Tourism Finance Mgt

Ramakrishna Kongalla Click to edit Master subtitle style

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Meaning of Financial Management

Financial Management means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise. It means applying general management principles to financial resources of the enterprise. Investment decisions includes investment in fixed assets (called as capital budgeting). Investment in R'tist@Tourism, 22

Scope/Elements

There are three key elements to the process of financial management:

(1) Financial Planning

Management need to ensure that enough funding is available at the right time to meet the needs of the business. In the short term, funding may be needed to invest in equipment and stocks, pay employees and fund sales made on credit. In the medium and long term, funding R'tist@Tourism, 33

Estimation of capital requirements:A finance manager has to make estimation with regards to capital requirements of the company. This will depend upon expected costs and profits and future programmes and policies of a concern. Estimations have to be made in an adequate manner which increases earning capacity of enterprise. Determination of capital composition:Once the estimation have been made, the capital structure have to R'tist@Tourism, 44

Functions of Financial Management

Importance
(i) success of (iii) Financial Promotion Administration Depends on Co-ordinates Financial Various Administration. Functional One of the most Activities.Finan important reasons cial of failures of administration business provides promotions is a complete codefective financial ordination plan. If the plan between various R'tist@Tourism, 55

(v) Determinant of Business It brings economic growth and development through investments Success.It has , financing, dividend and risk been recognised, management decision which help companies to undertake better even in India that projects. the financial When there is good growth and development of the economy it manger splay a will ultimately improve the standard of living of all people. very important Improved standard of living will role in the lead to good health and financial stress will reduce considerably. success of It enables the individual to take business better financial decision which will reduce poverty, reduce debts and organisation by increase savings and investments. advising the R'tist@Tourism, top Better financial66 ability will lead to

importance of financial management can be summarized as follows:

Types ofFinance
Overdraft Invoice A popular form of discounting finance because it Similar to has the Receivables advantages of Finance, this is availability, usually only convenience and offered to larger flexibility. companies with However, because strong credit interest rates are management high, it should only systems. be used for shortR'tist@Tourism, 77

Financial Goals of Organization The two important financial goals of organization can be

Financial goals of organisation

Earnings are valued by deducting the total costs from total income. Hence Net Earnings = Total Income - Total costs.

profit maximization and wealth maximization.

Cash flows will only take cash R'tist@Tourism, 88 inflows and cash

Financial Forecasting

Financial Forecasting describes the process by which firms think about and prepare for the future. The forecasting process provides the means for a firm to express its goals and priorities and to ensure that they are internally consistent. It also assists the firm in identifying the asset requirements and needs for external financing. For example, the principal driver of the forecasting process is generally the R'tist@Tourism, 99 sales forecast. Since most Balance

Financial plan

afinancial planis a series of steps which are carried out, or goals that are accomplished, which relate to an individual's or a business's financial affairs. This often includes abudgetwhich organizes an individual's finances and sometimes includes a series of steps or specific goals for spending andsavingfutureincome. This plan allocates future income to R'tist@Tourism, 1010 various types ofexpenses, such as

Break Even analysis

The Break-Even Break-even Chart analysis is a technique widely In its simplest used by form, the breakproduction even chart is a management and graphical management representation of accountants. It is costs at various based on levels of activity categorising shown on the production costs same chart as the R'tist@Tourism, between those variation1111 of

Fixed Costs Fixed costs are those business costs that are not directly related to the level of production or output. In other words, even if the business has a zero output or 1212 high output, the

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Variable Costs Variable costs are those costs which vary directly with the level of output. They represent payment output-related inputs such as raw materials, direct labour, fuel and revenue-related costs such as commission. A distinction is often made between"Direct"variable costs and"Indirect"variable costs. Directvariable costs are those which can be directly attributable to the R'tist@Tourism, 1313

Break-Even Analysis

Study of interrelationships among a firms sales, costs, and operating profit at various levels of output Break-even point is the Q where TR = TC (Q1 to Q2 on
graph)
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$s

TC TR

Profit

Q1

Q2
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Working Capital = capital(abbrevi Current Assets atedWC) is a Current financial metric Liabilities which representsopera Net Operating ting Working Capital liquidityavailable = Current to a business, Assets Non organization or Interestother entity, bearing Current R'tist@Tourism, Liabilities 1515 including

Management of current Assets Working Net

Calculation

Current assets and current liabilitiesincludethree accountswhich are of special importance. These accounts represent the areas of the business where managers have the most direct impact:

accounts receivable(current asset) inventory(current assets), and accounts payable(current liability)

The current portion ofdebt(payable within 12 months) is critical, because it R'tist@Tourism, 1616

Guided by the above criteria, management will use a combination of policies and techniques for the management of working capital. These policies aim at managing thecurrent assets(generallycashandcash equivalents,inventoriesanddebtors) and the short term financing, such that cash flows and returns are acceptable.

