


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(v) Determinant of ,usiness Success It has been recognised- even inIndia that the 3nancial manger splay a very important role in the success

of business organisation by advising the top management the solutions of

the various 3nancial problems as e4perts. 7hey present important factsand 3gures regarding 3nancial position an the performance of various

functions of the company in a given period before the top management in

such a way so as to make it easier for the top management to evaluatethe progress of the company to amend suitably the principles and policies

of the company. 7he 3nancial manges assist the top management in its

decision making process by suggesting the best possible alternative out ofthe various alternatives of the problem available. ence- 3nancial

management helps the management at di6erent level in taking 3nancial

decisions.

(vi) Measure of Performance 7he performance of the 3rm can be

measured by its 3nancial results- i.e- by its size of earnings 5iskiness andpro3tability are two ma0or factors which 0ointly determine the value of theconcern. Cinancial decisions which increase risks will decrease the value of

the 3rm and on the to the hand- 3nancial decisions which increase the

pro3tability will increase value of the 3rm. 5isk an pro3tability are twoessential ingredients of a business concern.

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7ypes of Cinance

-verdraftA popular form of 3nance because it has theadvantages of availability- convenience and

He4ibility. owever- because interest rates arehigh- it should only be used for shorttermreuirements such as funding working capital.

,an# term loans 7hese provide 34edterm 3nance for longerperiods. 7hey are often secured by a chargeagainst company assets and reuire you to sign

legally binding covenants.

'sset".ased nance 7his describes 3nancing an asset over itsestimated life span using the asset as securityfor the loan. It can be structured so that theborrower has the sole right to use the asset andownership transfers to the borrower at the end

of the loan period.

*eceiva.les Finance 7his form of 3nance uses outstanding customerinvoices as security

Invoice discounting


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Cinancial goals of organisation

Financial 0oals of -rganiation

7he two important 3nancial goals of organization

can be

pro3t ma4imization andwealth ma4imization.

>ut of this wealth ma4imization is most important

because it is based on cash Hows of theorganizations.

>n the other pro3t ma4imization can be vague asthere can be multiple interpretations of pro3ts.

*oreover pro3ts do not take care of time value of

money and ignore risk attached to the returns.Also pro3t ma4imization focus on short term

pro3tability which may not lead to long term

wealth creation.

ence 3nancial management is concerned withvalue ma4imization.

*anagements e6orts are for increasing the valueof the company for the shareholders.

7his reuires investing in pro0ects that are likely toprovide positive returns to the company.

ence wealth ma4imization accounts for thetiming and risk of the e4pected bene3ts.

"arnings are valued by deducting the total costs from total income.

ence ,et "arnings J 7otal Income 7otal costs.

9ash Hows will only take cash inHows and cash outHows.

Increase in cash Hows can lead to improvement in wealthma4imization.

*anagement decisions a6ect the stockholder wealth greatly. 7heycan a6ect the wealth by following decisions

Present and future earnings pershare

Investment decision 7his is

related to deciding about thecomposition of 34ed assets Cinancing decision 7his is

deciding about the mi4 ofsources of funds

=orking capital managements

Pro3t allocation decisions =e must understand that the 3rms primary ob0ective is ma4imizing

the welfare of owners- but- in operational terms- they focus on the

satisfaction of its customers through the production of goods andservices needed by them.

Cirms state their vision- mission and values in broad terms. =ealthma4imization is more appropriately a decision criterion- rather thanan ob0ective or a goal.

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Cinancial Corecasting describes the process by which 3rms think about and

prepare for the future. 7he forecasting process provides the means for a 3rm to

e4press its goals and priorities and to ensure that they are internally consistent. Italso assists the 3rm in identifying the asset reuirements and needs for e4ternal3nancing.

Cor e4ample- the principal driver of the forecasting process is generally the sales

forecast.


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a nancial plan is a series of steps which are carried out- or goals that areaccomplished- which relate to an individuals or a businesss 3nancial a6airs.

