Business and Financial

Aspects of Heritage
Tourism
Chapter 7
Learning Objectives
Enumerate the potential sources of revenues in heritage
tourism.
Expound on the economic impact of heritage tourism on a
country.
Calculate and determine the profitability of heritage sites and
attractions.
Practice calculating and interpreting significant ratios applied
to heritage sites.
 Introduction
“Give Man a Fish and You Feed
Him A Day, Teach Him How to
Fish And You Feed Him A
Lifetime”
 Introduction
This chapter deals with the various ways
the management of heritage sites,
attractions, or events earns revenues and
how its operation and financial
performance are reported and interpreted.
 Revenues and Funds
Generated by Heritage
Tourism
Presented by Abigail Telada
 Site-driven Revenues
The amount paid by tourists and visitors
to a site, entrance fees, ticket sales,
special attractions charges.
Commercial Space Lease Income
Restaurants, cafes, bakeshops, bars, kiosks,
souvenir shops, photo booths, taxi lanes,
transport services, books shops, tattoo shops,
salons, spas, travel agencies and tour
operators.
 Donations
Funds that are initiated, raised and
collected by individuals and organizations
to benefit operations, conservation and
restoration of heritage sites.
 Grants
These are the monetary incentives
awarded by a government agency,
foundations or international organization
out of a merit.
Government Appropriations
It refers to the public funds appropriated by
legislation intended for specific purposes and
cannot be utilized for any other purposes
outside what was stipulated in the budget.
 Insurance Proceeds
This amount paid by an insurance company
arises from the occurrence of an accident or
disaster covered by a legitimate and
enforceable insurance policy.
Economic Impact of
Heritage Tourism
Presented by Carlos Jimenez
 Tourism Trade
When a heritage site becomes popular, tour operators
develop tour packages to be marketed and sold by travel
agencies and other intermediaries. There would be an
unprecedented boost in air, sea, and land traffic arising
from increased tourist and visitors arrivals.
 Taxation
Tourism enables the government to collect taxes
arising from income generated by tourism-oriented
establishments, withholding taxes of employees,
property taxes, and consumption of goods and
services.
 Property Appreciation
Prices of real estate in areas within 1-3
kilometers radius from heritage sites are
more likely to soar due to the strategic
location.
Community Development
The immediate environment of a heritage site
stands to benefit because of higher standards of
sanitation, waste management, and
beautification imposed by the local government
units.
 Foreign Investments
Heritage tourism can potentially bring investments and
income from abroad. Multinational corporations set up
businesses in the host city or local community and commit
to bringing hordes of foreign tourists possibly arising from
the city to promote good foreign relationships between
and among countries, among others.
 Profitable Operation of
Heritage Sites and Legacies
Presented by Anne Baladad
Statement of Comprehensive Income

A statement of comprehensive income is a

broad financial metric that includes all
incomes and expenses that affect a
company's financial standing over a
period.
 Statement of Activities
Includes revenue and expenses during a
nonprofit's reporting period (a fiscal or
calendar year) and gives an overview of the
changes to an organization's net assets during
that time.
Sources of Revenues of Heritage
Donations and contribution
Grants
Government appropriations
 Expenses of Heritage
Donations and contribution
Rental income
Grants
Government appropriations
 Expenses of Heritage
Operating expense
Marketing expense
Administrative expense
Statement of Financial Position
Also known as balance sheet, determines
it overall network.
Significant Financial Ratios
in Heritage Tourism
Presented by Abigail Telada and May Velyn Caling
 EBITDA
Earnings Before Income Tax, Depreciation, and
Amortization Determines the profitability of a site
before deducting income tax (if not tax exempt,
depreciation, and amortization), Tax-exempt sites
need to calculate EBDA instead.
Formula: EBITDA = Gross Revenues − Cost Expenses

Application: Fort Santiago in Manila earned a total of ₱6.75

million in entrance fees and ₱3.24 million in donations and
government appropriations during the year. If the annual
operating, marketing and administrative costs and expenses
totaled ₱10.25 million, how much is the EBDA?

Answer: − ₱260,000 or a net loss

 EBIT
Earnings Before Income Tax is probably
the better barometer as depreciation and
amortization have already been taken out.
Formula: EBIT = EBITDA − Depreciation − Amortization

Application: Bencab Museum in Baguio City posted an

EBITDA of ₱1.86 million during the year, and the annual
depreciation (for the building, furniture, and fixtures) is
₱969,000. How much is the EBIT?

Answer: ₱891,000 or net income/proft

 Profit Rate
This refers to the percentage of profit
generated by the heritage in relation to
the total revenues earned.
Formula: Profit Rate = (EBIT / Total Revenues) x
100%

Application: Iloilo Museum posted an EBIT of ₱1.28

million and revenues of ₱7.92 million during the year.
What is the profit rate?

