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Edexcel Applied Business A2 unit 11 finance task A

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Introduction

Unit 11 Task A - Impact of Finance on Business decisions Produce a report analysing the financing needs of a chosen existing business to include sources of both short-term and long-term finance and an analysis of the finance used. Introduction In this assignment I will be looking at the finance of Thomas Cook plc and analysing the financing needs by including both short-term and long-term sources. Thomas Cook is a public limited company and is known as one of the world's leading travel groups. The company was a German company until recently in 2007 when it merged with MyTravel Group plc and Thomas Cook AG then became Thomas Cook Group plc. Thomas Cook Group plc have over 31,000 employees that operate in 21 countries; UK, Ireland, India, The Middle East, Europe, North America and Germany. As well as operating as Thomas Cook they own around fourteen different brands, the brands change in each country depending on their target markets. In the UK and Ireland one main brand used is Direct Holidays which offers a wide range of Holidays on the internet and is quick and direct which represents a market for the convenience of finding a holiday quickly and directly. Another main UK brand is Club 1830 which targets people between the age of 18 and 30 and is aimed at group holidays for friends. A main brand used in Germany and Europe in Condor which is a detailed booking site targeted and a large market looking for a specific holidays as their thousands of search methods. In order to analyse the financing needs and tactics of Thomas Cook plc, the UK head of Reporting and Recording gave us the accounts for Thomas Cook Group plc. Available sources of finance Finance is needed in a business in order for the business to spend. Businesses use the finance to invest in capital expenditure which is items that are fixed assets for they can be used over again. ...read more.

Middle

However Thomas Cook has a role to provide customers with pre-booked flights and hotels, therefore they are bound to have a large trade credit. This figure comes from October the 31st and it is likely to change as it is a seasonal business and their trade credit may be higher or lower in different seasons and months. However trade credit can have drawbacks as Thomas Cook may be unable to secure customers for the hotels and flights. This will mean that they will lose money as they still have to pay the hotels later on. Therefore although having trade credit is beneficial as the company gains assets when paying them back may cause difficulties if there is no income from customers and this can cause problems for the cash flow of the business. Revenue received in advance Thomas Cook receives revenue in advance from customers in the form of deposits and sometimes full payments made. This is revenue in advance as the company receives cash before the customer has been on holiday. Also if a customer is book a long time in advance then Thomas Cook may not have booked the hotels or flights yet, however it will be their obligation to do so. Thomas Cook will want the deposit to be as big as possible as this acts as a safeguard for the company and covers things that are already paid for. If Thomas Cook books hotels for a customer, and then the customer cancels the holiday Thomas cook will still need the cash to pay for the hotels if they cannot gain another customer for it. Therefore receiving a deposit from the customer is very important. This method of finance can be a drawback as they need to ensure that they can offer the holiday to the customer and this can be risky if the hotel or flight is not pre-booked. This means Thomas Cook needs to keep control of this type of finance. ...read more.

Conclusion

On the other hand, Thomas Cook has to ensure that they can receive these customers otherwise the source of finance will be difficult to pay off. Although Short-term finance is used more for Thomas Cook, the majority of long-term finance is Finance Leasing, which is �515.3million. Finance Leasing is mostly used in travel companies as it suits this industry well. Although this is not as large as the trade credit finance it could still be risky for Thomas Cook. It is a long-Term source of finance as Thomas Cook is always going to lease aircraft this could be more expensive for Thomas Cook and it also means that they will have fewer fixed assets. On the other hand leasing large amounts of aircraft is very advantageous as it would be more expensive for Thomas Cook if they had to purchase these assets and keep purchasing new up to date assets and having no use for old assets. Thomas Cook may want to consider what type of finance they will use in the future as discussed above; china and India are both growing countries in the travel industries. Thomas Cook may want to expand into these different areas and they may need some new sources of finance. One opportunity that Thomas Cook has is to sell more shares in the company as they have only issued just under half of their allowed amount. This would create a lot more finance in the business and with the benefit of no interest, however they may lose more control if they issue too many shares. Finance could also be gained by selling assets and leasing them back; Thomas Cook already lease many of their assets and by selling their fixed assets may give them even more benefits. Assets such as buildings and some aircraft will create large amounts of finance for Thomas Cook and they will be able to become even more asset light and would suit to the seasonal demand of Thomas Cook. ?? ?? ?? ?? Caroline Noades ...read more.

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