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Finance Institute for Attractions Managers IAAPA Operations and Safety MarketingLeadershipFinance Revenue Operations.

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Presentation on theme: "Finance Institute for Attractions Managers IAAPA Operations and Safety MarketingLeadershipFinance Revenue Operations."— Presentation transcript:

1 Finance Institute for Attractions Managers IAAPA Operations and Safety MarketingLeadershipFinance Revenue Operations

2 Finance 2 Contents Industry Overview: Global Attractions Data FunWorld Parks Financial Statement Revenue Theory and Practice Skills Exercise – Case Study

3 Finance 3 Objectives Upon completion of this course, attendees will be able to: Broadly describe worldwide spending/attendance forecasts for the global amusement park and attractions industry Identify the major players in the industry Define the major income and expense items for facilities Describe the financial metrics that attractions should be monitoring regularly and why Explain depreciation, amortization, EBITDA, and Cash Flow Explain Capital Budgeting processes and evaluations modules

4 Finance 4 Industry Overview (contd) Global attractions data (contd) Key players in the attractions industry Note: Total 2005 attendance at attractions owned/operated by these companies = 241 Million * - Estimate Sources: The Global Theme Park Industry, S. Anton Clavé, 2005

5 Finance 5 Why?

6 Finance 6 Industry Overview (contd) Global attractions data (contd) How many major theme park facilities are there worldwide? What is the breakdown by types of attractions? Sources: The Global Theme Park Industry, S. Anton Clavé, 2007; TEA/ERA Theme Park Attendance Report, 2007

7 Finance 7 Industry Overview (contd) Global attractions data (contd) Economic impact of the amusement/theme park industry In 2004, all travel-related spending* by travelers to U.S. amusement/theme parks directly generated: –164,500 jobs and $3,529,500 in payroll income –$2,148,600 in federal, state and local tax revenues Traveler spending inside U.S. amusement/theme parks directly generated: –123,800 jobs and $2,318,500 in payroll income –$1,813,200 in federal, state and local tax revenues Represents impact of both domestic and overseas travelers Also indirect/induced positive impacts on suppliers * Includes transportation, lodging, food services, retail shopping, and other recreational services. Source: The Economic Impact of Domestic and Overseas Travelers Who Visit Amusement/Theme Parks and Other Attractions in the United States, IAAPA/TIA, 2005 Edition

8 Finance 8 Industry Overview (contd) Global attractions data (contd) Types of income Source: Managing Attractions for More Profit: An International Survey of Operational Performance, IAAPA, 2007

9 Finance 9 Industry Overview (contd) Global attractions data (contd) Types of expenses Source: Managing Attractions for More Profit: An International Survey of Operational Performance, IAAPA, 2007

10 Finance 10 FunWorld Parks Financial Statement FunWorld Park revenue FUNWORLD PARK2009 2008 ACTUALS PER CAPSACTUALS PER CAPS CAPITAL IMPROVEMENTS $1,374,252.00 $1,328,469.00 ATTENDANCE751,565 745,000 REVENUES TICKETS$13,967,030.0018.58$13,484,500.0018.1 FOOD$2,574,000.003.42$2,495,750.003.35 GAMES$1,120,000.001.49$1,043,000.001.4 ATTRACTIONS$173,945.550.23$171,350.000.23 RETAIL$826,000.001.10$856,750.001.15 PARKING$375,620.260.50$357,600.000.48 LESSEE/OTHER$119,209.540.16$111,750.000.15 SPONSORSHIP$167,072.86 $160,000.00 INTEREST & OTHER INCOME$79,789.90 $75,050.00 TOTALS$19,402,668.1225.82$18,755,750.0024.86

11 Finance 11 Income highlights FunWorld Parks 2009 Income Ticket/gate revenue was $13,967,030, or 72.0% of gross revenue Total F&B, games, and retail income was $4,520,000, 23.3% of gross revenue Per caps: Gate – $18.58; F&B, games, and retail – $6.01 Per caps growth 2008–2009 –Gate: 2.7% –F&B: 2.1% –Games: 6.4% –Retail: –4.3% (decreased) FunWorld Parks Financial Statement (contd)

12 Finance 12 FunWorld Parks Financial Statement FunWorld Park Other operating characteristics 126 Operating Days Pricing Policy – Regular Adult, $23.99; Child, $16.99; Senior/Handicap, $12.99 Season pass holders –Individual, $54.99 –Early Bird, $39.99 –After 2:00 pm, $16.99 Discounts –Family of 4 Discount, $15.00/family –Discount tickets, $10.50 Coupons –Bring the price down to $12.07

