Financial Decision Making: Importance, Role, and Duties of Accounting and Finance Functions, and Ratio Analysis of Skansa Plc

Financial Decision Making
1

Table of Contents
Introduction......................................................................................................................................3
Task 1...............................................................................................................................................3
Importance of Accounting and finance functions.......................................................................3
Role of Accounting and finance functions..................................................................................5
Duties of Accounting and finance functions...............................................................................6
Task 2...............................................................................................................................................8
Ratio Analysis of Skansa Plc......................................................................................................8
Conclusion.....................................................................................................................................11
REFERENCES..............................................................................................................................12
2

Introduction
Financial decision making is referred to the opportunity wherein the individual or an
organisation aims at acquiring the financial knowledge along with the skills that are required in
order to succeed in the dynamic business environment. The financial decisions are important in
order to maintain the financial liquidity in the organisation as well as the financial performance.
Financial decision making is a process that comprises of various stages such as identifying the
decisions to be made, Exploring the alternatives, Choosing the best alternative and acting in
accordance with the decisions. After acting upon the decisions it is important to evaluate the
performance of the decisions upon the organisation as well (Balasubramnian and Sargent, 2020).
Skansa Plc is a UK based construction organisation that was established in the year 1984.
The organisation is planning to expand its business operations across Europe in the coming 10
years. The financial statements have been provided and further the financial analysis in aspect of
the performance has been discussed in the report.
Task 1
Accounting and finance has a crucial role to play in the management of every
organisation and same is the case in aspect of Skansa Plc. The accounting and finance function is
important as the business operations are dependent upon the money and until and unless they are
monitored the business operation can not be smooth and successful. The various important, roles
and duties of Skansa Plc have been discussed below (Chen, 2018).
Importance of Accounting and finance functions
The accounting and finance function aims at recording, summarising as well as analysing the
financial transactions that further facilitates the various stakeholders of an organisation to
evaluate and analyse the financial health of the organisation. The importance of accounting and
finance function for Skansa Plc have been discussed below.
 Maintenance of financial records- The accounting and finance department of Skansa
plc will help in recording and maintaining the various financial records of the business.
The financial records comprises of the various financial activities of the business that
needs to be recorded. The various financial records include journal, ledger, trial balance,
income statements, etc. These help in tracking the income as well as expenditure of the
business on the daily basis. It will help the organisation to manage the finances of the
3

organisation and further in aspect of the future as well as also facilitates understanding of
the cash flows (Eberhardt, de Bruin and Strough, 2019).
 Avoiding legal problems- The accounting and finance function helps in avoiding legal
problems for the business. An accuracy on the part of financial records will help in
complying with the laws of the business. In case the organisation misses out minute
details, it may have to face major applications in context of tax management. The finance
and accounts department helps in deducting the unnecessary expenses of the organisation
also facilitates tax payment in time. These help in avoiding the legal trouble for the
organisation.
 Making budgets- The accounting and finance department helps in making budget for the
organisation. The accounting and finance function will focus upon understanding the
flow of the money in the business along with the proper accounting practices and this will
initiate budgeting. The accounting and finance department of the organisation will work
upon the anticipation of the revenues as well as expenses that will help in using the
knowledge and further making decisions in context of growth and maintenance. Budgets
are basically referred to the accumulation of a good financial records along with its
maintenance and record keeping. The formulation of budgets is a complex task as it
required a lot of efforts as well as information to create business opportunities to focus
upon the success as well as stability of the organisation (Kim, Gutter and Spangler,
2017).
 Analysing the performance- The accounting and finance department of the organisation
helps in analysing the performance of the business. A good accounting system of the
organisation helps in reviewing the financial records of the organisation. The accounting
and financial function helps in analysing the cash in flows as well as cash outflows of the
business along with the financial benefits that is being derived by the organisation. This
will help in analysing the contribution of overall operations of the upon extraction of the
value from the organisation. The information will help in formulating informed decision
in context of the growth and downsizing of the organisation as well. It will also help the
organisation to assess the new rooms for growth of the organisation
 External communication- The communication plays a very important role in success of
the business. The accounting and finance department helps in efficient and effective
4

Financial decision making

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK1.............................................................................................................................................1
Evaluating the importance of Accounting and Finance functions, duties and roles...................1
TASK2 ............................................................................................................................................5
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Financial decision making is the process which helps in weighing the pros and cons of a
decision taken in business plan and determine current financial situation of the organization. On
the base of these Financial decision, company set development goals by identify and evaluating
adequate actions for implement in business plan.
Present report in the task 1 Evaluating the importance of Accounting and Finance and in
addition to that, functions duties and roles will be explained. Furthermore, in the task 2 the
report is reviewing performance of SKANSA PLC and mentioning the cause, reasons and effects
for the change in ratio.
TASK1
Evaluating the importance of Accounting and Finance functions, duties and roles
Financial Accounting is a measurement process which involves the communication of
both financial and non-financial information of economic entities. For example business and
corporations (Greenberg and Hershfield, 2019). Vital role of accounting helps in tracking the
income and expenditures for making business decisions It ensures statutory compliance and
provide investors, which are the main role of accounting process. Information provided by this
process helps SKANSA PLC to reach at the decision of managing the business, make
investment or lend funds in the business as it accumulate and report information of the financial
position of the company.
Financial accounting function is important in the business because it involves financial
statements in the accounting record such as income statement, balance-sheet and statement of
cash-flow. The list of statements also includes the information of retained earnings and discloser
that accompany the financial statements of businesses. Importance of accounting and finance in
the SKANSA PLC are:
 Planning Budget- Process of constructing a budget which helps in control the operation
of business and reduces the risk is based on various budgeting policies and procedures.
This core factor helps SKANSA PLC to notice the expenditures which exceed the budget
amount and save money (Lee, 2020). This document maintained through accounting help
business to plan and make new budgets.
1

 Banks and lenders- Retail lender provide mortgages to the business and institutions and
offer products such as saving accounts and loans on the bases of their financial status.
SKANSA PLC use these financial information by taking proper accounting system and
present these books of record to share financial institution. It includes assets, liabilities,
profit recorded and tax paid as records are carefully check by financial institutions
before awarding loan.
 Keeping Records- SKANSA PLC keeps the record in order to run its business carefully
as it consist the record of transactions, journal, general ledgers and trial balance-sheet.
All records of these books are collected, organized and interpreted in order to make them
communicable to the end user which helps in making decisions (Safriansah, Zukhri and
Andriyansah, 2021). With the help of bookkeeping SKANSA PLC make economically
viable decision which leads business toward positive productivity and growth.
 Decision Making- Financial statements play bigger role in making any decision
regarding business organization as these statements are the result of accounting. In the
absence of financial statements, business organization can not make any sound decisions
without proper accounting informations as the assumptions might not fix with the actual
situation and lead to false output. Hence, to achieve any organization objectives
regarding business development new invest or withdrawals it requires book of records
with proper accounting as it involves past creditors assess, liquidity and creditworthiness
of business.
 Information to investors- To identify the risk areas the investors use company's report, as
it points to potential losses in asset value and this crucial information plays huge role in
the overall decision of investors. It contains the statement of shareholder's equity,
balance sheet and the income statement which represent the business to the stakeholders
such as debtors, creditors and government (Bangma and et.al., 2017). Lack of clear
financial records create doubt of uncertainty for investors as these records represent
actual financial status of the business which might bring change in the decision of
investors.
 Reporting profits- Profits are realized benefits when any company generates revenue by
business activity after reducing the cost, tax and expenses while exceeding activity. The
calculated total revenue after expenses make actual profit which are required reporting as
2