7his often includes a budget which organizes an individuals 3nances and

sometimes includes a series of steps or speci3c goals for spendingand saving future income.

7his plan allocates future income to various types of e4penses- such as rent

or utilities- and also reserves some income for shortterm and longterm

savings.

A 3nancial plan sometimes refers to an investment plan- which allocates

savings to various assets or pro0ects e4pected to produce future income-such as a new business or product line- shares in an e4isting business- or real

estate.

In business- a 3nancial plan can refer to the three primary 3nancial

statements (balance sheet- income statement- and cash How statement)

created within a business plan.

Financial forecast or 3nancial plan can also refer to an annual pro0ectionof income and e4penses for a company- division or department.

A 3nancial plan can also be an estimation of cash needs and a decision on

how to raise the cash- such as through borrowing or issuing additional shares

in a company.

Cinancial plan

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+aria.le osts

2ariable costs are those costs which vary directly with the level of output. 7heyrepresent payment outputrelated inputs such as raw materials- direct labour- fueland revenuerelated costs such as commission.

A distinction is often made between Direct variable costs and Indirect variablecosts.

Direct variable costs are those which can be directly attributable to the productionof a particular product or service and allocated to a particular cost centre. 5awmaterials and the wages those working on the production line are good e4amples.

Indirect variable costs cannot be directly attributable to production but they dovary with output. 7hese include depreciation (where it is calculated related to

output e.g. machine hours)- maintenance and certain labour costs.Semi"+aria.le osts

=hilst the distinction between 34ed and variable costs is a convenient way ofcategorising business costs- in reality there are some costs which are 34ed in naturebut which increase when output reaches certain levels. 7hese are largely related tothe overall LscaleL and$or comple4ity of the business. Cor e4ample- when a businesshas relatively low levels of output or sales- it may not reuire costs associated withfunctions such as human resource management or a fullyresourced 3nancedepartment. owever- as the scale of the business grows (e.g. output- numberpeople employed- number and comple4ity of transactions) then more resources arereuired. If production rises suddenly then some shortterm increase in warehousingand$or transport may be reuired. In these circumstances- we say that part of thecost is variable and part 34ed.

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*anagement of current Assets

3or#ing capital (abbreviated 3) isa 3nancial metric which

represents operatingliuidity available to a business-organization or other entity- including

governmental entity.

Along with 34ed assets such as plant

and euipment- working capital is

considered a part of operating capital. ,et working capital is calculated

as current assets minus currentliabilities.

It is a derivation of working capital-

that is commonly used in valuation

techniues such as !9Cs (!iscounted

cash Hows).

If current assets are less than current

liabilities- an entity has a 4or#ingcapital decienc5- also calleda 4or#ing capital decit.

6et 3or#ing apital 7 urrent 'ssets 8urrent 9ia.ilities

6et -perating 3or#ing apital 7 urrent'ssets 8 6on Interest".earing urrent9ia.ilities

E$uit5 3or#ing apital 7 urrent 'ssets 8urrent 9ia.ilities 8 9ong"term De.t

A company can be endowedwith assets and pro3tability but short

of liuidity if its assets cannot readily beconverted into cash.

Positive working capital is reuired to ensurethat a 3rm is able to continue its operations andthat it has su/cient funds to satisfy both

maturing shortterm debt and upcomingoperational e4penses.

7he management of working capital involvesmanaging inventories- accounts receivable and

payable- and cash.

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urrent assets and current lia.ilities include t&ree accounts whichare of special importance. 7hese accounts represent the areas of thebusiness where managers have the most direct impactaccounts receivable (current asset)inventory (current assets)- andaccounts payable (current liability)

7he current portion of debt (payable within ' months) is critical- because itrepresents a shortterm claim to current assets and is often secured by longterm assets. 9ommon types of shortterm debt are bank loans and lines ofcredit.

An increase in working capital indicates that the business has eitherincreased current assets (that is has increased its receivables- or othercurrent assets) or has decreased current liabilities- for e:ample has paido6 some shortterm creditors.

