Financial Decision Making for Accounting and Finance - Desklib

This report discusses financial decision-making, accounting and finance functions, duties, and roles within SKANSKA PLC. It also calculates and interprets financial ratios for SKANSKA Plc and comments on the company's performance from an investor's viewpoint. The subject is Accounting and Finance, and the course code is not mentioned. The college/university is not mentioned either. Get study material, solved assignments, essays, and dissertations on Desklib.

Accounting and finance

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................4
TASK 1............................................................................................................................................4
Accounting and finance functions, duties and roles within SKANSKA PLC............................4
TASK 2............................................................................................................................................9
Ratio Calculation and its analysis & interpretation.....................................................................9
Commenting on the financial performance of SKANSKA Plc................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Financial decision-making refers to the decisions that are made in the context of
utilization of money along with weighing its pros and cons to arrive at a final solution for a given
problem or situation. Financial decision can be made in the areas such as investment, financing
and dividend distribution (Forcellati and et.al., 2021). So far, these decisions are made within the
organizational context by accounting and finance department who are responsible for ensuring
that the entity must invest in a profitable avenue, optimum sources of finance must be included
within the capital structure of the company along with sufficiently distributing the surplus of the
business to its investors. In this report, there will be two parts wherein the first part comprises of
roles, duties and functions performed by accounting and finance department within the
organizational set up of SKANSKA Plc. In the second part of the report, the discussion will be
done regarding the financial performance of SKANSKA Plc by calculating and interpreting
various financial ratios for the company. At last, comment will be done on the company's
performance from the viewpoint of an investor who is willing to invest 1 million in SKANSKA
Plc.
TASK 1
Accounting and finance functions, duties and roles within SKANSKA PLC.
The main purpose of accounting and finance is to ensure the efficient financial controls
and manage finance reports enhancing all business activities. It is the study of theory, research
and various practices within the company. It is useful for company to track income and
expenditure and provide financial information to potential users like managers, investors and
government for decision-making.
Assessing the importance of accounting and finance
 Record business activities- Accounting and finance is used to keep record of business
activities. It is helpful to analyse inflow and outflow of cash so that company can take
decisions to avoid failure.
 Record financial transactions- Accounting can track financial transaction of daily
business operations within the company. This will further access various strategies that
can help SKANSKA survive uncertain financial downturns.

 Avoid legal problems- By keeping an accurate record on financial activities company
can analyse tax management. Poor recording of transaction could lead to unnecessary
trouble in the firm. Systematic record of financial transactions helps company that
financial statements are legally reported or not.
 Analysing performance- A company can track its financial position by looking at
previous and current data (Battiston and et.al., 2021). This records will help to find out
the past mistakes and work on future requirements. Additionally, it helps company to
identify new areas of growth to achieve targets.
 Budgetary control- Accounting and finance helps to create budget and will keeps
business on track. A budget can give a detail information about financial standing and
growth of the company.
 Internal and external communication- While dealing with external parties and internal
stakeholders' communication of financial records plays a vital role. Proper accounting
and finance management will helps in attracting potential investors. External and internal
parties will use these reports to decide about involvement with business. This records will
also provide deep information to owners while communicating the strengths and
weakness with their teams.
 Strategic development- To develop a strategy within the company it is mandatory to
keep proper budget and analyse clear data (Anjum, 2021). After keeping financial
records, SKANSKA will be more active to make various strategic decisions. This will
leads to supply management and profitability within the company. Accounting and
finance will improve operational efficiency in the firm.
 Reporting business profits- Accounting and finance is helpful to maintain records about
business profit. This enables interested parties to make operational decision on the
growth of company output.
 Statutory complaint- A proper accounting records will evaluate the information about
liabilities. Timely payment of liabilities will help businesses to the statutory complaint.
 Prevention and detection of fraud- The best way to prevent fraud within the company
is to maintain and keep overall track of business activities effectively (Bradbury and
Scott, 2021). Good internal control at workplace helps to implement an accounting
system.