Management of working capital

Cash management. Identify the cash R'tist@Tourism, 1717 balance which allows for the business to

Characteristics of Working Capital Needs that are Short Term: Working capital is being utilized in acquiring current assets which will be converted to cash for a short period only. Circular Movement:

Sources of Working Capital

Operational funds Sales of assets that are noncurrent Long term investments sales Physical fixed assets sales Intangible fixed assets sales Financing for
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Several strategies are available to a firm for financing its capital requirements. Three strategies are illustrated by lines A,B, and C below.

Strategy A: Long term financing is used to meet fixed asset requirement as well as peak working capital requirement. When the working capital requirement is less than its peak level, the surplus is invested in liquid assets (cash and marketable securities). Strategy B: Long term financing is used to meet fixed assets requirement, permanent R'tist@Tourism, 1919 working capital requirement, and a portion

Cash Management

cash management, ortreasury management, is amarketingter m for certain services offered primarily to larger business customers.

Cash management services generally offered

Account Reconcilement Services Advanced Web Services Armored Car Services (Cash Collection 2020

It may be used to R'tist@Tourism, describe all bank

Receivables Management Managing and collecting commercial receivables (unpaid receivables between companies or organisations) is linked to the credit insurance business and the information business.

reducing claims expenses by setting upefficient receivables management processes, developingexcellent knowledge of local paymentand collection regulations and practices, accurately predicting thecommercial and financial behaviourof buyers throughout the worldand closelymonitoring changes in their behaviour. You can benefit from our experience and recognition in this field: - Better manage your amount of outstandings, - Maintain your trading relationship with a valued customer either on domestic or international level - Be fully informed of progress, - Get liquidity and cash flow - Increase own company financial attractiveness - Save personal resources
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Inventory Management and Inventory Control must be designed tomeet the dictates of the marketplace and support the company's strategic plan. The many changes in market demand, new opportunities due to worldwide marketing, global sourcing of materials, and new manufacturing technology, means many companies need to change their Inventory Management approach and change the process for Inventory Control. Despite the many changes that R'tist@Tourism, 2222

Fixed assets management

Fixed assets managementis anaccountingprocess that seeks to trackfixed assetsfor the purposes offinancial accounting,preventive maintenance, andtheft deterrence. Many organizations face a significant challenge to track the location, quantity, condition, maintenance anddepreciationstatus of their fixed assets. A popular approach to tracking R'tist@Tourism, 2323 fixed assets utilizes serial

Importance of capital budgeting are of Capital budgeting decisions

paramount importance in financial decision. So it needs special care on account of the following reasons:

1. Long-term Implications:A capital budgeting decision has its effect over a long time span and inevitably affects the companys future cost structure and growth. A wrong decision can prove disastrous for the long-term survival of firm. On the other hand, lack of investment in asset would influence the competitive position of the firm. So the capital R'tist@Tourism, 2424 budgeting decisions determine the future

Kinds of capital budgeting decisions

Generally the business firms are confronted with three types of capital budgeting decisions. (i) The acceptreject decisions; (ii) mutually exclusive decisions; and (iii) capital rationing decisions

1. Accept-reject decisions:Business firm is confronted with alternative investment proposals. If the proposal is accepted, the firm incur the investment R'tist@Tourism, and not otherwise. Broadly, all 2525 those

Non-discounted techniques

Discounted techniques

Pay back period Accounting rate of return method

Net present value method Internal rate of return method

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In simple terms, financial structure consists of all assets, all liabilities and the capital. The manner in which an organizations assets are financed is referred to as its financial structure. There is another

Difference between capital and financial structures

However, capital structure needs to be distinguished from asset structure that is the sum total of assets represented by fixed assets and current assets. This is the total capital of the R'tist@Tourism, 2727

In their seminal Determinants of 1958 financial Structure paper,Franco Legal restrictions Modiglianiand Liquidity Merton Access to the Millerinitiated capital market the modern discussion of the Restriction in loan agreements amount of debt corporations Control should use (both Investment received the opportunities Nobel Prize for Inflation R'tist@Tourism, 2828 this work and

Financial leverage

Financial leverage is also called trading on equity We need to understand debts and interest on debts

Effective of financial leverage on share holders

To increase share holders earnings Earnings per share increase

Earnings per A company share is also finances its projects through R'tist@Tourism, called net 2929

Dividend Policy
Dividend Policy Types of refers to the Dividends explicit or implicit Dividends are a permanent distribution of decision of the residual Board of Directors earnings/property of the regarding the corporation to its owners. amount of Dividends can be in the form of: residual earnings Cash (past or present) Additional Shares of that should be Stock (stock dividend) distributed to the Property shareholdersR'tist@Tourism, of 3030

If a firm is dissolved, at

Dividend Policy

Dividend policyis Once a concerned with company makes taking a decision a regarding profit,manage payingcash ment must decide dividendin the on what to do present or paying with those profits. an increased They could dividend at a later continue to retain stage. The firm the profits within could also pay in the company, or the form ofstock they could pay R'tist@Tourism, 3131 dividendswhich

Coming up with a dividend policy is challenging for the directors and financial managers of a company, because differentinvestorshave different views on present cash dividends and futurecapital gains. Another confusion that pops up is regarding the extent of effect of dividends on theshare price. Due to this controversial nature of a dividend policy it is often called theDividend puzzle.
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Types of Dividend Policy:

a. Stable Dividend Policy b. Fluctuating Dividend Policy c. Small Constant Dividend per Share plus Extra Dividend.

