Financial Decision Making

This project report focuses on the role and functions of the accounting & finance department in SKANSKA plc, a construction company. It explores various management accounting techniques used by the company for better planning and controlling of financial resources. The report also assesses key ratios of SKANSKA PLC to evaluate the organization's performance. It provides insights into the financial strategies and decision-making processes of SKANSKA plc.

Financial Decision
Making.

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Report to management of SKANSKA plc about role, functions of accounting & finance
department:..................................................................................................................................3
CONCLUSION................................................................................................................................6
TASK 2............................................................................................................................................6
Assessing key ratios of SKANSKA PLC evaluate organisation's performance:.........................6
Comment on performance of SKANSKA PLC, based on computed ratios:...............................7
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
In the organization of any sector, decision making is one of the crucial part and it
depends on managers. The term financial decision making can be defined as a process under
which financial manager of a company determine about need of funds in order to carry out
further activities as well allocate funds for different activities. This process of decision making
need to be performed in an effective manner because any sort of error may lead to range of
difficulties in future. The project report is based on SKANSKA plc which is headquartered in
UK and founded in year 1778. Basically, it is a construction company which takes large projects
of civil. The company uses a range of management accounting techniques for better management
of their operations. The report is categorized into two parts which are Task one and two. The
first task carries out information about role and functions of accounting & finance departments.
In the report different kinds of management accounting techniques are mentioned along with
their roles in better planning and controlling (Cescon, Costantini and Grassetti, 2019). The
accounting and finance department of a company play a key role in the aspect of proper
management of financial resources which they have. Basically, success of a company depends on
that how well finance and accounts department performing their functions. Both departments
have own functions and roles. Though, accounting and finance departments are interrelated with
each other. The finance department plays a key role in regards to collecting of financial data and
preparing appropriate financial statement at the end of financial year. While, the accounting
department is liable to record all financial transactions in a systematic manner so that needed
information can be provided to finance department.
TASK 1
Report to management of SKANSKA plc about role, functions of accounting & finance
department:
The term management accounting (MA) includes supplying the executives with monetary
and non-monetary knowledge so they can look forward to it. Many MA strategies that are really
relevant for businesses like:
Financial planning- It is a kind of financial instrument that is connected to the monetary
planning cycle based on estimating future revenues and expenses (Alsharari and Al-Shboul,
2019). Financial preparation may be beneficial, such as in SKANSKA business, as on the

grounds of that, they may efficiently control their capital. As well as that will allow them to
properly distribute the funds to the various forms of activities.
Analysis of financial statements- The financial statements are made up of numerous kinds of
documents such as revenue report, balance sheet, cash flow, ratio review, etc. The detailed
assessment of these financial reports can be useful in assessing the actual position of firms. Like
in chosen SKANSKA company, financial assertion is helpful for assessing their current situation.
Historical cost accounting- The term historical cost accounting may be understood as an
accounting that is used for capital according to the generally accepted principles of accounting
(Pelz, 2019). Such as in the business SKANSKA above, the worth of the properties should be
calculated according to the initial expense.
Standard costing- It can be described as some kind of costing method related to forecasting the
future cost of different operations. This cost planning procedure is termed standard costing. As in
the above-mentioned SKANSKA company, the finance managers can implement this costing
method to properly measure the future costs of production actions in order to keep comparing
actual costs with this estimate.
Budgetary control- This refers to the monitoring of organizations ' financial results through the
application of expenditure planning. They control the financial results under SKANSKA
company mentioned above by planning budgets such as cash forecast, operational expenditure
etc.
Marginal costing- This is a kind of strategy of accounting, in which all costs (fixed and variable)
are regarded differently. Like fixed costs as recurring costs, and variable costs as expense of the
commodity. For instance, they can use this costing method in above company to prepare
financial statements.
Fund flow statement- This contains comprehensive details on shifts in the company's financial
situation over a specified period of time (Burritt, Schaltegger and Viere, 2019). Using this
method, their financial situation can be assessed above SKANSKA corporation.
Cash flow statement- It includes information about an organization’s cash flow. It is planned
through three kinds of practices such as operating, financing, and investing. They can handle the
actions in SKANSKA company concerning too much cash out flow.
Revaluation accounting- That is a method of accounting linked to determining the valuation of
the business by differentiating between the current market value of the properties and the initial

