Financial Decision Making: Accounting & Finance Department and Ratio Analysis

This report explores the role of the accounting & finance department in financial decision making and the relevance of ratio analysis in evaluating business performance. It focuses on SKANSKA PLC, a UK-based construction organization, and discusses the responsibilities of the accounting department, such as recording transactions, evaluating performance, creating budgets, and helping in decision making. It also highlights the role of the finance department in investment, financing, dividend distribution, and working capital management. The report concludes with an analysis of ratio analysis and its impact on SKANSKA PLC's financial performance.

FINANCIAL
DECISION MAKING

EXECUTIVE SUMMARY
Financial decision making is defined as process to take decision regarding with
different functions of organization. This report has been formulated to define how
organizations' various department help in decision making procedure as well as
relevance of ratio analysis to evaluate business performance in effective manner.

Table of Contents
EXECUTIVE SUMMARY ..................................................................................................2
TASK 1...............................................................................................................................4
Explanation of accounting & finance department..........................................................4
TASK 2.............................................................................................................................10
Ratio analysis ..............................................................................................................10
CONCLUSION ................................................................................................................13
REFERENCES................................................................................................................14

INTRODUCTION
Financial decision making is consider as the procedure in which manager took
necessary decision regarding attain business objective by using different technique of
financial management. This report has been formulated in order to define relevant of
decision making procedure, for this purpose SKANSKA PLC has been taken.
It is UK based organization which operate business in construction sector. In
order to spread market sector their management department review performance. This
report has been include, importance of finance as well as accounting sector by define
their responsibility as well as for measure performance of SKANSKA PLC , different
type of ratio have been calculate which also useful in define true and fair value of
organization.
TASK 1
Explanation of accounting & finance department
Business corporations in order to run their business in effective way require to
established a department which consider work of managing all the financial resource of
organization. For this purpose management department of SKANSKA PLC, established
accounting & finance department, which help in managing business performance of this
organization (Rodrigues, and Rodrigues, 2018).
Accounting department: This department is work for managing all the business
transaction in order to systematically record business data. Accounting department help
in analysis, collect, evaluate and manage business data in effective manner theses data
are further use for decision making purpose. Following are the role which play by
accounting department of SKANSKA PLC these are define below:
Relevance of Accounting and Finance department within SKANSKA PLC
Record transaction: Accounting department of organization is work for
recording essential business transaction. They on the basis of measuring and
calculating relevant business data convert or record business data after calculating and
measuring their business performance. Management department of SKANSKA PLC
use different software and tools in order to record business transaction they also require
to hire profession accountant which has knowledge about the field and sector of

accounting. Theses are require ion order to successfully manage and run organization
's performance in effective manner.
Evaluate performance: Department of accounting as well as finance focus on
measuring performance of organization on the basis of formulation of different types of
statement , these statement useful in recording business data help in compare
business financial performance with their rival organization.
Theses are consider as essential business function on the basis of that
management department able to measure their value and realise how much difference
arise between companies in order to identified how effective organization manage their
business operations. On the basis of evaluating business performance management
department able to formulate effective business strategies and analysing relevance of
these strategies and success rate of production procedure of business organization.
Creation of budget: Management department of SKANSKA PLC, on the
basis of taking relevant information regarding with accounting create budget. Which are
help in further taking business decision and on the basis of that manager able to
evaluate future value of profit and loss of organization by running or operating their
business activities (Bunea, Corbos,and Popescu, R2019).
Budget is useful for measure the difference arise between past and current
value and on the basis of that manager formulate their future budget. These are help in
attaining business goals and on the basis of that organization able to achieve their
relevant business strategies which are useful for achieving business target.
Help in decision making: On the basis of data collected by organization ,
management department able to take decision on different field of organization. Theses
includes, dividend, investment, financial and future policies or regarding with project
alternative. Success of the corporation depend on the decision which taken by
management department thus on the basis of management decision taken by finance
and accounting department, theses decision are relevant for the purpose of attaining
goals of organization (Financial decision making, 2018).
Optimistic use of monetary resources: The main purpose of accounting and
finance department is to manage financial resource of organization. On the basis of

