Financial Decision Making

This article discusses the importance of financial decision making in business and focuses on the functions of accounting and finance. It specifically examines the case of SKANSA PLC, a construction firm, and calculates key ratios to analyze its performance. The article highlights the decrease in return on capital employed and net profit margin for SKANSA PLC between 2018 and 2019, indicating a potential loss of competitive edge. It also emphasizes the importance of proper planning, budget allocation, and long-term goal setting in accounting and finance.

Financial Decision
Making

Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
TASK 1............................................................................................................................................3
Accounting & Finance............................................................................................................3
TASK 2............................................................................................................................................6
a. Calculation of ratios for the company................................................................................6
b. Comments on the performance of SKANSA PLC and position between two years..........8
CONCLUSION...............................................................................................................................9
REFERENCES..............................................................................................................................11

INTRODUCTION
Financial decision making can be described as the process of implementing financial
decisions for a company while considering various factors such as the yearly survey, final
reports, and so on. It is crucial for all accounting practitioners to ensure that they are oriented on
successful company performance, as this would help them achieve all of their long and short-
term business objectives (Kozubík, Kozubíková and Polák, 2019). The main goal of this project
is to improve awareness of crucial elements that all businesses must consider in order to make
sound financial decisions. SKANSA PLC, a construction firm established in 1984, is the subject
of this article. It is based in the United Kingdom and operates in a number of other countries.
This project addresses a variety of subjects, including a crucial assessment of the value of
accounting and finance functions, positions, and responsibilities within the company. Aside from
that, various ratios are determined for the organisation in order to measure its output over time.
MAIN BODY
TASK 1
Accounting & Finance
Accounting and finance are the primary functions of an enterprise, and they are used to
carry out all operations in order to achieve corporate objectives. Accounting is the practise of
defining, gathering, categorising, and documenting financial details about a company, which is
essential for taking better decisions. Any company should analyse financial transactions and data
in order to provide accurate statistics and handle operations. Accounting and finance functions
are used by executives at SKANSKA PLC to operate their company by monitoring all revenue
and expenditures related to the company that aims to enhance profitability. Furthermore,
management applies legislative legislation, provides customers, and controls total costs, all of
which increase visibility into how to run a profitable enterprise.
Accounting and finance function
 Financial planning is a primary accounting function that is used to make financial
decisions in an enterprise. Management at SKANSKA PLC is responsible for focusing
on financial preparation when taking into account all financial transactions (Kaplin and
et.al, 2019).

 Managerial accounting is the process of compiling documents and accounts for corporate
purposes. SKANSKA PLC's management performs this role in order to make the best
strategic decisions possible by writing financial accounts.
 Cash flow statement: This is an accounting document used by a selected organisation to
evaluate the balance sheet of the business in order to raise money.
 Cost accounting: This is yet another accounting function that SKANSKA PLC employs
to calculate the cost of a particular project by factoring in both revenue and expenditures.
Importance of Accounting and finance functions
Tracking income and expenses: Accounting and finance are the primary functions of every
company, and they are responsible for analysing the revenue and expenditures that arise in the
course of doing business. It is important for businesses to define and plan their budgets and
operations. Accounting and finance are used by management at SKANSKA PLC to monitor
revenue and costs, which helps to improve productivity (Hamid and Loke, 2021).
Proper planning for business: Finance and accounting are important in organisations
because they aid in the formulation of proper plans and policies that can aid in increasing
productivity and completing tasks in a competitive environment. Accounting is essential to the
effective completion of numerous management operations at SKANSKA PLC. Manager mostly
focused on cash preparation, distribution, market growth, deciding target earnings, and
calculating give additional, that aids in the managing of all data.
Allocation of budget and resources: Multiple tasks are required in an organisation, and it
is critical for leadership to use accounting information to aid in the completion of the mission.
SKANSKA PLC's financial officers use financing to allocate expenditure and capital according
to tasks that will effectively manage the proposal's operations and completion on schedule.
Outlining Long term goals: The organisation aspires to expand and scale its operations to
new heights. To do so, management needs to develop a long-term strategy that spans more than
five years and contributes to increased productivity. Staff at SKANSKA PLC uses accounting
information to develop the company and achieve its objectives. By collecting financial records,
this reveals where an organisation will invest its resources and how much it performs all
functions.
Generating money: Money is required to start and operate a company, and an organisation
must evaluate the problem and financial details in order to make appropriate plans. Accounting

