Financial Decision Making: Importance of Accounting and Finance Functions

This report discusses the importance of accounting and finance functions in financial decision making. It highlights the roles and duties of these functions and their contribution to the success of Skanska Plc. The report also includes calculations of key ratios for Skanska Plc, such as return on capital employed, net profit margin, current ratio, average receivables days, and average payable days.

FINANCIAL DECISION
MAKING

TABLE OF CONTENTS
INTRODUCTION.......................................................................................................................................3
MAIN BODY..............................................................................................................................................3
TASK 1.......................................................................................................................................................3
TASK 2.......................................................................................................................................................8
a) Calculating Ratio for SKANSA PLC (SP).......................................................................................8
b)...........................................................................................................................................................10
CONCLUSION.........................................................................................................................................13
REFERENCES..........................................................................................................................................14

INTRODUCTION
Financial decision making is process of acquisition, financing and management of
company’s monetary resources. In current era it has become important for organization to have
effective management strategy, approaches and models for overcoming cut throat competition.
The rivals has increased in every industry due to easy entry which is enabling competition to
rise. This requires firm to gain competitive advantages in terms of financial decision making for
improving its lacking areas and utilizing strengths in more effectual pattern. The present report is
based on Skanska Plc. a United Kingdom based organization. The purpose of current case study
is to give suggestion while planning for expanding operational activities in Europe. Current case
study will give emphasis on importance of accounting and finance function along with its roles
and duties. Present report will represent calculation for ratios through referring financial
statements of Skanska Plc (SP). The consequences of low performance & improvement areas
will be provided.
MAIN BODY
TASK 1
Organization utilizes various types of functions for smooth functioning of business
operational activities. This all plays crucial role in enhancing effectiveness and progress in
decision making process of Skanska plc. Accounting and finance functions contribute heavily in
making company success more effectual. With respect to this, it is dependent of Skanska
capability of implementing roles & responsibilities in effectual pattern.
Importance of accounting function with roles & Skanska plc.
Accounting functions such as systematic recording, facilitating rational decision making, legal
compliance, projection of business decisions making, determining profits and loss for changing
prevailing business strategies, etc. There are several usages of accounting functions which allows
firm to be efficient for dealing with changing circumstances of business (Kaya, Türkyılmaz and
Birol, 2019). The main purpose of implementing accounting functions is enable business to

provide information economic entity for measuring company's money for deciding course of
action for various alternatives.
Summarizing, recording and classifying financial transaction
There are numerous transaction that company conducts on regular basis which company
need to remember for knowing it’s all expenses and incomes. In addition to this, it is help
businesses to summaries complex transaction in numerical forms (Lin, 2019.). This records all
these data for having reference in future in order to make strategic decision by considering each
small aspect. SP will be able to evaluate its financial transaction by implementing accounting
function which will lead firm to derive competitiveness in order to classify relevant and
unnecessary information for better management.
Control of financial policy and formulation of planning
Company formulates proper structure in order to plan each activity so that company can
avoid duplication and gain clarity. Skanska Plc would be able to formulate policy for controlling
its operational and other similar practices for ensuring company is going in right direction or not
(Miles and Miles, 2019). Controlling aids company to monitor its actions for getting comeptitiev
benefits Future course of action with prepared procedure and guideline can be attained for
reaching desirable position. SP will derive various benefits with implementing this specified
accounting function as It will permit firm to adapt changing circumstances with ease.
Prevention of errors & frauds
Activities of employees can be checked and controlled with help of Accounting features.
There are numerous personality that works in company for reaching towards a common goal. In
order to expand business scale it becomes essential for organization to get a accurate details of
resources utilizes accurate information for comparing between revenue and expenditure. For this
purpose organization requires a tool for avoiding unethical practices. It plays important part in
neglecting such situation for attaining positive outcomes.
Analyzing Financial Data
The main purpose of implementing accounting function is to gather the actual
interpretation of gathered data . All this informational is aids organization to make proper
evaluation firm’s current position. It is executed by utilizing various approaches of accounting
for analyzing data. Clear conception, repayment of debts, profit margins, work efficiency,