 Credit building and reputation- Accounting and finance helps to effectively managed
business operation. Thus, it will give good impression of company in front of creditors.
 Better payment cycles- It is created to enhance the business payment cycle such as
payable and receivable cycle. Further, this will helps to avoid late payment and debt
issues in the company.
 Planning and forecasting- For keeping track on financial statements' bookkeeper look at
the business inflow and outflow. Planning and forecasting will support business about
how much reserve in the form of cash need to be maintained. Thus, this will evaluate the
business needs to distribute profit to investors for future planning. Assistance in taking managerial decisions- accounting is helpful for taking various
kinds of decisions. Decisions like calculating the good or services price, sale mix, product
purchase mix, machinery will assist company to take managerial decisions.
Role and duties of accounting and finance.
 To keep record of financial transactions- The duty of accounting is to keep track on
various business activities. SKANSKA PLC. undertake the financial statement to keep
overall information about inflow and outflow of cash.
 To improve business plan- The role of accounting is to present reports and detailed
information about business transaction to improve future planning. The firm undertakes
to develop business ideas in various field.
 Tax planning- It provides advice regarding tax planning with reference to current
legislation. The organization undertakes this in order to determine tax issues associated
with business mergers and acquisitions.
 Risk analysis- In order to determine the risk in the business, managers undertake the
detailed information about financial statement (Bui, 2021). It includes cash flow, balance
sheet, income and expenditure of the company. Thus, in this way accounting helps to
analyse risk and financial forecasting.
 Design policies and procedures- It is maintained in books of accounts to evaluate the
accounting controls by implementing various policies, rules, regulations and procedures
in the company.

 Financial controls- It is responsible for ensuring the effective and efficient financial
management within the company. The organization undertakes such business activities in
order to support the control over expenses.
 Handle cash flows- The documentation of incoming and outgoing of cash within the
company are taken into consideration (Smith, 2020). The organization prepare statements
to handle cash flows. Keep an eye on unnecessary expenditure and unused stock within
the firm.
 Keep records for the payment — The duty of accounting is to maintain the information
about payment of bills, wages and salaries in order to maintain unnecessary expenditure.
 Forecasting trends- The role of accounting is to find out forecasting trends of the
organization with the help of previous and current data. Hence, in this way the financial
position of firm can be known and future changes can be identified.
 Credit analysis- It is used by company to attract capital, as it shows financial
performance affect the ability of company to raise capital. To undertake investment and
credit analysis of the business, SKANSKA PLC. maintain books of accounts.
 Preparing income data- The firm undertakes this in order to prepare monthly, quarterly
and annual statements to forecast costs and revenues. By keeping regular update on
income statement company can analyse condition of the business.
 Organize internal audits- By preparing internal audits company can attain overall
financial health of business. The main role of accounting is to organize internal audits to
keep perfect records on accounting discrepancies.
 Keep records on treasury policies- The role treasury manager is to maintain accounting
in order to keep overall information about treasure policies (ElShaabany, 2021). This
includes optimization of credit facilities and reducing the costs.
 To improve consistency- The duties of accounting is to maintain accuracy and
consistency of business in each and every area. Thus, the organization improves
accounting processes and reliable storage of key data.
 Identify ways to increase value- The most common tasks that accounting and finance
performs is to identify various ways to improve value and increase profit of business in
terms of competitive market.