Implications on M;'% 7he common commercial de3nition of workingcapital for the purpose of a working capital ad0ustment in an *MAtransaction (i.e. for a working capital ad0ustment mechanism in a sale andpurchase agreement) is eual toCurrent Assets – Current Liabilities excluding deferred tax assets/liabilities,

excess cash, surplus assets and/or deposit balances.9ash balance items often attract a oneforone purchase price ad0ustment.

9alculation

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Nuided by the above criteria- management will use a combination ofpolicies and techniues for the management of working capital.

7hese policies aim at managing the currentassets (generally cash and cash euivalents- inventories and debtors) andthe short term 3nancing- such that cash Hows and returns are acceptable.as& management. Identify the cash balance which allows for the business

to meet day to day e4penses- but reduces cash holding costs.Inventor5 management. Identify the level of inventory which allows for

uninterrupted production but reduces the investment in raw materials andminimizes reordering costs and hence increases cash How. Kesides this- thelead times in production should be lowered to reduce =ork in Progress(=IP) and similarly- the Cinished Noods should be kept on as low level aspossible to avoid over production

De.tors management. Identify the appropriate credit policy- i.e. credit

terms which will attract customers- such that any impact on cash Hows andthe cash conversion cycle will be o6set by increased revenue and hence5eturn on 9apital (or vice versa)1

S&ort term nancing. Identify the appropriate source of 3nancing- giventhe cash conversion cycle the inventory is ideally 3nanced by credit grantedby the supplier1 however- it may be necessary to utilize a bank loan (oroverdraft)- or to Lconvert debtors to cashL through LfactoringL.

*anagement of working capital

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9haracteristics of =orking 9apital

6eeds t&at are S&ort Term =orkingcapital is being utilized in acuiringcurrent assets which will be converted tocash for a short period only.

ircular Movement =orking capital isbeing converted to cash constantly whichwill 0ust be turned as a working capital allover again.

Permanenc5% Although it is 0ust a kind ofshort term capital- working capital isneeded by a business forever and always.

Fluctuation% =orking still Huctuatesevery now and then even it is somethingpermanent.

9i$uidit5% It is very liuid for it can beconverted as cash any time withoutlosing anything.

9ess *is#5% Investments in current

assets such as working capital comeswith less risk for it is 0ust for short term.

6o 6eed for Special 'ccountingS5stem% perational funds

perating cycle and cash cycle

7he investment in working capital is inHuenced by four key

events in the production and sales cycle of the 3rm

'. Purchase of raw materials. Payment of raw materials%.


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*eceiva.les Management*anaging and collecting commercial receivables (unpaidreceivables between companies or organisations) is linked to thecredit insurance business and the information business.

reducing claims e4penses by setting up e/cient receivablesmanagement processes- developing e4cellent knowledge oflocal payment and collection regulations and practices-accurately predicting the commercial and 3nancial behaviour ofbuyers throughout the world and closely monitoring changes in

their behaviour.

ou can bene3t from our e4perience and recognition in this 3eld

Ketter manage your amount of outstandings- *aintain your trading relationship with a valued customereither on domestic or international level Ke fully informed of progress- Net liuidity and cash How Increase own company 3nancial attractiveness


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must be designed to meet t&e dictates of t&e mar#etplace and support t&e compan5 and communicate 4it& customers. Inventory*anagement and the activities of Inventory 9ontrol do not make decisions or manageoperations1 they provide the information to *anagers who makemore accurate andtimel5 decisions to manage their operations.

7he basic building blocks for the Inventory *anagement system and Inventory 9ontrolactivities are Sales Forecasting or !emand *anagement

Sales and -perations Planning Production Planning Material *e$uirements Planning Inventor5 *eduction

7he emphases on each area will vary depending on the company and how it operates- andwhat reuirements are placed on it due to market demands. "ach of the areas abovewill need to .e addressed in some form or anot&er to &ave a successful program of

Inventory *anagement and Inventory 9ontrol.