formulation of effective business strategies management department able to attain their
long term business goal by utilized business resource in effective manner.
Resource are scare and success of the organization is totally depend on how
effective business organization can manage their scare business resource on the basis
of evaluating effective business strategies and implementing them as well as formulate
business policies and use of relevant tools of organization , manager able to attain their
goals and achieve them within given time period.
Role of accounting department
 Financial accounting: Accounting department is provide base for
financial accounting. On the basis of collecting and formulation of journal
& ledger account manager able to further formulate their financial
accounts and statement. These are help in measuring and evaluating
capital budgeting technique.
 On the basis of financial accounting manager of SKANSKA PLC able to
find out financial performance of their organization. Theses accounting
technique and policies help in find out relevant business strategies and
way through which they can attain competitive business advantage by
using and optimizing theses resources in effective manner.
 Management accounting: This is define as essential business approach.
Which help in effectively manage business records. Management
accounting is an approach in which various or different types of technique
has been implemented for evaluate business performance by determining
cost of running business activity as well as evaluate organization's
performance in order to change profit volume at different stage of
production units (Sun, Zhou. Ai, and Li, 2019).
 On the basis of using different tools of calculation manager able to
successfully manage and maintain their business policies in effective is
the responsibility of accounting department of SKANSKA PLC in order to
manage all the relevant information and systematic implemented
management accounting approach within the organization. This approach

help in order to find out those cause which become the reason of
decrement in the profitability rate as well as quality of production.
 Tax function: It is consider as one of the most essential business
function which is manage by accounting department. It is the responsibility
of accounting department of organization that they calculate relevant or
accurate amount of tax and fulfil their organizations tax liability within
given time period. Most of organization are engaged in tax evasion
process, however, those organization penalised due to non fulfilment of
tax liability.
 There are diffident types of tax which levied on business operation
however organization also get subsidiaries and benefit of paying tax
liability. Accounting department of SKANSKA PLC, manage and evaluate
their tax value and on the basis of that they get benefit from government
and entitled to take tax subsidiaries. Thus accounting department focus on
calculate tax value in order to fulfil their corporate social responsibility and
manage their goodwill within the market.
 Auditing function: Audit is the procedure in which organization hire
external auditor for the purpose of evaluating each business record and
balance sheet of organization to find any error. Accounting department ply
vital role during the time of auditing procedure. They proved relevant data
which help in auditing process to proved base to theses data. As well as
on the basis of auditing process manager easily able to evaluate how
much amount did employee use to make secret profit by analysing reason
of different arise between audited document and company's financial
document (Kliestik, Valaskova, Lazaroiu, Kovacova, and Vrbka, 2020).
Thus accounting department play vital role during the time of providing relevant
business information , manager of SKANSKA PLC, on the basis of collecting data
manage their accounts of operations.
Role of Finance department: This department is established for the purpose of
managing financial resource of organization. Manager of finance department has

responsibility to formulate budget, financial statement and took relevant business which
help in managing their resources in effective manner.
 Investment function: Finance department play major role in every
organization. They took decision regarding with investment. There are
various alternative operation have been availability, it is the responsibility
of finance department that they on the basis of evaluate market condition
took relevant business decision regarding with investment. There are
various opportunities on the basis of measuring rate of return of each
available business project , manager able to take which investment
decision is reliable for organization.
Management department of SKANSKA PLC, use different technique which includes
capital budgeting, rate of return, ratio analysis on the basis of that they took investment
decision.
 Financing function: Finance department of organization, mainly
established for the purpose of managing financial resource of
organization.
They on the basis of formulating income statement as eel as cash flow and balance
sheet, ensure performance of organization and compare it with their rival business
organization the basis of that manager formulate and change their business policies
regarding with managing finance resource of organization. Management department of
SKANSKA PLC, on the basis of reviewing the financial statement took decision
regarding with moulding business policies as well they find out which portfolio is
beneficial for their organization (Kliestik, Valaskova Lazaroiu, Kovacova, and Vrbka,
2020).
 Dividend function: It is consider as essential business decision which
taken by management department. Dividend is the part of profit which
distributed to shareholders of business organizations. Manager of
SKANSKA PLC, on the basis of reviewing business performance decided
their rate of dividend.