Forms of Dividend

Cash Dividend

Cash dividends(most common) are those paid out in the form of a cheque. Such dividends are a form of investment income and are usually taxable to the recipient in the year they are paid. R'tist@Tourism, 3333

Tourism Finance corporation of The Government of India

The India had, pursuant to Government of the recommendations India had, of the National pursuant to the Committee on Tourism recommendati viz Yunus Committee ons of the set up under the aegis National of Planning Committee on Commission, decided in Tourism viz 1988, to promote a Yunus separate All-India Committee set Financial Institution for 3434 up under theR'tist@Tourism, providing financial

Objective TFCI provides financial assistance to enterprises for setting up and/or development of tourism-related projects, facilities and services, such as: Hotels, Restaurants, Holiday Resorts, Amusement Parks, Multiplexes and Entertainment Centers, Education and Sports, Safari Parks, Rope-ways, Cultural Centers, Convention Halls, Transport, Travel and Tour Operating Agencies, Air Service, Tourism Emporia, Sports Facilities etc. Forms of Financial Assistance Rupee Loan, Underwriting of public issues of shares/debentures and direct subscription to such securities, Guarantee of deferred payments and credit raised abroad., Equipment Finance, Equipment Leasing, Assistance under Suppliers' Credit. Working-Capital Financing, Takeover Financing, Advances Against CreditCard Receivables Eligibility for AssistanceTFCI provides financial assistance to projects with capital cost of Rs. 3 crore and above. In respect of projects costing between Rs. 1 crore and Rs. 3 crore, TFCI will consider financial assistance to the extent of unavoidable gap, if any, remaining after taking into account assistance from State Level Institutions/Banks. Unique projects, which are important from the tourism point of view and for which assistance from State Level institutions/ Banks is not available, may be considered on exceptional basis even though their capital cost is below Rs. 1 crore. Financial assistance is considered on similar lines for heritage and restaurant projects. Projects with high capital cost may be financed along with other All-India Financial/Investment Institutions. TFCI considers assistance even if the total cost is less than Rs. 3 crore for existing 3535 concerns with satisfactory R'tist@Tourism,renovation/upgradation etc. performance for

Promoters' Contribution The minimum promoters' contribution for the projects is 30%. Relaxation may, however, be allowed in respect of large projects involving capital cost exceeding Rs. 50 crore. Debt Equity Ratio

TFCI extends term-loan assistance based on debt-equity ratio not exceeding 1.5:1. However, in case of hotels in seasonal locations/ R'tist@Tourism, 3636 multiplexes/ entertainment centers,

Accounting
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Balance sheetindicat es structure of the assets belonging to the company and financial means used to finance these assets at a particular point of time.

Income statementindicate s income earned and expenses incurred by the company for a particular period of time.

For example: this statement for the year 2006 indicated, what income was earned and what For example: expenses were R'tist@Tourism, 3838

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Balance Sheet

A financial statementth atsummarize s a company's assets, liabilities andsharehol ders' equityat a specific point intime. R'tist@Tourism,

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Cash flow statement

The statement of cash flows is one of the main financial statements. (The other financial statements are the balance sheet, income statement, and statement of stockholders'R'tist@Tourism,

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Fund flow statement

Financial There are few statements do not other reasons to give the complete prepare fund flow financial statement: information. It explains the These statements financial give the consequences of business information of operations: Fund funds on a flow statement particular date. gives answer to The purpose of following preparation of conflicting R'tist@Tourism, 4242

Hotel accounting

Hotels follow the general principles of accounting, but due to the unique nature of guest accounting, hotel accounting departments use terms that may not be familiar to accountants in other industries. Accounting terms related to the management of guest payments, charges and disputes can be confusing to outsiders, but they represent everyday concepts in the hotel industry.
R'tist@Tourism, 4343 The record of all credits and debits

Folio

Late Charge

A late charge occurs when a guest signs for a room charge after checking out of the hotel. Common late charges include breakfast or minibar charges and manual postings due to system outage. Since the guest had a credit card on file, the front desk is able to use same card is used to pay for the charge. If the credit card declines, an invoice is mailed to the guest's address of record.
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R'tist@Tourism, Advance Deposit

Thank You
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