9ontrol

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Fi:ed assets management is an accounting process that seeksto track 34ed assets for the purposes of 3nancialaccounting- preventive maintenance- and theft deterrence.

*any organizations face a signi3cant challenge to track thelocation- uantity- condition- maintenance and depreciation statusof their 34ed assets. A popular approach to tracking 34ed assets

utilizes serial numbered Asset 7ags- often with bar codes for easyand accurate reading. Periodically- the owner of the assets cantake inventory with a mobile barcode reader and then produce areport.

>6theshelf software packages for 34ed asset management are

marketed to businesses small and large.


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9apital budgeting decisions are of paramount importance in 3nancial decision.


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structures

In simple terms- 3nancial structure consistsof all assets- all liabilities and the capital.

7he manner in which an organizationOs

assets are 3nanced is referred to as its3nancial structure. 7here is another termcalled capital structure that confuses many.

7here are some similarities between capitalstructure and 3nancial structure. owever-there are many di6erences also that will behighlighted in this article.

If you take a look at the balance sheet of acompany- the entire left hand side whichincludes liabilities plus euity is called the3nancial structure of the company. It

contains all the long term and short termsources of capital. >n the other hand-capital structure is the sum total of all long

term sources of capital and thus is a part ofthe 3nancial structure. It includes

debentures- long term debt- preferenceshare capital- euity share capital andretained earnings. In the simplest of terms-capital structure of a company is that partof 3nancial structure that reHects long term

sources of capital.

owever- capital structure needs to be distinguished from assetstructure that is the sum total of assets represented by 34ed

assets and current assets. 7his is the total capital of the

business that is contained in the right hand side of the balancesheet. 7he composition of a 3rmOs liabilities is therefore referred

to as its capital structure. If a 3rm has a capital that is %&Qeuity 3nanced and B&Q debt 3nanced- - the leverage of the3rm is only B&Q.

apital Structure vs Financial Structure

9apital structure of acompany is long term

3nancing which includes longterm debt- common stock andpreferred stock and retainedearnings.

Cinancial structure on theother hands also includes

short term debt and accountspayable.

9apital structure is thus asubset of 3nancial structureof a company.

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!ividend Policy

!ividend Policy refers tothe e4plicit or implicitdecision of the Koard of!irectors regarding theamount of residualearnings (past or present)

that should be distributedto the shareholders of thecorporation. 7his decision is

considered a nancing

decision because thepro3ts of the corporationare an important sourceof 3nancing available tothe 3rm.

7ypes of !ividends

!ividends are a permanent

distribution of residualearnings$property of thecorporation to its owners.

!ividends can be in theform of 9ash

Additional


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Dividend Polic5

Once a company makes a proft, management mustdecide on what to do with those

pro3ts. 7hey could continue toretain the pro3ts within thecompany- or they could pay outthe pro3ts to the owners of the3rm in the form of dividends.

>nce the company decides on

whether to pay dividends theymay establish a somewhatpermanent dividend policy-which may in turn impact oninvestors and perceptions of thecompany in the 3nancialmarkets. =hat they decidedepends on the situation of thecompany now and in the future.It also depends on thepreferences of investors and

potential investors.

Dividend polic5 is concerned with taking adecision regarding paying cash dividend in thepresent or paying an increased dividend at alater stage. 7he 3rm could also pay in the form

of stock dividends which unlike cash dividends donot provide liuidity to the investors- however- itensures capital gains to the stockholders. 7hee4pectations of dividends by shareholders helpsthem determine the share value- therefore-dividend policy is a signi3cant decision taken by

the 3nancial managers of any company.

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9oming up with a dividend policy is challenging for the directorsand 3nancial managers of a company- becausedi6erent investors have di6erent views on present cash dividendsand future capital gains.

Another confusion that pops up is regarding the e4tent of e6ect ofdividends on the share price.

!ue to this controversial nature of a dividend policy it is oftencalled the Dividend pule.