and finance are critical functions for any organisation because they gather all financial reports
and have oversight over fiscal irresponsibility, which aids in the generation of funds. Finance
and accounting functions are used by the management of SKANSKA PLC to grow the enterprise
and raise revenue by executing all strategies and increasing the operations (Yuniningsih, Pertiwi
and Purwanto, 2019).
Accounting is the way of evaluating, controlling, and arranging all financial statements
that are relevant to business and that are used to carry out all operations. It is necessary to have a
clear understanding of accounting rules and financial transactions that exist within a company
when it is in service in order to handle them effectively while beginning and operating a
business. The company's mission is to draw a huge number of investors, so proper accounting
systems are used to give the best facts to clients who need to hear about the company's financial
transactions. It inspires consumers to increase their spending in established businesses and
enhance profitability.
Duties of accounting and Finance
To prepare financial statement: The accounting and finance function's key duty and
duties are to file various financial statements that will aid in increasing profitability. SKANSKA
PLC's administration is doing their job by planning benefit and loss accounts, trial balances, and
financial statements that will enhance the delivery of the company's operations and improve
productivity.
Tax reporting and inventory process: Accounting's other responsibilities include focusing
on revenue returns and inventory procedures that will aid in the management of the company's
operations. SKANSKA PLC's administration is in charge of writing tax and inventory reports, as
well as organising all building sites, managing inventory, and paying taxes that help to operate a
company efficiently (Pieterse, Stiggelbout and Montori, 2019).
Collecting and analysing data: Management in a business enterprise performs their duties
effectively by collecting and analyzing data that aids in the operation of the company.
SKANSKA PLC's management is aware of their responsibilities, and they diligently gather and
analyze financial data. Both of these responsibilities are helpful to the organisation and will aid
in increasing productivity and achieving company objectives.
Importance of duties in accounting and finance

Accounting and finance plays important role in running the business as it helps in tracking the
income and expense of the company. This is useful for many other external users which were
connected with the organisation and show their interest in the company. Following are the
importance of duties are as follows-
 Helps in evaluating the performance- Financial records helps in reflect the result of
operation as well as financial position of the small business. This use to take the proper
step to the management about the effective strategies and policies. In the context of
Skanska Plc, it will help in maintaining the efficient results and leads too many
advantages and useful in formulating and allocating the budget effectively (Garg and
Kumar, 2019).
 Ensures statutory compliances- It also helps in regulate the laws and regulation in the
company and help in making proper allocation of funds and operations. The duties of
accounting and financing is help the company to ensure statutory compliances when it
comes to business and makes the best out of the company. In the context of Skanska Plc,
the duties and functions of accounting and finance help in formulating the effective use
of laws and rules.
 Create budget and projections- This is essential task for the company as it can make or
break business and it also helps in playing crucial role in formulating the efficiency. This
basically based on the financial data and finance and accounting plays important role in
formulating the efficiency and useful in achieving the goals and objectives. In the context
of Skanska Plc, this help in taking appropriate steps and helps in increase the productivity
and efficiency ) (Gerrans and Heaney, 2019).
 Helps in filing the financial statements- This is useful in undertaking the useful steps in
covering the proper steps in filing many important reports and document. This is
essential to follow all rules and legal procedure to avoid further issues and problems. In
the context of Skanska Plc, the importance of the duty of accounts and finance is to help
the company to properly adhere will all rules and regulation and will be useful in various
legal issues and guide them what to do or not in such scenarios.

TASK 2
a. Calculation of ratios for the company
Return on capital employed: It's a ratio that's used to figure out how profitable a
company is. It is a profitability ratio that demonstrates a supplier's ability to effectively use its
resources and shows us how it is maximizing its capital. It is very important from the context of
stakeholders since this requires them to establish whenever a business is strong enough here to
trade in predicated on this ratio (Mi and et.al, 2019). The calculation of it for SKANSA is as
follows:
Particulars 2018 2019
Net profit 600 675
Capital employed 3825 5850
Result 15.69 11.54
Net profit margin: This ratio is used to assess a company's ability to earn money from
its revenue. The profit margin ratio is the amount of a company's earnings that remains only after
costs have been deducted from gross income, separated by net revenue. The association between
an industry's or corporation's net income and overall sales is known as the net margin ratio. As a
result, whenever a company's total margin is 50%, it makes operating revenue of 0.5 for every 1
in sales (Wang, 2019). All the calculations of it for SKANSA PLC are as follows:
Particulars 2018 2019
Net profit 600 675
Sales 4800 6000
Result 12.5 11.25
Current ratio: It is mostly used to measure the entity's liquidity in order to decide
whether or not short-term liabilities will be fulfilled within the next year. A corporation's
capacity to pay its existing obligations with capital raised by current assets is measured by the
current ratio, which really is a liquidity ratio. Current assets are divided by current liabilities to
arrive at this figure. It usually comes into a very narrow spectrum and isn't very descriptive. To
better assess the condition of a company, far more knowledge is often needed. For SKANSA
calculation of it is as follows:

Particulars 2018 2019
Current assets 1515 2070
Current liabilities 645 2220
Result 2.35 0.93
Average Receivable days/ Debtors collection period: It is mostly concerned with
determining the amount of months wherein unpaid sums from customers will be retrieved
(Ludbrook and et.al, 2019). The calculations of it for SKANSA PLC are as follows:
Particulars 2018 2019
Account receivables 900 1200
Annual total sale 4800 6000
Result 68.44 73
Average Payable days/ Creditors collection period: This ratio is mainly used to
determine the time period which will be required by the entity to make payment of all the
owed amount to the creditors. A company may not be able to buy all of the goods in cash.
It's possible that you'll be able to buy anything on credit. Such ratio is used to determine
how long it takes to compensate a borrower (Gati, Levin and Landman-Tal, 2019). Debtors
/ Inventory Turnover Ratio is a related ratio. Lenders velocity is another name for this
ratio. All the calculations for the determination of it for SKANSA PLC are as follows:
Particulars 2018 2019
Account payables 570 2100
Cost of goods sales 3900 5250
Result 53.35 146
Working notes:
Calculation of capital employed
Particulars 2018 2019
Total assets 4470 8070
Less: Current liabilities 645 2220

Capital employed 3825 5850
b. Comments on the performance of SKANSA PLC and position between two years
By examining various percentages, it has been determined that SKANSA PLC's results in
2018 was superior to that of 2019. The ratios show that the return on capital invested in 2018
was 15.69, and that it would drop to 11.54 the next year. It shows that the firm is losing
competitive edge because the decrease in ROCE indicates that the company is unable to compete
with its rivals. The organization's net profit margin, from the other hand, was 12.5 in 2018 and
was reduced to 11.25 in 2019. It expresses the business's potential to produce net profits from its
revenues. As a result, the company's net profitability suffered. Other than that, it reveals that the
company is unable to earn the same earnings as it did in 2019 (Diemuodeke and et.al, 2019).
When analysing the liquidity of an organisation, a current ratio may be used to determine
whether or not the company has adequate capital to achieve long-term market objectives. By
examining the current ratio, it was discovered that the current ratio in 2018 was very high in
comparison to 2019. It is 2.35 and 0.93 for both years, however, resulting in a reduced capacity
to fulfil short-term commitments. As a result of the massive decrease in current ratio, SKANSA
PLC will be unable to pay any of its short-term obligations within a year. The average receivable
days shows how long it would take the company to retrieve all of its credits from consumers. It
was 68.44 in 2018 and 73 in 2019. It has been raised for 2019, which would result in a delay in
recovering funds from customers, as well as a shortage of funds to carry out short-term activities.
If clients are late for their checks, it would have a detrimental effect on the business's ability to
run.
In the other hand, in 2018, the total payable days were 53.35, and in 2019, they were 146.
The number of days in which the sum due to creditors will be paid has risen, indicates that the
firm is accepting late payments to creditors as a result of late payments from its customers. The
organization may experience problems in the future as a result of the increase in this ratio, as
borrowers may fail to extend credit to the business as a result (Bouzguenda, 2018).
Possible causes, reasons and effects of the changes in the ratios:

• For the year 2019, the organization's ROCE has declined due to rising money hired. That is the
primary driver and cause of the decrease. The biggest effect on the corporation would be a
reduction in its willingness to spend money back into the business.
• The SKANSA PLC's net profit margin has shrunk as revenues and earnings have risen. The
profit increase was small in comparison to the increase in revenue, resulting in a lower net profit
margin for the group. It had a significant impact on the firm’s earnings for the year 2019. As a
result of this, the entity would be unable to fulfil any of its commitments due to lower earnings.
• The current ratio has dropped dramatically, with the biggest cause being rising current
liabilities, which rose from 645 in 2018 to 2220 in 2019. Current assets have also raised, but the
gain was insignificant in comparison to current liabilities. The company was harmed as a
summary of the drop in current ratio when it was unable to fulfil any of its short-term
commitments (Fong and et.al, 2020).
• For the year 2018, SKANKA PLC's cumulative receivable days reduced, with the primary
cause being improved annual net profitability account receivables. It would have a bearing on
the firm's existing assets and customers will make late payments, resulting in a loss of funds for
operations.
• The organization's average payable days have risen, implying that the company is paying later
on all of the credit it has earned. The primary cause for this is a rise in the cost of merchandise
delivered, as well as a spike in the year's payables. As a result, the company's market reputation
may be harmed, and investors may refuse to extend credit to the company.
According to the analysis above, SKANSA PLC's results was strong in 2018, but the
company is experiencing problems in 2019 due to improvements in the ratios. Since the majority
of the percentages have been reduced, the business's functionality has suffered. Aside from that,
the company is seeing a drop in financing for operating operations as its performance and
liquidity decline (Abdel-Basset and et.al, 2019). The company is unable to carry out its activities
adequately as a result of this cut. The company's financial situation is very poor in 2019 relative
to 2018, due to significant adjustments in the organization's ratios as a result of various factors.
Enhanced cost of revenue, accounts payables, sales, current assets, and so on are examples.
CONCLUSION
According to the aforementioned project paper, financial decision management is a
critical factor that both organisations must rely on since it facilitates the implementation of both

long and short-term activities. Accounting and finance tasks, responsibilities, and positions are
critical for all companies because they can lead to the efficient implementation of all operating
activities. It would be crucial for firms to use ratio analysis when analysing their financial status.
Return on capital spent, net profit margin, current ratio, and total receivables collection are some
of the different measures that can be used to analyse a company's financial status.

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