transparency of Skanska Plc. becomes possible with it. Ratio analyzing is most important
technique to get fair results.
Communicating Information
Providing information to employees, suppliers, lenders, investors, etc have interest in
company s they have invested sum of their savings into organization. Crucial function is to aid
them to know what is prevailing in business so that stakeholders can reach to an conclusion for
making decisions. It is executed by preparing different report. SP will be able to communicate
effectively with assistance of this function.
Roles and duties
 Budgeting is one of the crucial role of accounting function as it is base of continuing
business practices. There are several organization that prepares different type of budgets
for gaining knowledge regarding available resources and expected expenditures.
Allocation of fund in every function becomes possible with help of it. By referring
budget SP will be able to compare and analyze its current budget with previous.
 Preparing auditory reports while accepting accounting principles, standard and legal
considerations. This is dependent on creditworthiness as the fair audit process shows that
company is not indulged into any unauthorized practices. This is regarding that firm is
preparing accurate financial statements with fair figures without making any changes.
Internal and external auditing procedure plays important role in influencing SP’s image.
 Taxation is very important to pay which is supported by accounting role. In addition to
this, it provides assistance to organization to build accurate taxation paying structure. It
will give company to make good reputation in market in regards to suppliers, vendors,
customers’ and other stakeholders as helps in creating good foundation in obtaining
creditworthiness.
 Long term and short term planning role in SP can be fulfilled with help of management
accounting function (Tashnazarova, 2021). Forecasting future business and economic
events for achieving plans by making strategies, approaches, etc. to cope up with
changing circumstances of business. Accomplishing objectives for both shorter as well
longer duration becomes possible with help of accounting functions.

 Maintaining optimum capital structure has major role to play in raising of funds and their
applications. Maintaining proper mix between debt and equity can be exerted by
implementing this particular structure in organization.
 Decision making through controlling all aspects of business is done by taking the
accounting functions intoexecution. Pricing of products, discounting, capital budgeting,
project financing, investment appraisal, etc such reliable decision can be taken in order
completion of project.
Financing Functions and its roles
It is an activity with controlling and planning financial resources. This involves
the acquiring and utilizing of funds for effective operational activity. The following
functions are mentioned below:
Financial Planning
The one of essential aspect of financial management is to plan for funds. It can be
done from the evaluating sources of monetary resources. There are various incontinency
situations which business faces so overcoming all this events becomes essential for
getting success. In addition to this, planning for meeting such unforeseen business
environment will permit Skanska plc. to develop effective financial planning strategy in
order to accomplish business objectives.
Forecasting cash In and outflows
Measuring the both income and expenditure in respect to assess the present
position can be exerted by financial management. This will help company to make future
course of action and enable it to gather information regarding each job costing and
profits. The irrelevant elements can be identified, analyzed and evaluated by
implementing this. Forecasting assist to measure liquidate position so that urgent
requirements can be fulfilled in convinced manner.
Allocation of funds
Business can be successful only if its knows how to accomplish each departments
financial requirement. This plays important role in deciding company’s extent of success
as allocating funds in effective manner becomes possible by prioritizing essential
practices for continuing business practices. With respect to Skanska plc would be able to
allocate its funds in effective for accomplishing its objective of expansion in Europe.

Budgetary and non budgetary control
It is part of financial management tool which is utilized for managing income &
expenditure. There are several type of budgets that firm prepares in order to segregate
receipts from payments (Wijewardana, 2018). It provide guidance in evaluating company
current cash inflow as compared to outflow. This is initiated by setting budget at prior
stage fro having road map for getting appropriate instructions. SP can utilize it for
controlling cost for assuring maximization of profits band wealth. The primary purpose
of budgetary control is to formulating coordination among all functional areas (Financing
decisions, 2021). Skanska plc can execute this budgetary tool for managing and
controlling financial resources.
Dividend policy
The investors are one of the most important stakeholder that requires the
maximum attention as they provide various financial resources to company. In order to be
effective in terms of retaining funds from profit so that un seen need can be met. SP will
be able to make strategic dividend policy for investors to achieve the objectives of
attracting their interest. Maintaining interest by giving dividends on time enable firm to
acquire positive position in industry. SP will be able to spend more positively in
completion of expansion project when it has investors support.
Investing decisions
Earning profit is one part of generating revenue for company. There are other
methods also available for enhancing earning revenue (PHAM, DAO and BUID., 2020).
Investing in right ventures of activity allow Skanska place to establish the most creative
and productive investing option.
Role of financing functions
 Capital management is one of the role of fiancé function which business wants to
accomplish for the purpose of effective monitoring and controlling of available
resources. In addition to this, it will provide assistance to organization regarding
achieving business practices.
 Risk, cash flow , allocation of funds management are exerted by the financial
functions in order to develop suitable policy so that company can reach desirable