2arious models have been developed to help 3rms analyse and

evaluate the perfect dividend policy. 7here is no agreement between these schools of thought over the

relationship between dividends and the value of the share or thewealth of the shareholders in other words.

>ne school comprises of people like Rames ". =alter and *yron R.

Nordon (see Nordon model)- who believe that current cashdividends are less risky than future capital gains. 7hus- they saythat investors prefer those 3rms which pay regular dividends andsuch dividends a6ect the market price of the share. Anotherschool linked to *odigliani and *iller holds that investors dont

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T5pes of Dividend Polic5%a.


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7ourism Cinance corporation of India

7he Novernment of India had-pursuant to the

recommendations of the ,ational9ommittee on 7ourism viz unus9ommittee set up under theaegis of Planning 9ommission-decided in 'EDD- to promote aseparate AllIndia CinancialInstitution for providing 3nancial

assistance to tourismrelatedactivities$pro0ects. In accordancewith the above decision- the IC9I:td. along with other AllIndiaCinancial$Investment Institutionsand ,ationalised Kanks promoteda Public :imited 9ompany underthe name of L7ourism Cinance9orporation of India :td. (7C9I)Lto function as a specialised AllIndia !evelopment CinancialInstitution to cater to the3nancial needs of tourism

industry.

7he Novernment of India had- pursuant to the recommendationsof the ,ational 9ommittee on 7ourism viz unus 9ommittee setup under the aegis of Planning 9ommission- decided in 'EDD- topromote a separate AllIndia Cinancial Institution for providing3nancial assistance to tourismrelated activities$pro0ects. Inaccordance with the above decision- the IC9I :td. along withother AllIndia Cinancial$Investment Institutions and ,ationalisedKanks promoted a Public :imited 9ompany under the name ofL7ourism Cinance 9orporation of India :td. (7C9I)L to function as

a specialised AllIndia !evelopment Cinancial Institution to caterto the 3nancial needs of tourism industry. 7C9I was incorporated

as a Public :imited 9ompany under the 9ompanies Act- 'E; onBth Ranuary 'EDE and became operational with e6ect from 'stCebruary 'EDE on receipt of 9erti3cate of the 9ommencementof Kusiness from the 5egistrar of 9ompanies. 7C9I has beennoti3ed as a Public Cinancial Institution under section #A of the

9ompanies Act- 'E;- vide ,oti3cation ,o B(") dated the%rd Ranuary 'EE& issued by the *inistry of Industry- !epartment

of 9ompany A6airs. 7C9Is 5egistered o/ce is situated at '%thCloor- IC9I 7ower- '- ,ehru Place- ,ew !elhi ''& &'E.

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-.Bective 7C9I provides 3nancial assistance to enterprises for setting up and$or development oftourismrelated pro0ects- facilities and services- such as

otels- 5estaurants- oliday 5esorts- Amusement Parks- *ultiple4es and "ntertainment

9enters- "ducation and


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Promoters< ontri.ution

7he minimum promoters contribution for the pro0ects is %&Q. 5ela4ation may- however- be allowed inrespect of large pro0ects involving capital cost e4ceeding 5s. ;& crore.

De.t E$uit5 *atio

7C9I e4tends termloan assistance based on debteuity ratio not e4ceeding '.;'. owever- in case ofhotels in seasonal locations$ multiple4es$ entertainment centers- amusement parks and other tourism

related pro0ects- the debteuity ratio would be stipulated in the range of '' to '.;'.*ate of Interest

Interest on loan is He4ible and linked to the P:5 of 7C9I which is presently '.;Q p.a. (since 'st August&&D). 7C9I- while considering loans to the borrowers- evaluates each concern individually on variousparameters such as Industry$ Kusiness 5isk- "nvironmental 5isk- Pro0ect 5isk- *anagement 5isk-


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'ccounting


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,alance s&eet indicatesstructure of the assets

belonging to the company and3nancial means used to 3nance

these assets at a particular

point of time. Cor e4ample this statement as

of !ecember %'- && indicatedstructure of the assets and how

they are 3nances on !ecember%'- &&.