As shareholder get attract towards how much rate of dividend to organization offer to
their customer as well as on the basis of that they took decision regarding capital
investment.
Thus dividend is consider as their symbol of growth and management department of
SKANSKA PLC, took decision regarding with distribution of their dividend. Finance
department also play role regarding with communicate their organization's shareholder
to provide them benefits and fulfil expectation of their regarding with dividend on the
basis of that they able to attain business goals of the organization.
 Working capital function: Finance department of SKANSKA PLC, play
role in fulfil responsibility regarding with working capital function. With the
management of working capital manager able to find out ability of
organization to pay short term debt liability as well as on the basis of that
manager measure and preview their statement of cash flow. Finance
department measure working capital condition and on the basis of that
they decided relation between current assets as well as current business
liability. Working capital function useful in decided liquidity position of
organization. On the basis of measuring this function manager of
SKANSKA PLC took decision regarding with changing of their working
capital policies in order to control cash outflow of their business
organization (Awaysheh, Heron, Perry, and Wilson, 2020).

TASK 2
Ratio analysis
Ratio analysis: It is consider as the technique which organization use to
identified and recognize relation between different items of organization. Management
department of SKANSKA PLC use to calculate following ratio in order to measure
performance of their business entity.
Ratio Formula 2018 2019
Return on capital
employed
Operating profit/Total
assets-current*100
liabilities
750/3825*100=
19.61%
975/5850*100=
16.67%
Net profit margin Net profit/sales*100 600/4800*100=
12.5%
675/6000*100=
11.25%
Current ratio Current assets/current
liabilities
1515/645= 2.35
times
2070/2220= 0.93
times
Debtors collection
period
Receivables/sales*365 900/4800*365= 68
days
1200/6000*365= 73
days
Creditors payment
period
Payables/purchase*365 570/2700*365= 77
Days times
2100/4800*365= 160
days
Return on capital employed: Ratio is calculated by finding net profit and capital
value of business organization. It is showcase relation between capital and net
earnings. This ratio is calculated for the purpose of define ability of organization to
generate profit by using their capital.

Higher ratio showcase that business organization use their capital in effective manner in
order to generate profit by using business resource. On the other side lower ratio of
capital show that management department not able to sufficiently use or apply their
resource to generate revenue.
In context to SKANSKA PLC, their value of return capital employed was
measure at 19.60 % and in 2019 it was valued at 16.67 %, which define that
organization not able to use their capital in effective manner the main reason of
decrement in this ratio is high rate of cash outflow and not using management of capital
asst policy (A Smarter Way to Think About Financial Decisions, 2018).
Management department of SKANSKA PLC, by managing their assets able to
overcome with the issue related with management of capital assets as well as their ratio
has been increases with modification in business policies.
Net profit margin: Ratio which help in define probability rate and relation of
organization are known as net margin ratio. With the calculation of this relation between
revenue and profit has been recognized. Higher rate of net profit ratio showcase that
organization is able to successfully maintain their position market and on the other side
low rate of net profit show that organization not able to sell their products and due to
high price policy their selling rate has been decline. In case of SKANSKA PLC, value of
net profit ratio in 2018 was 12.5 and on the other side its value has been decile and it
was measure at 11.25, which represent that management department of SKANSKA
PLC,'s profit rate has been decile due to reduction in the selling rate of organization
(The Impact of Financial Decisions and Strategy on Small Business Competitiveness,
2012).
To overcome this problem and increase percentage of net margin ratio in 2019,
management department use effective pricing strategy which attract customer to take
contract from this organization . Which will useful in raise profitability rate of
organization.
Current ratio: A ratio which is used to calculate value and relationship between current
assets and current liabilities. This is calculated by dividing current assets with value of
current liability. This ratio is measure liquidity position of organization an don the basis
of that manager able to find out how much amount or capital organization haver to fulfil

