Relevance of Accounting and Finance Department in Business Organizations

This report discusses the relevance of accounting and finance departments in business organizations, focusing on the roles and functions of these departments in SKANSKA PLC. It explores the importance of recording transactions, evaluating performance, formulating budgets, and making financial decisions. The report also includes an assessment of the financial performance of SKANSKA PLC using ratio analysis.

FINANCIAL DECISION
MAKING

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
About accounting and finance department. ................................................................................3
Relevance of accounting & Finance department. .......................................................................4
Role of department of accounts. .................................................................................................5
Role of department of Finance. ...................................................................................................6
TASK 2............................................................................................................................................8
Assessment of financial performance of SKANSKA PLC. ........................................................8
Interpretation: ..................................................................................................................................8
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Business organizations for maintain their position in competitive market, need to take
decision, success of business enterprise totally depend on the decision manager took. Their are
various technique and tools which use for decision making process. This report is formulated to
define relevance of finance as well as accounting department for running business organization.
SKANSKA PLC has been taken, it is UK based organization, which is provide constriction
service. This report also define how ratio are used for the purpose of evaluate performance of
organization.
TASK 1
About accounting and finance department.
Every business organization needs to have specific department through which they can
able to record every business transactions in effective manner. Accounting and Finance
department both play vital role, for recording business information in organized manner.
Accounting department: The main purpose of formulation of this department is to record
each detail and business activities in such a manner which will be useful in providing essential
accounting information in such a manner which useful in tracking business records. For this
purpose manager use different kind of software and technique which depend on the size of
organization. SKANSKA PLC use excel, taxation software, tally, Electro Neek use for
recording transaction. For accounting department, cost accountant, accountant, manager all
theses personal are hire for successfully run accounting department (Ambuehl and et.al. 2017).
Finance department: Every business organization needs to implement finance
department for the purpose of formulate financial statement as well as prepare report which
represent in front of stakeholder. Finance department is made up of Chief Finance Officer,
Finance manager and accountant, they all are work for fulfil their responsibilities. This
department work in such manner through which they can evaluate performance of organization
and on the basis of that manager formulate policies and take decision for maintain their finance
resource in effective manner (White, and et.al., 2019).
Finance department is work for formulation of budget, and final account these are
essential reports as on the basis of reviewing these document, investor took decision regarding

their portfolio and management department formulate business strategies for the purpose of
attaining their goals of business organization.
Relevance of accounting & Finance department.
Accounting & Finance department both play major role while running business
operations. Following are the importance of theses department which are define below:
 Record transaction: Accountant is hire for recording each business activities in form of
data which has monetary value. Accounting department is mainly work for evaluate,
analysis, collect information and on the basis of that record theses data and categories
each information in such a manner which useful in manage information in systematise
manner. Theses data help in provide base for formulation of other relevant financial and
accounting statement (Bannier and Schwarz, 2018).
 Evaluate performance: On the basis of preparing essential financial statements and
reports manager able to recognize and evaluate financial performance of their
organization for given time period. On the basis of reviewing business organization's
performance manager able to identify their organizations position. Manager of
SKANSKA PLC by formulating financial as well as cash flow statement able to analysis
and evaluate their position in market and on the basis of that they formulate business
policies and strategies which useful in improve their performance.
 Formulation of budget: Finance department is work for formulate budget which is
define as numerical statement in which all the expected profit ad loss and revenue rate
which organization will be generate by run their business operations all these are define
in effective manner. Budget help in formulate business policies which beneficial in order
to control or mitigate risks of loss. As well as on the basis of that SKANSKA PLC able
to effectively manage their performance and position of organization for definite time
period (van der Merwe, 2017).
 Useful in take decision: Accounting manager on the basis of evaluating their cost
statement and reviewing standard of cost able to take decision regarding which activity
become the reason to generate high rate of cost as well as business activities through
which they are able to take relevant business decision.
 Policies are implemented for the purpose of finding out error and control theses error or
any kind of issue which become the reason of failure of business project. Finance

department took relevant decision regarding, investment, financing and dividend as
success of the organization depend on how effectively department took their decision and
theses judgement are implemented during the time of running business activities.
Optimistic use of financial resources: SKANSKA PLC's finance and Accounting department
on the basis of evaluating data, manage and allocate resource in effective manner. Manager by
using activity based budgeting technique able to allocate according to need of each department.
And on the other side, finance manager on the basis of finding out requirement of capital
formulate portfolio structure in such a manner through which they able to implemented effect
capital structure which help in generate more revenue by mitigate risk of loss (Fessele, 2017).
Role of department of accounts.
Every department of business enterprises play their role in significant way, accounting
department 's role are mention below:
Management accounting: Accounting department focus on implementation of
managerial accounting approach which helpful in recording transaction and effective manage all
the business activities. Various system are implemented and techniques are used in order to find
out accurate information and technique of manage accounting apply for effectively formulate
business data in such a manner which useful in taker relevant business decision (Eberhardt, W.,
de Bruin, and Strough, 2017).
Financial accounting: Accounting department not only implement managerial
accounting approach in organization, however they also use or implemented financial accounting
approach also. They proved base to all the essential business information which help in
formulation of balance sheet, income as well as essential cash flow statement ad useful in find
out value of relevant accounting information which help in find out vale of break even point or
evaluate cost of capital structure of organization
Tax function: It is the duty of accounting department to calculate accurate and reliable
amount of tax and pay liability of tax within the given time period. Most of organization in order
to reduce their tax liability not accurate showcase their real profit. However accounting
department of SKANSKA PLC's in order to overcome these issue, showcases real and accurate
business information and fulfil their tax liability by calculating accurate rate or value of tax.
Auditing function: This is consider as most essential function or role which accounting
department use to play. They provide data which use as proof during the time of auditing