7his statement is made on thebasis of accounting euation-

i.e. assets are eual to the sum

of liabilities and ownersO euity.

7he assets side includes

current and longterm assets.

:iabilities and ownersO euityside includes current and long

term liabilities- ownersO euityconsisting of share capital-

retained earnings- i.e. net pro3t

earned and retained in the

business.

Income statement indicates income earned and e4pensesincurred by the company for a particular period of time.

Cor e4ample this statement for the year && indicated- whatincome was earned and what e4penses were incurred by thecompany during the year &&. !i6erence between all incomeand all e4penses is called net pro3t for the year.


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A 3nancial

statement that summarizesa companys assets-liabilities and shareholderseuity at a speci3c pointin time. 7hese threebalance sheet segments

give investors an idea as towhat the company ownsand owes- as well as theamount invested by theshareholders.

7he balance sheet mustfollow the followingformula

Assets J :iabilities U


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7he statement of cash Hows is one of the main3nancial statements. (7he other 3nancial

statements are the balance sheet- incomestatement- and statement of stockholders

euity.)

7he cash How statement reportsthe cash generated and used during the time

interval speci3ed in its heading.

7he period of time that the statement covers is

chosen by the company. Cor e4ample- theheading may state LCor the 7hree *onths

"nded !ecember %'- &'&L or L7he Ciscal ear"nded perating activitiesFconverts the items reported

on the income statement from the accrual basisof accounting to cash.

.Investing activitiesFreports the purchase andsale of longterm investments and property- plantand euipment.

%.Cinancing activitiesFreports the issuance andrepurchase of the companys own bonds andstock and the payment of dividends.

#.


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Cund How statement

Cinancial statements do not give thecomplete 3nancial information. 7hesestatements give the information of

funds on a particular date. 7hepurpose of preparation of fund Howstatements is to know about fromwhere funds are coming and wherebeing invested. 7he funds Howstatements is generally prepared fromthe data identi3able and pro3t andloss account and balance sheets. CundHow statement is also called assources and application of funds. Itshows the detail of funds businessreceived from sources and the amountof funds the business used for

di6erent purposes in the year.'cc To F-C*9E-8 A statement of

sources and application of funds- is atechnical advice designed to highlightthe changes in 3nancial position ofbusiness enterprise between twodates.8

7here are few other reasons to prepare fund How statement

It e:plains t&e nancialconse$uences of .usiness

operations% Cund How statementgives answer to following

conHicting situations.ow the business could have good

liuid position in spite of businessmaking loses or acuisition of 34edassets?

=here have the pro3ts gone?ow a business can earn more and

more pro3ts.

It ans4ers intricate $ueries%ow much fund is generated from

normal business operations?=hat are the sources of repayment of

loans?ow to utilize the funds up to

optimum level?

It acts as an instrument forallocation of resources

It is a test of eectiveness inuse of 4or#ing capital#$%&$'

#&* + ,A,!A

otel accounting


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otel accountingotels follow the general principles of accounting- but due to the uniue nature of guest accounting- hotel

accounting departments use terms that may not be familiar to accountants in other industries. Accounting termsrelated to the management of guest payments- charges and disputes can be confusing to outsiders- but they

represent everyday concepts in the hotel industry.

Colio 7he record of all credits and debits associated with a guest or group is called an account and an account can be

organized by sections- or folios. 9ommon folio divisions include one each for room charges- food and beveragecharges and miscellaneous charges. *ultiple folios are often used with convention guest accounts- as the hotelroom rate may be paid by the group while the individuals are responsible for their additional- or incidentalcharges.


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:ate 9harge

A late charge occurs when a guest signs for a room charge after checking outof the hotel. 9ommon late charges include breakfast or minibar charges andmanual postings due to system outage.


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T&an# ouG

Tourism Finance Planning

Documents