expense. They can discover variations between the equitable and classic value of their existing
resources, such as in the above corporation.
Statically and graphical technique- These methods are related to the analysis and presentation of
corporations' financial operations using graphs. Under this, graph analysis is performed in order
to determine the financial situation. Like the organization mentioned above, its fiscal condition
can be measured by reading the financial performance in the form of tables and charts.
Communicating- This management accounting methodology is related to the contact with
administrators with financial and non-financial knowledge, so that they can render more
judgements.
Critical analysis- The MA strategies described above are too important for businesses as they
are useful in presenting accurate details on financial and non-financial aspects. Below is the
value of these methods is described in such manner:
Measurement of performance- These methods are useful in determining the true results of the
operations of the firms (Setiawan, Rahmawati and Widagdo, 2019). For the above-mentioned
SKANSKA business, such as normal costing methodology, it can be beneficial to equate real
costs with projected costs. If real cost is smaller, than expected cost would be high for the
financial results of the business.
Enhance the efficiency of business- The important aspect of these methods is that they are
effective for increasing organization performance. That is because management accounting
methodology such as financial forecasting may be helpful in enhancing business performance.
As in the business SKANSKA, these methods are valuable for increasing the performance of
their different production operations.
The above mentioned benefits are common for all and apart of these benefits, there is some
specific role which is performed under these methods such as:
 Importance in planning- The MA methods are important in allowing successful
preparation. It is partly since a broad variety of strategies are available, such as financial
modelling, marginal costs etc. Firms may create accurate forecasts on the bases of these
methods and can prepare statements efficiently. As in the above-mentioned SKANSKA
business, they may use MA methods to devise their financial strategy.
 Importance in controlling-The value of accounting systems methodology is that such
methods assist successfully in managing company practices (Hariyati, Tjahjadi and

Soewarno, 2019). This is because corporations such as SKANSKA can track their
production facilities using these accounting techniques
 Importance in decision-making- The decision making is one of the key aspect for any
kinds of business. Along with these benefits of MA techniques, decision making is also
critical process in which methods play a key role. They can take strategic decisions to
grow their market in the UK over the next ten years, as in the instance of the above-
mentioned SKANSKA group. As well as they can gather key information about cost and
income which may lead to better planning for upcoming accounting cycle.
So these are some additional significance of the accounting control strategies in the business
SKANSKA. As well as focusing on growing their companies, these accounting strategies may
also play a key role for them.
CONCLUSION
On the basis of above part of project report this can be concluded each method or
technique has own role and importance in the context of business entities. It is essential for
companies to cope up with these methods so that they can sustain in competitive environment.
The report contains a detailed analysis of MA techniques along with their importance. Each
technique has relation for progress of a business entity such as methods which are related to cost
management has link with the finance department of companies. Similar as other methods also
has a relation with different kinds of aspect of companies. In the further part of report, critical
analysis of these techniques is done in order to assess their importance for business entities.
From this part, it can be concluded that role of these techniques is not limited to the planning and
control but also these methods contributes in a detailed manner for success of companies. In the
absence of these techniques, this may difficult for companies to sustain in competitive
environment due to lack of planning of financial and non-financial aspects. Thus, SKANSKA plc
must cope up with different kinds of MA techniques in accordance of their need.
TASK 2
Assessing key ratios of SKANSKA PLC evaluate organisation's performance:
Ratios computation along with key formulas 31-DEC-2018 31-DEC-
2019

Return on capital employed = Operation Profit/Capital
Employed ×100
= 750 / 2325 x
100
= 32.26%
= 975 / 2850
x100
= 34.21
Net Profit Margin = Net Profit ×100
Sales Revenue
= 600 / 4800 x
100
= 12.5 %
= 675/ 6000
x 100
= 11.25 %
Current ratio = Current Assets
Current Liabilities
= 1515 / 645
= 2.35
= 2070 /
2220
= 0.9324
Debtors collection period = Trade Receivable ×365
Credit Sales
= 900 / 4800 x
365
= 68.43
= 68 Days
= 1200/
6000 x 365
= 73 days
Creditors collection period = Trade Payables ×365
Credit Purchases
= 570 / 4800 x
365
= 43.34
= 43 Days
= 2100 /
6000 x 365
= 127.75
= 128 Days
Comment on performance of SKANSKA PLC, based on computed ratios:
Return on capital employed:
ROCE is a finance ratio which specifies actual profitability and efficacy of total capital
funds employed by the corporate entity. A increased ROCE would imply a much more efficient
utilization of total employed capital funds; the ROCE would be greater than cost-of-capital.
When this is not the case, the organization is less efficient and insufficiently creating values for
shareholders. Measurement of ROCE is a valuable technique of contrasting profits across
organizations depends on sum of invested capital. That is not enough to focus at EBIT on its own
to decide which business is a worthwhile choice (Hatefi, 2019). Investor do need to gaze

at investments and determine ROCE. Most find ROCE to be a quite accurate method then ROE
for estimating the corporation 's potential earnings due to various current debts and expenditures.
As described above, the ROCE ratio of Skanska Plc is 32.26 per cent in year-2018 ,
compared to 34.21 per cent in 2019 for an upwards spike in the ROCE. A higher ROCE is useful
in implying that the company generates more income than a pound of capital investment made in
the corporation. A larger percent ROCE is favourable, implying that the entity delivers more
incomes than the single pound of invested capital within enterprise. A reduced ROCE proportion
leads to lower yield. A corporate with less capital funds but same income/profits as its competing
companies will have higher yields on aggregate sum of capital invested. Therefore, in context of
Skanska Plc, such increase suggests that the corporation's potential to produce a yield on the
overall capital employed in the corporate has improved over the period.
Net profit margin:
Net margin determines how profitable a corporation is in making profits on every
pound of revenue. This is amongst the most critical profitability metrics. Net margin
encompasses all variables that have an impact on enterprise's profitability status, whether within
the managerial control or otherwise. The greater the percentage, the more
efficacious the corporate entity is in terms of cost controlling (Paudel, Nagana Gowda and
Raftery, 2019).
In this respect, focused on the assessment of the ratios of company Skanska Plc, it has
been analyzed that the net-profit ratio margin of the company in 2019 was just 11,25 per cent, of
which 12,5 per cent in 2018 was the result of a small decrease in the aggregate NP percentage.
Here, this decline in net profit margin indicates that company Skanska Plc 's actual performance
in translating its overall revenues into profits has declined over stated period. In order to increase
their performance, the business should work on this aspect. For this enterprise, sales volume
should be increased and the total business expense/costs should be reduced.
Current ratio:
Current Ratio major short-run liquidity ratio used to ascertain the actual liquidity status of
the company considering the link among all the current Assets and all the Current Liabilities. In
simple words, it is technique used to derive whether or not by using current assets balance entity
can pay all current liabilities. This proportion is not just intended to evaluate the liquidity issues,
but also help to determine the uses of the operating capital. Liquidity condition of the company