position. Investment & financial decision making are some of the important duties
of finance functions
TASK 2
a) Calculating Ratio for SKANSA PLC (SP)
Return on Capital Employed
The particular ratio is calculated for measuring company’s performance in terms of its
efficiency of generating profits from capital. Skansa plc will be available to know various
factors that impact its effectiveness in making revenue by refereeing below illustrated
calculation. The determination for ROCE has been provided for two years:
Particulars Formula 2018 2019
Operating profit 750 675
Total assets- total
current liabilities
3825 5850
Return on Capital
Employed
Operating
profit/( Total assets-
total current
liabilities)*100
19 11
Net Profit Margin (NPM)
NPM is widely utilized ratio by analyst, investors, lenders, traders, etc. in addition to this,
this is calculated for assessing firms’s capacity of making profit from its sales. The ideal ratio for
any industry is considered to be 10%.
Particulars Formula 2018 2019
Net profit 600 625
Sales 4800 6000
Net Profit Margin Net profit/ Sales*100 12.5 10.41

Current Ratio
Various types of firms such as small, medium and large maintain currents so that short
term obligations can be met easily with cash or equivalent item. While making decision by
investor it is one of the crucial components consider for making proper evaluation. It largely
contributes in influencing decision making procedure of stakeholders
Particulars Formula 2018 2019
Current Assets 4470 8070
Current liabilities 645 2220
Current Ratio Current Assets/
Current liabilities
6.93 3.63
Average Receivables Days
To formulate company’s credit policy and knowing its liquidate position the particular
ratio is widely taken in to consideration. There are various transactions that company undertakes
in oder to increase its revenue. For having good relation with customers it becomes important
for company to evaluate its receivables day. With help of this margin stakeholders can get idea
about company activeness in covering its receivables. The specified ratio is shown below:
Particulars Formula 2018 2019
Receivable trade 900 1200
Sales 4800 6000
Average Receivables
Days
Receivable trade/
Sales*365
68.43 73
Average Payable Days

This indicates company’s debt paying capacity to its vendors, etc. There are various
suppliers from which company acquire material, inputs, etc. Paying all payment at immediately
does not become possible for organization. For knowing organizations capability in paying its
debt can be determined by this ratio. It aids suppliers and other parties to take strategic decisions
on the basis of it.
Particulars Formula 2018 2019
Payable trade 570 2100
COGS 3450 4350
Average Payable
Days
Payable trade/
COGS*365
60.30 176.20
b)
Particulars 2018 2019
Return on Capital
Employed
19 11
Net Profit Margin 12.5 10.41
Current Ratio 6.93 3.63
Average Receivables
Days
68.43 73
Average Payable
Days
60.30 176.20

Return on Capital Employed
Net Profit Margin
Current Ratio
Average Receivables Days
Average Payable Days
0
20
40
60
80
100
120
140
160
180
200
2018
2019
From the above computation it can be evaluated return on capital employed for the year
2018 and 2019 is 19 & 11%. by analyzing both figures for 2 mentioned period it can be
evaluated that it is greater than the ideal ratio. Skanska Plc is contributing large efforts for
generating revenue from its available capital. this will positively impact the company’s success
in terms of both profitability and sustainability. the reason behind its good course of action can
be quick decision for selling outdated machinery. In addition to this, actions for reducing cost of
goods sold can be taken for obtaining better operating profit as it will increase its enhance
production capability of Skanska plc. The decreasing trend of ROCE of company indicates that
it is not focusing much on these factors. the consequences of it on organization performance
will be negative in turn less trustworthiness, ability to obtain credit can be low, etc.
The ideal NPM is 10% which less than Skanska plc. ratio for both the years. In 2018 it is
12.5 And 10.41% that is reflecting decreasing trend in turn company can adversely get impacted
from this. Various types of reasons are there that affect company profitability and success. In
2018 it is higher as compared to 2019 which is showing downward trend of SP efforts in
maximizing sales. The reason behind the adverse result can be ineffective cost structures.
Another issue which lowers any firm net profit is low adaptability in selecting suitable pricing
strategy according to changing business circumstances (Kim and Im, 2017). It can negatively