Answer: 16.16%
 ROI
Return of Investment is a measure of the
proportion of a particular investment that
has been recovered during a fiscal or
calendar year.
Formula: (EBIT / Total Investment) x 100%

Application: The owners of Eden Nature PArk

poured in approximately ₱1.08 billion to develop the
entire estate. If its average EBIT per annum in the past
three years is ₱30.55 million, how much is the ROI?

Answer: 2.83%
 BEP
Break Even Point refers to the minimum level of
revenues a site must earn or the least number of visitors
a site must attract to be able to recover fixed and
variable expenses. If there are lump sum amounts of
sponsorships, donations, and grants they should be
deducted from the total fixed costs.
Formula: The correct BEP (Visitors) = Total Fixed Cost / (Unit Selling Price − Unit Variable
Cost)

Formula: BEP (Revenues) = BEP Visitors x Unit Selling Price

Application: Renee Salud, a prominent Filipino fashion designer was commissioned to stage a
grand benefit show featuring indigenous fabrics from various regions of the Philippines. The
average ticket price is ₱2,100 per person, and the variable cost is ₱1,150. If the total fixed costs is
₱1.60 million and the major sponsors would pay a total of ₱1.28 million, how much tickets must
the organizer sell to break even? If the event was held in the ballroom of a five-star hotel like
Shangri-la Hotel Manila with an estimated seating capacity of 3,500 and only 80% of the tickets
were disposed of, will the fashion show still make a profit? What is the breakeven point in terms
of sales?

Answers: (a) 337 tickets; (b) Yes, It will still make a profit of ₱2.34 million and (c) ₱707,700
 Payback Period
This refers to the period wherein a
particular investment may be recovered
and is expressed in years or months.
Formula: Payback Period = Total Investment/EBITDA (Earning Before Income
Tax, Depreciation and Amortization)

Application: Assuming Ayala Museum in Makati City posted an average

EBITDA of P 3.67 million during the past five years and the foundation has
infused a total of P 42.59 million into the museum, what is the payback period
?

Total Investment = P 42.59

EBITDA = P 3.67

42.59/3.67 = 11.60/ More or less, 11.60 years or 11 years and 7 months

 Liquidity Ratios
This is a barometer for a site's ability to pay its financial
obligations, and it is also linked to its cash flow. There
are two kinds of liquidity ratios — current ratio and
quick ratio (also called acid-test ratio). A ratio that is
above 1.00 means the management of the heritage site is
liquid, and a ratio below 1.00 means it is not liquid.
Formula: Current Ratio = Current Assets/Current
Liabilities

Application: Baler Museum Statement of

Financial Position

377,920/136,720 = 2.76
Formula: Quick Ratio = (Current Assets -
Inventories) / Current Liabilities

Application: Baler Museum Statement of Financial

Position

(377,920 - 12,730) = 365,190/136,720 = 2.67

 Stability Ratio
One common ratio is used to measure the
stability of a firm or entity is the debt-equity
ratio. Ideally, the level of indebtedness of an
entity must be manageable or kept at a minimal
level.
Formula: Debt-Equity Ratio = Total Liabilities/Total
Equity or Total Net Assets

Application: Baler Museum's Statement of Financial

Position

436, 720/16,085,200 = 0.027 or 0.027 which is very

manageable and ideal making the museum stable
Analysis of Distribution of Revenues
This set of ratios simply shows how a particular
heritage site eams money from various sources.
It also indicates the level of dependence on
specific sources of revenue.
Formula: Percentage of Revenues = Amount from a Source of Revenues/ Total
Revenues

Application: Using the same data on Baler Museum's Statement of Activities,

how are the various sources of revenues distributed? Is the museum heavily
dependent on a single source? Is this source sufficient to sustain the operations of
the museum?

Answers: (a) museum entrance fees-35.50%, rental income-11.83%, donations

-13.81%, grants-19.13%, and government appropriations - 19.73%; (b) The museum
is quite dependent on museum entrance fees, (c) but such revenue is not
sufficient to sustain the entire operations of the museum, hence, it needs support
from the government, donors, and other institutions.
Analysis of Operating, Administrative, and
Marketing Expenses

This set of ratios explains how money was spent

by an entity. Knowing these figures determines
priority spending and in what areas can an
entity or unit save and cut down on expenses.
Formula: Percentage of Expenses = Amount from a Specific Expense / Total Expenses

Application: Using the same data on page 182, how are the expenses of the museum
distributed? Which specific expenses eat up a substantial portion of the budget? Which
expenses seem inadequate and which ones seem excessive?

Answers: (a) Operating expenses make up 64.64% of total expenses, marketing

expenses 2.43%, and administrative expenses 32.93%; (b) While payroll has the biggest
share of total expenses at 40.84%, it also implies that the museum may be
understaffed; (c) Restoration and conservation expenses and advertising and
promotions account for only 8.10% and 2.43% of the budget when, in hindsight, it
should be more; (d) Fuel and transportation, as well as travel and representation
accounting for 3.40% and 2.88%, can still be trimmed down further.
 Group 6 - Chapter 7
Baladad, Anne Marie
Caling, May Velyn
Jimenez, Carlos Miguel
Telada, Maria Abigail