or pay their debt liability. Higher ratio showcase organization have sufficient balance to
pay their debt liability and on the other side lower ratio from ideal current ratio showcase
that organization require to change the policy structure in order to increase their liquidity
position (The importance of financial analysis for business decision making, 2016).
SKANSKA PLC current ratio was measure at 2.35 in 2018 and in 2019 it was 0.93
times. Which means that organization have excess of current asst in 2018 as compare
with 2019. They are effectively manage business activities which directly impacted
towards the organization.
The main reason of decline in the current ratio is that management department of
SKANSKA PLC, not able to manage their business performance in effective manner
thus they face issue regarding with managing liquidity position of the organization.
Management department of SKANSKA PLC' require to change their management of
current assets policies and by controlling and cutting cost of unwanted activities they
increase their cash inflow activities which help in maintain current ratio of organization.
Debtors collection period: This ratio is define effective of organization to collect
money from debtors. Debtor collection period is define as there time require by business
organization to collect funds from debtors of the business organization.
Long time period required interpret that organization need require more time to collect
funds from their business debtor which define that management department not use
policies to manage their debtors. In case of SKANSKA PLC', they require 68 days in
2018 fir collect money from debtors and on the other side, in 2019 the time of collection
of money from debtor collection period has been increase.
Manager are not applying effective policies which attract customer an they took high
price of their products and Chang high rate of interest which directly impact towards the
perception of customer on business organization. They are not using credit control
policies thus they face difficulties. It is essential to manage debtor collection time period
as on the basis of that organization able to successfully manage their cash inflow
activities these are help in attaining goals as well as on the basis of that organization
able to formulate effective business policies an manage their goodwill with the business
organization.

All these are relevant for the purpose of managing success rate within competitive
market environment.
Creditors payment period: This ratio is used in order to measure time required by
organization to pay their debt ability. This ratio help in define how organization is able
to use their fund for pay their short term credit ability. With the calculation of creditor
payment period, manager able to find out whether organization have ability in order to
pay their trade payable liability or not (How Does Financial Accounting Help Decision-
Making?, 2020).
Long term credit period showcase that organization face issue regarding with payment
of their liability. This will help in determine and identifying whether business
organization suffers from financial problem or not. The main reason of increment in the
time is that, due to reduction in the selling rate as well as decrease cash inflow
activities, these are directly impacts on the organizations ability to pay debt ability. They
are not able to collect funds from customers thus they don't have sufficient balances to
pay their debt liability.
CONCLUSION
From the above analysis it has been concluded that business corporations for
maintain their position within the business organization require to take financial
decision. For this purpose, various technique has been used. Organization established
accounting and finance department, theses department on the basis of operate their
roles and responsibility they are able to manage business organization by managing
business assets through recording transaction, create budget and financial statement
and by evaluate tax value and through measurement of performance of business
organization. Manager take decision regarding with finance by using ratio analysis
technique. These are help in evaluate business performance and on the basis of that
manager take decision in order to change policies for enhance business performance of
entity.

REFERENCES
Books and journals
Rodrigues, L. and Rodrigues, L., (2018). Economic-financial performance of the
Brazilian sugarcane energy industry: An empirical evaluation using financial
ratio, cluster and discriminant analysis. Biomass and bioenergy. 108. pp.289-
296.
Bunea, O. I., Corbos, R. A. and Popescu, R. I., 2019. Influence of some financial
indicators on return on equity ratio in the Romanian energy sector-A competitive
approach using a DuPont-based analysis. Energy. 189. p.116251.
Sun, J., Zhou, M., Ai, W. and Li, H., 2019. Dynamic prediction of relative financial
distress based on imbalanced data stream: from the view of one industry. Risk
Management. 21(4). pp.215-242.
Kliestik, T., Valaskova, K., Lazaroiu, G., Kovacova, M. and Vrbka, J., 2020. Remaining
financially healthy and competitive: The role of financial predictors. Journal of
Competitiveness. 12(1). p.74.
Awaysheh, A., Heron, R. A., Perry, T. and Wilson, J. I., 2020. On the relation between
corporate social responsibility and financial performance. Strategic
Management Journal. 41(6). pp.965-987.
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