13 Finance 13 Key metrics These metrics should be monitored daily: Per caps Daily attendance Planned/budgeted income versus actual Labor costs (can be hourly labor, or a productivity metric) Daily, weekly, monthly, quarterly, and annual tracking of actuals against the budget Increases in daily attendance are worth more to the bottom line than increased per caps for the same day Good budgeting anticipates known causes of revenue increases or decreases; e.g., special events that will bring in more guests FunWorld Parks Financial Statement

14 Finance 14 FunWorld Parks Financial Statement FunWorld Park revenue FUNWORLD PARK2009 2008 ACTUALS PER CAPSACTUALS PER CAPS CAPITAL IMPROVEMENTS $1,374,252.00 $1,328,469.00 ATTENDANCE751,565 745,000 REVENUES TICKETS$13,967,030.0018.58$13,484,500.0018.1 FOOD$2,574,000.003.42$2,495,750.003.35 GAMES$1,120,000.001.49$1,043,000.001.4 ATTRACTIONS$173,945.550.23$171,350.000.23 RETAIL$826,000.001.10$856,750.001.15 PARKING$375,620.260.50$357,600.000.48 LESSEE/OTHER$119,209.540.16$111,750.000.15 SPONSORSHIP$167,072.86 $160,000.00 INTEREST & OTHER INCOME$79,789.90 $75,050.00 TOTALS$19,402,668.1225.82$18,755,750.0024.86

15 Finance 15 FunWorld Parks Financial Statement FunWorld Park expenses 2009 2008 EXPENSES %Total Rev SALARIES/WAGES (INCL TAXES)$6,400,000.0032.99%$6,120,000.0032.63% MARKETING$1,170,000.006.03%$1,015,000.005.41% TRAVEL/ENTERTAINMENT$75,000.000.39%$70,000.000.37% EQUIPMENT RENTAL$100,000.000.52%$100,000.000.53% OUTSIDE SERVICES$950,000.004.90%$920,000.004.91% REPAIRS & MAINT$1,400,000.007.22%$830,000.004.43% OPERATING SUPPLIES$970,000.005.00%$950,000.005.07% UTILITIES$600,000.003.09%$555,000.002.96% INSURANCE$660,000.003.40%$600,000.003.20% PROPERTY & OTHER TAXES$99,084.000.51%$80,000.000.43% $12,424,084.00 $11,240,000.00

16 Finance 16 Expense highlights FunWorld Parks 2009 Expenses Total cost of goods sold (F&B, games, and retail) was $1,622,980, or 36.0% of revenue from those areas Cost of goods sold was a slight decrease from 2005, which was $1,628,943, or 37.1% of revenue Total expenses for 2008 were $12,424,084, an increase of 10.5% over 2006 FunWorld Parks Financial Statement

17 Finance 17 FunWorld Parks Financial Statement (contd) Global attractions data (contd) Fixed and Variable costs Fixed costs - A fixed cost is a cost whose total dollar amount remains constant as the activity level changes. Include rides, facilities, buildings, equipment The industry has very high fixed costs – Very capital intensive Fixed items must be paid for whether the park is open or closed; whether there are guests or not Variable costs –A variable cost is a cost whose total dollar amount varies in direct proportion to changes in the activity level. Include labor (largest component), and all non-capital costs, such as electricity, supplies, etc. A park must cover both its fixed and variable costs out of generated revenue – Once these are paid, the remaining amount is profit Seasonal facilities lose money when theyre closed – This is why peak season is so critical to these facilities

18 Finance 18 FunWorld Parks Financial Statement FUNWORLD PARK20092008 ACTUALS REVENUES$19,402,668.12$18,755,750.00 EXPENSES$12,424,084.00$11,240,000.00 EBITDA$6,978,584.12$7,515,750.00

19 Finance 19 EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) An approximate measure of a company's operating cash flow based on data from the company's income statement Calculated by looking at earnings before the deduction of interest expenses, taxes, depreciation, and amortization Offers an indication of how much cash the company is generating Such an earnings measure is of particular interest in cases where companies have large amounts of fixed assets which are subject to heavy depreciation charges (such as the theme park/amusement/attractions industry) Theory and Practice

20 Finance 20 Theory and Practice (contd) Interest: A Charge made for the use of borrowed Funds; results from a mortgage on a principal or second residence is typically deductible. Taxes: Real-estate taxes, personal property taxes and state and local income taxes are deductible. Amortization: The allocation of the cost of intangible assets to the accounting periods benefited.