process. At the time of auditing process auditor cross check each activity and data showcase in
report and thus when they find errors between them they find out reason and on the basis of that
manager formulate strategies to cover the difference. Auditing useful in systematically run
organization without arising any kind of issue related with corruption. Manager of SKANSKA
PLC's provide support during the time of auditing process.
Role of department of Finance.
In SKANSKA PLC, finance department is formulated for the purpose for managing
financial capital of organization.
Investment function: This is consider as essential business function through Which
manager able to take decision regarding which capital structure portfolio is beneficial for
organization as well as how effective they for generate business profit and minimize risk of
organization. There are various types of securities which gettable in the market for the purpose of
investment as well as many of alternative and projects are available, finance manager on the
basis of analysing market environment take decision regarding which alternative is best for
organization an generate more rate of return. As well as which investment alternative is required
high cost and high risk on the basis of that manager take decision which beneficial for future
business projects (Grishikashvili, and Bechter, 2019).
 Finance function: Financial department focus on how effective they manage
organization financial capital and allocate resource according to the need of each
department. Financial department formulate income as well as balance sheet on the basis
of finding out information from accounting statements, and they interpret these
information in effective manner to relevant internal as well as external stakeholder of the
business enterprises.
Manager of SKANSKA PLC took decision regarding which alternative is beneficial for
organization, they on the basis of calculating ratio, as well as value of different norms which
includes, break even analysis, marginal of safety, all these help in regulate business activities in
effective manner.
This is consider as essential business function on which coordination and other function
management is based. Success rate of organization is depend on how effectively organization
able to manage their financial capital which help in managing business policies on the basis of
that organization maintain their position in market.

 Dividend function: This is consider as most essential role which financial manager play.
They take decision on distribution on dividend and on the basis of that rate is decided at
which each shareholder get their return on invested capital. Growth rate of organization is
depend on the rate at which each business organization provides or distribute their
dividend to shareholders It is consider as relevant business decision which is based on the
profit which organization generate for past years and relevant financial year.
Manager of SKANSKA PLC, mention their dividend rate in the article of association, and on
the basis that they distribute dividend. Dividend the term which is consider as essential term of
each organization, thus decision taken on dividend rate is consider as one of the most relevant
decision of organization (Kang, 2020).
 Manager need to focus on how they are able to increase their rate of dividend on the basis
of that they able to attain their long term business goals. Decision taken on dividend must
be focusing on how effective financial performance of organization is effected. Manager
by deciding their rate of dividend able to create competitive business advantage.
 Working capital function: The term working capital is define as difference between
current assets and current liabilities. It is showcase how much assets did organization
have to fulfil their debt liability, by using current assets. Working capital help in find out
liquidity of organization.
Management department of Finance of SKANSKA PLC on the basis of regulating functions of
organization able to find out value of working capital and they took decision regarding wither
their rate of cash inflow is high not. This is useful in manage working capital in such a manner
which beneficial in order to enhance liquidity position of organization in positive manner.
In context to SKANSKA PLC, both financial as well as accounting department's work for play
their responsibilities and duties in effective manner thus they are able to maintain position of
organization in market as well as allocate resource in effective manner which useful in optimally
utilized scare resource of organization.
TASK 2
Assessment of financial performance of SKANSKA PLC.
Manager of business organization use different methods and tools of financial
management through which they are able to evaluate performance of organization. By using