 Review and reconcile transactions- It is beneficial to review pending transactions for
any errors that may cause uncertainty, so company can investigate potential issues later
with the help of accounting data.
 Investing in profitable ventures- The role of accounting is to record financial data in
company so that one can take investment decisions accurately (Cockcroft and Russell,
2018). This will further lead to investment plan with profitable ventures.
 Optimal mix of funds- The role of accounting and finance is to minimize the cost of
capital to optimize for the lowest cost mix in the organization. The basic duty is to
maintain capital structure control on future borrowing without losing control.
 Comparing results- with the help of comparing method the company can analyse the
financial health of business. The duty of management is to compare accounting
statements with others in order to evaluate economic growth.
 Payment of government taxes- the department role is to maintain detailed information
about social security taxes, federal and compensation. Thus, the management needs to
note down that business does not miss a tax deadline.
 Data analytics- In SKANSKA PLC., Professionals undertake the accounting and finance
in order to perform business functions, business intelligence and financial solution. It is
helpful in demonstrating leadership skills using automation and data analytics.
 Payroll management- Along with that the firm needs to ensure that employees earnings
are up to date. It also records salaries left after the deductions, this process is called
payroll and monitoring employee time off. It also includes calculations of bonuses,
benefits and commissions. Further, it also tracks employees sick leave, holiday, half day
and absence. The most important responsibility of management team is to generate an
automated payroll software. This will further improve business productivity and increase
profitability (Brooks and Oikonomou, 2018). This will be good for company in various
ways like reduces the risk of human errors, develops transparency, data security, easy
payroll reconciliation, accurate calculations, less expensive, saves time, regular tax
update.
 Inventory cost management- The role of management is to maintain inventory cost
management in the books of finance. It includes raw materials cost, labour, overhead

cost. Thus, in this way business profit margins will increase automatically and reduce
overselling.
TASK 2
Ratio Calculation and its analysis & interpretation
Return on capital employed
Ratios Formula 2018 2019
Return on cap.
Employed
EBIT / cap. Employed 750 / 3825 = 0.20 975 / 5850 = 0.17
Capital employed Total assets – current
liabilities
4470 – 645 = 3825 8070 – 2220 = 5850
Earning before
interest & tax
(EBIT)
750 975
Interpretation
Return on capital employed (ROCE) is a financial ratio that used to analyse the
company's efficiency because it calculates the profitability of co. through efficiently use of its
capital. It is used by shareholders, financial managers, and investors to evaluate the co.
performance and make decision for investment in the company (Akhtaruzzaman, Berg and
Hajzler, 2017). In the above calculation of Skanska Plc co. ROCE is decreased from year 2018-
19 by 0.20 to 0.17. ROCE is calculated by formula using earning before interest & tax divided by
capital employed (total assets – current liabilities). Higher ROCE shows positive performance of
the company. The reason behind the decreasing ROCE of the Skanska co. is they have surplus
assets and ideal capital funds that co. not using properly. They have no proper guidance &
professional advice to use its capital in the best profitable investment. Decreasing of this ratio
affect the company's profit & image. Reducing of profit may lead to losses to the company.
Company improve its ROCE by disposing off surplus assets & capital in profitable investment.
Net profit margin
Ratios Formula 2018 2019

Net profit margin Net income * 100 /
revenue
600 * 100 / 4800 =
12.5%
675 * 100 / 6000 =
11.25%
Net income 600 675
Revenue 4800 6000
Interpretation
Net profit margin ratio is used to calculate the percentage of profit of the co. that they
earn from its sales. It is calculated by using formula net profit divided by total revenue multiplied
by 100. Net profit is calculated by all company expenses are deducted from its total revenue.
Skanska plc co. net profit margin ratio is decreased from year 2018-19 by 12.5% to 11.25%.
Decreasing of profit margin ratio shows the company is not performing well, and they not earn
good profits. The various reason behind that decreasing of ratio is co. cost is more than its
revenue, inability to cop up with market changes & competition, ineffective market strategies
and so on (Hasanudin and Awaloedin, 2020). It effects the profitability & investment of the co.
they not take benefit of any investment opportunity for future profits. They need to improve their
profit margin ratio by lowering the price & cost of the product it helps in increasing sales and
profits of the company.
Current ratio
Ratios Formula 2018 2019
Current ratio Current assets /
current liabilities
1515 / 645 = 2.35 2070 / 2220 = 0.93
Current assets 1515 2070
Current liabilities 645 2220
Interpretation
Current ratio is also known as the working capital ratio. It is used to calculate the
company's capability to discharge their short term liabilities that are generally due within a year.
It shows the liquidity position & financial health of the co. Current ratio is calculated by formula
current assets divided by current liabilities. Current assets are those assets that can be easily
converted into cash within a year. Current liabilities are those obligations that are due within a