21 Finance 21 Depreciation Measuring the loss in value of an asset In accounting, the allocation of the cost of an asset over its economic life. Covers deterioration from use, age, and exposure to the elements Depreciation is a very important factor in the attractions industry, because of the high fixed cost investments in rides and ride machinery, equipment, and buildings Example: New roller coaster cost:$10 Million Depreciation period: 10 years Annual depreciation amount: $1 Million Second year purchase: $500,000 ride, 5 years What will the depreciation amount be in the second year? Theory and Practice (contd)

22 Finance 22 Theory and Practice (contd) Is EBITDA and Cash Flow the Same?

23 Finance 23 NO They Are different EBITDA does not take into account the actual cash inflows and outflows. Example: Principle payment is not reflected in EBITDA Account Receivable Collection Accounts Payable Payments Theory and Practice (contd)

24 Finance 24 Skills Exercise Case Study FunWorlds Finance Department is planning an investment... What will be the return? How many years should the loan be for? How is the return calculated? What will be the impact on revenues and how will that be calculated? How Do I Decide?

25 Finance 25 Skills Exercise Case Study (contd)

26 Finance 26 Six Stages in Capital Budgeting Identification Stage – determine which types of capital investments are necessary to accomplish organizational objectives and strategies Search Stage – explore alternative capital investments that will achieve organization objectives Information-Acquisition Stage – consider the expected costs and benefits of alternative capital investments Selection Stage – choose projects for implementation Financing Stage – obtain project financing Implementation and Control Stage – get projects under way and monitor their performance

27 Finance 27 Asset management and valuing a facility Management should develop a rationale and a set of well-defined steps to govern the investment process Take an intelligent approach to investments HOW? Skills Exercise Case Study (contd)

28 Finance 28 Skills Exercise Case Study (contd)

29 Finance 29 Budgeting Methods to Analyze Financial Information Skills Exercise Case Study (contd)

30 Finance 30 Net Present Value (NPV) Method NPV Method calculates the expected monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time, using the Required Rate of Return Based on financial factors alone, only projects with a zero or positive NPV are acceptable

31 Finance 31 Internal Rate of Return (IRR) Method The IRR Method calculates the discount rate at which the present value of expected cash inflows from a project equals the present value of its expected cash outflows A project is accepted only if the IRR equals or exceeds the RRR

32 Finance 32 Payback Method Payback measures the time it will take to recoup, in the form of expected future cash flows, the net initial investment in a project Shorter payback periods are preferable Organizations choose a project payback period. The greater the risk, the shorter the payback period Easy to understand

33 Finance 33 Payback Method (continued) With uniform cash flows: With non-uniform cash flows: add cash flows period by period until the initial investment is recovered; count the number of periods included for payback period

34 Finance 34 Accrual Accounting Rate of Return Method (AARR) AARR Method divides an accrual accounting measure of average annual income of a project by an accrual accounting measure of its investment Also called the Accounting Rate of Return

35 Finance 35 AARR Method

36 Finance 36 Performance Methods Skills Exercise Case Study (contd)

37 Finance 37 Return on Investment (ROI) ROI is an accounting measure of income divided by an accounting measure of investment

38 Finance 38 Economic Value Added (EVA ® ) EVA is a specific type of residual income calculation that has recently gained popularity Weighted-average cost of capital equals the after-tax average cost of all long-term funds in use

39 Finance 39 Residual Income Residual Income (RI) is an accounting measure of income minus a dollar amount for required return on an accounting measure of investment RI = Income – (RRR x Investment) RRR = Required Rate of Return Required Rate of Return times the Investment is the imputed cost of the investment Imputed costs are costs recognized in some situations, but not in the financial accounting records

40 Finance 40 Which method is Best? It Depends!!! Key: Take an intelligent approach to investments. Be consistent!!! Skills Exercise Case Study (contd)

41 Finance 41 Let's review what new tools we have added to our tool box this morning Basic Industry Data Identified Major Players Look at major Income and Expense Definitions of Key Accounting Terms Steps to Capital Budgeting Evaluations Methods Skills Exercise Case Study (contd)

42 Finance 42 When all else fail you could just roll the dice Skills Exercise Case Study (contd)

43 Finance 43 Skills Exercise Case Study (contd)

44 Finance 44 Speaker: Neva Richardson – Larson, Sims Group & Department Chair & Professor of Business for Everest University an affiliate of Corinthians College. Managing Attractions for More Profit: An International Survey of Operational Performance, IAAPA, 2007 Books: Introduction to Managerial Accounting 4 th Edition; Boston: McGraw-Hill Cost Accounting 12 th Edition; New Jersey: Pearson Prentice Hall Sources


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