ratio analysis method, manager of SKANSKA PLC able to evaluate and compare their
performance.
Ratio analysis: This is consider as tool of mathematics which also use or applicable in
financial management approach. On the basis of evaluating ratio, organization able to find out
relationship between 2 variables. By calculating following ratio manage of SKANSKA PLC
evaluate or analysis their financial performance (Kumar, Krovi. and Rajagopalan, 2017).
Ratio Formula 2018 2019
Return on capital
employed...
Operating profit/Total
assets-current*100..
liabilities..
750/3825*100 =19.60
%.....
975/5850*100=
16.67%....
Net profit margin.... Net profit/ sales*100.. 600/4800*100=
12.5%....
675/6000*100=
11.25%....
Current ratio.... Current assets/
current liabilities..
1515/645= 2.35
times....
2070/2220= 0.93
times....
Debtors collection
period....
Receivables
/sales*365..
900/4800*365= 68
days....
1200/6000*365= 73
days....
Creditors payment
period....
Payables/
purchase*365....
570/2000*365= 77.05
times....
2100/4800*365= 159
days....
Interpretation:
Return on capital employed: This is consider as part of evaluating profitability ratio,
which is useful in determine relationship between profit and capital employed. This ratio is help
in determine ability of organization to generate profit by using their source of capital. Higher
ratio showcase that organization is use their resource in proper manner (Sinervo, and Haapala,
2019).
In case of SKANSKA PLC, return rate of capital employed is evaluated at 19% and on
the other side it is measure in 2019 was 16 %. Which means that organization's performance is
decrease as compare with previous year. There are many of reason, which include not using
effective administration strategy of capital resource. Thus financial management of SKANSKA

PLC need to implement their policies which they are able to increase their retune on capital
employed performer. Which beneficial for spreading further business activities.
Net profit margin: This ratio is used to determine positive or entire negative ration
between sales and profit , on the basis of that manager of SKANSKA PLC able to find out
ability of their organization to generate net profit through selling their products. On the basis of
that manger able to recognize financial rate of stability or generating of rate of revenue. This
ratio useful in determine profit rate of organization , which define as the symbol of growth rate
of organization. On the basis of that they are able to generate effective businesses policies as
well as able to generate or increase their rate of earning (Lei, and et.al., 2020).
In context with SKANSKA PLC, value of net profit ratio is measured at 12.5 % and in
2019 value of net margin ratio had been decile from 12.05 to 11.25 % , which represent that even
SKANSKA PLC generate profit in 2019 however as compare with past year their performance
decline due to reduction in the selling rate of organization.
Current ratio: Value of this ratio is calculated on the basis of recognize relation
between current assets with relevant current liabilities. It is consider as one of the most essential
or relevant ratio through which liquidity position of organization for given time period can be
evaluated. On the basis of that organization able to generate effective business policies and
strategies through which they are able to manage and generate their rate of arising profit. On the
basis of that manager able to find whether their organization is able to fulfill short term debt
liability or not.
In 2018 current ratio was measured at 2.35 and in 2019 it was evaluated at 0.93, which
mean that organizations use their assets in 2019 in effective ad optimum manner however their
rate of availability of current assets may be decile but this also represent possible relation
because that able to use their current assets in systematic manner (Messaoudi, Aouni and Rebai,
2017).
Debtor collection period: This is consider as one of the relevant ratio, which use for
determine the time require by business organization to collect funds or debt amount of debtors.
By calculating days of debtor collection period, organization able to find out the time required
for their organization to collect fund and on the basis of that they measure number of non
performing assets as well as doubtful debtors which are no give pay back to money of
organization.

Time required in 2018 for collection of many from customers was measured at 68 days
and on the other side in 2019 these day had been increases from 68 to 73 which means that
organization not able to collect their funds from debtors due to increment of higher rate of credit
sales as well as they also not able to proved relevant strategies to attract their customers for
influence them to cash purchase (Meyer, 2017).
Creditors payment period: This ratio is part of effectively ratio, which useful in find
opt the time which organization take to fulfill their debt liability or business enterprise able to
overcome creditors liability by using their relevant business assets. In 2018, SKANSKA PLC
require 77 days for full-fill their debt liability and it was increase , now organization require to
159 days in order to full fill their short term debt liabilities.
Which indicated that organization require more time as compare with the past year. They
need to focus on formulate those strategies which useful and beneficial for the purpose of
decrease time require to creditors payment period. Which useful in decrease the rate of creditor
payment period.
On the basis of recognizing ratio analysis it is evaluated that management department of
SKANSKA PLC need to focus on performance of their business organization as their rate of
liquidity, efficiently has been decline, which directly impact on their cash inflow business
activities.
Theses are directly related with reduce time required for fulfil creditors debt liability as
well as increase liquidity rate of organization. Which useful in managing current assets with
organizations liabilities. On the basis of that management department of SKANSKA PLC need
to implemented their strategies in such manner through which they are effectively manage and
run organization in systematic manner (Mubashir, and Bin Tariq, 2017).
Investor able to invest their money in SKANSKA PLC, however their performance rate was
decline as compare with last year, organization need to implement their business strategies and
policies in order to attain their long term business goals.

CONCLUSION
From the above analysis it has been concluded that success of organization is depend on
the decision making skills of manager, financial and accounting department are formulated for
the purpose of recording each business activities and relevant business transaction in monetary
format,these transaction help in formulation of final accounts for organization.
Account manage play vital role in effectively manage and control cost of organization
as well as with their help of finance manage they provide help in taken essential decision
regarding on finance, dividend or investment. Theses decision useful in maintain position of
organization. Manager in order to find out relevant business performance use to calculate
business ratio through which they evaluate performance and position of business organization for
given time period.

REFERENCES
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