impact shareholders decision making process will largely affect company’s growth. investors can
lose interest in company in case of lowering trend of NPM as main motive of investing is higher
profitability. Improvement measures that can be implement to change prevailing situation of
Skanska Plc. includes increasing prices, declining expenses , etc. moreover, it will not only
modify firm growth but also enhance stakeholders wealth.
Current ratio is one of the financial ratio that helps various type of investors, lenders,
financial institutions, banks, analyst an overview of company’s monetary position. In addition to
this, the Skanska plc. ‘s current ratio for 2018 & 2019 is 6. 93 and 3.63 times. It shows the
position of having assets more than liabilities as ideal ratio is 2 times. This is reflecting assets 2
times greater than its liabilities (Abhishek and Divyashree, 2019). Firm’s shows figure are more
than mentioned ideal which is presenting good current position. Skanska plc current ratio is
decreasing as compared to previous year that requires change for better performance. The reason
for this may be inclination of short term liabilities & reduce ability to generate cash. There are
various approaches that can be utilized in terms to improvise prevailing situation for gaining
higher performance for attracting shareholders. Declining capital purchase, personal withdraw,
selling assets will enhance specified ratio.
Average receivable days of SP in 2018 and 2019 are 68.43 & 73 days for collecting
debts. 7.8 is considered to be good average receivable turnover ratio which is lowest among
mentioned figure for specified pattern (McCosker, 2021). Skanska pls. effectiveness of collecting
credit sales revenue can be identified with help of this turnover ratio. Lower figure suggest that
firm’s credit collecting policy is poor and requires modification for the better generating
capability of obtaining revenue (Easton and et.al., 2018. ). In addition to this, SP average
receivable days are more than 7.8 which is indicating effective credit policy. It is in upward
going trend which tends to show SP is having good relationship with customers along with
enhanced concentration on recovering bad debt. Less than 7.8 means it needs improvement by
adopting strategy such as sending reminders for avoiding bad debts in order to reduce loss of
money and increase profitability (Tian and Yu, 2017). Defining credit policy, offering discount
for encouraging instant payment, diversifying customers base, adhering cash management
approach, etc.
Average payable days of SP is 176.20 & 60.30 for years 2019 & 2018
respectively. In addition to this, it helps investors, lenders, shareholder, vendors, etc to know

how effective firm is paying its payment of purchases and other materials, etc. 60.53 days are
approximately for paying to suppliers. Investing decision hugely get affected from average
payable ability of organization (Palepu and et.al., 2020). The trend of SP’s payable days are
increasing from the pervious period. High ratio is more desirable by business as compared to
low. From 2018 to2019 year it is inclining which is representing creditworthiness of Skanska
Plc. Having better policy for making payment enables organization to obtain economics of scale
by building strategic relationship with suppliers. Measures can be taken to improve the
prevailing environment. This can be implemented by changing terms & condition for payment
procedure, stock control, etc. It will positively impact progress of Skanska plc.
CONCLUSION
From the above report it can be concluded that financial decision making is an important
component for having table business practices. The current case study has given emphasis on
analyzing importance of accounting and finance function for Skanska Plc. it includes prevention
of errors, analyzing financial data, allocation of funds, dividend policy, etc. Report has provided
roles and duties of the accounting and finance functions which comprises taxation policy,
budgeting, short term & long decision making duty, financing, etc. In addition to this, ratios has
been calculated along with comments on consequences & improvement practices. The computed
ratios are ROCE, net profit, current ratio, account receivable & payable days, etc. With respect
to this the performance of business has been identified and improvising situation ahs be
evaluated for better evaluation.

REFERENCES
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Lin, P., 2019. Design and Implementation of Financial Accounting Information Management
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Online
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