year. The Skanska co. current ratio is decreasing from year 2018-19 by 2.35 to 0.93. Decrease in
current ratio indicate a high risk of default & co. may not use their assets efficiently. It shows
that co. short-term debt is increasing that is not good for co. wealth. Company improve their ratio
by using various strategies selling of unproductive assets, discharge their liabilities, reduce their
personal expenses from business etc (Husna and Satria, 2019).
Debtor collection period/ Average receivable days
Ratios Formula 2018 2019
Debtor collection
period
Avg. debtors * 365 /
net sales
900 * 365 / 4800 = 68 1200 * 365 / 6000 =
73
Avg. debtor 900 1200
Net sales 4800 6000
Interpretation
Debtor collection period / average receivable days are calculated by dividing the average
accounts receivables by total net credit sales of the period then multiplied by 365 days. Average
account receivable is calculated by adding opening balance of debtor & closing balance of debtor
then divided by two. It is used to calculate the period in company collect their all trade debts.
The smaller the period indicate that co. is more efficient in their operations & collect their debt
amount on time (Qurashi, 2017). In the above example of Skanska co. collection period is
increasing from year 2018-19 by 68 days to 73 days. It shows that co. receive their debts not on
time & they have less cash in hand. Increase in average receivable days due to less collection
efforts, looser credit policy, worsening economy. It affects the company's investment plans in
any project because they have less cash availability. Company improve their debtor collection
period by better communicate with customers about their debt, give discounts on early payment,
give gentle reminder and so on.
Average Payable days / Creditors collection period
Ratios Formula 2018 2019
Creditor collection
period
Avg. creditor * 365 /
cost of sales
570 * 365 / 3450 = 60 2100 * 365 / 4350 =
176

Avg. creditor 570 2100
Cost of sales 3450 4350
Interpretation
Creditor collection period indicate the average number of days that business take to pay
their suppliers. The average payable days is calculated by dividing the average creditors with
cost of goods sold (COGS) then multiplied the quotient by the number of days in a year (365).
COGS is calculated by opening stock add purchases such as direct cost then subtract closing
stock. From the above discussion, it has been understood that creditor collection period of
Skanska plc co. is increasing from 2018-19 by 60 to 176 days. It shows that company take longer
time to pay their liabilities. It indicates that co. has cash shortfall and inability to pay its debts. It
effects the raw material supply of the co. due to credit liability. Company improve their average
payable period by planning their total spending, formulating budgets, managing inventory
turnover and so on (Agbo and Nwankwo, 2018).
Commenting on the financial performance of SKANSKA Plc.
From the above calculated ratios and its interpretation, it has been identified that the
company's performance has deteriorated in the current year 2019 against what it was in previous
year 2018. With regard to profitability of the company, it has been seen that company's net profit
margin has reduced drastically due to higher finance cost incurred by the company in the current
year towards increased debt component in the overall capital structure (Shahriar and et.al., 2021).
This indicates that the company may not be able to generate sufficient returns on the additional
amount equivalent to 1 million invested in it due to the priority given to obligate finance cost
over paying dividends to equity investors and this deprives investors to secure their desired
returns.
The liquidity position of the company is also not good as it has worsened in the current
year. This may leads to depriving investor of obtaining their returns in the form of dividend as
company may find it hard to make cash payments with regard to equity dividend due to having
poor liquidity position.
SKANSKA's solvency is also not so well and even get worsened in the current year
which is a negative factor to be considered while making additional investment in the company.
This is due to the reason that if trade creditors are not getting their payments on time, then it is

evident that investors would be deprived of their dividends as there is a short term insolvency
within the company.
CONCLUSION
From the above report it has been concluded that there are many roles and duties that the
accounting and finance department within SKANSKA Plc performs which has been evaluated in
this report to highlight the importance of this department within SKANSKA. The company's
performance is largely depends upon the abilities and skills of its finance department. The
financial performance of the company has also been evaluated here, where it has been found that
the company's performance is not good in all aspects that is, profitability, solvency, liquidity and
efficiency.

REFERENCES
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