can inherently look attractive if this ratio is greater than 2 (Stanley, 2020). A current ratio offers
an assurance to customers and other related parties that organization may or may not have
difficulties in paying off short-term dues or current liabilities by applying available cash
funds and other liquid assets. This ratio lets managers think regarding the upcoming cash
flows strategy to address existing liquidity issues. Negotiations with bank are likely to
overdrafts or meetings with suppliers to postpone certain payments.
According to the aforementioned table representing current ratios of Skanska Plc, this has
been determined that current ratios of the company in year 2018 is 2.34, which dropped to
0.9324, implying a substantial decline in this ratio. This huge reduction in the ratio is adverse
indication for company Skanska Plc's liquidity status. This reduction in the current ratio indicates
that the capacity of the company to satisfy its shorter-term payables / liabilities have been
drastically diminished. Corporation should prioritize this element, as it could have a long-term
effect on Skanska's potential to thrive in market. Though this indicates only the shorter-term
liquidity status of the corporation, negligence of such a ratio outcome can give rise to
unfavourable financial circumstances for the organization (Bakhtavar, Yousefi and Jafarpour,
2019).
Average-Receivable days/ Debtors collection period:
Debtors-collections period fundamentally refers to an average-period generally in days
which an enterprise takes to retrieve its trade credits sales during a specific time-period. The
corporation measures this proportion in attempt to handle the productivity and usefulness
of credit policies and collection mechanism. When ratio is large, this means that the organization
spends more days receiving credits or trade receivable. In the regard the lower ratio means that
the organization's credit policies or collection process is working quite well (Hausmann,
Kokkinaki and Leng, 2019).
As reported in the table mentioned, the debt collection duration of Skanska Plc in
the 2018 and 2019 respectively are 68 days and 73 days, suggesting an improvement in the
collection period that is not a good indication for the business as the organization needs more
time in 2019 than in 2018 to recover the amount of the accounts receivable. It may result to a
detrimental position of working capital inside the business. The rise in this proportion may also
directly impact the short-term liquidity status of the corporate entity.
Average-Payable days/ Creditors-collection period:

This ratio simply demonstrates the actual timespan a corporate entity normally takes for
making payments to their trade payables or creditors-party. Generally a business entity not make
all cash purchase, major portion of purchase of entity is on credit-basis. This ratio determines
based on aggregate average credit purchases and trade creditors balance that within how many
days entity usually paring to their trade-creditors. A shorter duration points out towards
organisation's stronger liquidity position as company takes lesser period to pay trade creditors.
While a longer duration of average-payable period shows that corporation has inadequacy of
liquid funds or cash to pay its all short-term dues and trade creditors. Thus a higher average
payable period is an indicator that company has to focus on working capital and cash
management as company's short-run liquidity position is not so much favourable.
The ratios reported by Skanska Plc indicate that the creditors' collection cycles: 128-days
and 43-days during year 2019 and 2018 respectively, indicating an elevated delay in the payment
cycle to creditors. This increasing trend throughout the time frame demonstrates that the capacity
of the corporate entity to make payouts to its creditors has decreased over said time frame. This
rise in the period indicates that the company does not have satisfactory or reasonable monies to
pay creditors in short span of time showing a downtrodden liquidity status. Also in industry, if an
entity is making late payment to its suppliers then it could also impact corporate entity's goodwill
which may result in withdrawal for support of major suppliers (Lee, Hyun and Jung, 2019).
CONCLUSION
This has been concluded from above report that financial decision-making inside a
business or firm environment is a major element as it allows to identify the efficiency of the
company and ensuring the sustainability of the organization. It requires a wide variety of
considerations and interventions to encourage more informed decision-making. Executive must
weigh various facets of fiscal decision-making in order to accomplish the aims and purposes of
the company within a defined time-frame. It also includes the measurement and review of ratios,
that allows executives to determine the actual progress of the company over a specified time-
frame and to undertake decisions on basis of different ratios outcomes. Stockholders and other
key parties could also use financial ratios of enterprise to properly evaluate the feasibility of
funds invested in form of shares or by other means in corporation.

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