Financial Decision-making: Importance, Functions, and Roles

This document provides an overview of financial decision-making in organizations, focusing on the importance, functions, and roles of the accounting and finance department. It also includes a financial analysis of Skansa PLC using significant ratios. The analysis covers current ratio, return on capital employed, net profit ratio, and creditors collection period.

Financial
Decision-making

EXECUTIVE SUMMARY
Financial decision-making refers to the activities such as raising funds, investment
decisions and merger and acquisitions. Firm Skansa Plc has accounitng and finance department
in order to manage its activities. It use financial analysis as ratio analysis in order to know firms
liquidity, solvency and profitability. Decision making helps in utilise the resources in efficient
and effective manner so that firm can accomplish its objectives.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................4
TASK 1............................................................................................................................................4
Accounting and financial accounting importance, functions, duties and roles within the
organisation:.................................................................................................................................4
TASK 2............................................................................................................................................8
Financial analysis of Skansa PLC with significant ratios:..........................................................8
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................12

INTRODUCTION
Financial decision making is the process of making decisions for firms fund activities,
investment, merger and acquisition. Firms finance team take decisions which is related to its
liabilities, assets, shares issuance, bonds etc. finance is vital part of any organisation because
without it no activities can run. Firms finance manager take decisions regarding how and from
where it can raise money for running and expand its business. Firms issue its share as a security
and get money from the public. Better financial decisions makes firm healthy and helps it to
expand its business. Decision making helps in utilise the resources in efficient and effective
manner so that firm can accomplish its objectives (Di Cagno and Panaccione, 2017). The firm
which is selected for this report is Skansa PLC. The company is related to construction that was
founded in 1984, headquarter situated in UK. This report covers topics such as functions, duties
and roles of accounting and finance department. Apart from this it also covers topics such as
financial analysis such as current ratio, net profit ratio, return on capital employed, creditors
collection period and debtors collection period.
TASK 1
Accounting and financial accounting importance, functions, duties and roles within the
organisation:
Overview of the firm: Skansa plc is the construction based company which was founded
in 1984, headquarter is located in UK. Firm has various department in order to run its activities
including accounting and finance department. Accounting and finance department has some
functions, duties and roles.
Accounting department: It is part of organisation that is responsible for all financial
activities, preparing and maintaining the general ledger, receivable bills and cost accounting. It
consist of all the duties and handling and regulating the business profitability of firm. It ensure
that when it comes to take certain decision it monitor all the important activities related to that.
For every business enterprises this play major role maintaining the transparency in financial
transaction. It responsible to follow regulating the employees and their payroll, receiving and
managing accounts (Dinçer and Yüksel, 2018). Accounting department provides the
management of finance in the company. The responsibilities of accounting department is to
manage account receivables, billing to customers, tracking assets, expenditure and profits of the

company. Accounting department ensures firm that it done its activities according to the laws
and generally accepted accounting principles. Accounting department keeping insight towards
opportunities to save the money. To running business, it needed to data, records, analysis,
reports and proper information related to its income, liability and assets for accomplish its goals
with effective and efficiency.
Functions and duties of accounting department: It has various functions and duties
which are mentioned below:
 Account receivables: The cash which is comes into business known as receipts. Cash
receipts managing by accounts departments. The process considers receiving and
considering the cash payments. Accounts department making policies regarding debtors
collection period and managing its debtors in that way so that it can collect money in few
days that shows business efficiency into investors insight. Account receivables are
responsible for customers receives invoice on time for goods and services.
 Payroll: Payroll is related to activities of employees, the accounting department also
responsible for made salaries of employees timely on regular schedule. The payroll
function records the working hours in order to calculate their daily wages as a
construction company. It is also responsible for payment of taxes that may be associated
with the payment of employees (Dinçer, Yüksel and Şenel, 2018).
 Bookkeeping: Accounting department is responsible for keeping books records for its
daily transactions in order to preparing its journal, ledger and trail balance. These records
helps it to maintain its financial statements. It involves process of recording, summarizing
and analysing transactions.
 Reporting and financial statements: Accounting department as collects data through its
daily transactions that helps it into making financial statements such as profit and loss
account and balance sheet which shows firms financial position and helps in taking
strategic decisions. As profit and loss account refers to which helps in calculating net
profit from its overall expenses and income. Balance sheet shows firms equity, liabilities
and overall assets for short term and long term period.
Roles of accounting department in Skansa plc:
 Maintenance of books of accounts: Accounting department plays vital role in
maintaining systematic records of transactions of the company by its sales and purchase

in order to calculate net profit for an accounting period and to know financial position of
the company. Maintaining proper records needed for proper laws and accounting policies
which is followed by the company to support its business activities in efficient manner.
 Statutory audit: Generally, every company keeps accountant to audit the books of it
according to the accounting laws. Accountant ensure that it considers generally accepted
accounting principles, standards and legal considerations for managing its audit process.
Auditor ensures that financial information is correct and true that shows exact financial
position of the company (Engle-Warnick, Pulido and de Montaignac, 2016).
 Internal audit: Internal staff managing internal audit such as its daily transactions has
been recorded, classified and summarized according to the accounting policies which is
followed by the company.
 Budgeting: Budgeting is the process of pre estimation of firms expenses and income that
ensures firm to manage activities according to it. In this firm compare its actual results
with budgeted manner. It ensures employees to accomplish activities in efficient manner
and provide map for accomplish business objective in effective and efficient manner.
 Taxation: The important role of accounting is to plan the tax liabilities of the company.
Firms keeps accountants because they are managing tax matters, file returns, tax
authorities, settle tax liabilities of an entity through various laws.
Finance department: Every firm has finance department in order to manage its financial
activities. Finance department is the main part of organisation which is responsible for managing
and acquiring funds for the firm and planning for the expenses on funding assets (James III,
2016). In context to Skansa PLC, the purpose of financial department is to provide the
information that is require to generate its activities effectively and efficiently in order to support
business planning and decision making. Financial department using management functions such
as planning, organising, managing, controlling and budgeting to manage its financial activities.
In the firm, it is necessary to manage fund into the business, managers take actions to arrange the
fund and investment decisions regarding it. Financial managers provide information to external
parties such as suppliers and investors so that they can take decisions for investment in the
company. It provides information which is necessary for strategic decision-making for the firms
activities. It allows to know that business has sufficient cash for run its activities and it managing

fund in order to meet its requirements. Finance department is responsible providing budget for
comparing its actual performance with expected performance (Li, Su and Liu, 2016).
Functions and duties of financial department: Finance department in the Skansa plc
has functions and plays various duties for organisation decision-making.
 Book keeping procedures: Finance department of the company records all transactions
which is occurs into business in its day to day activities from its sales and purchase.
Transactions for example, business purchase machinery in cash, it affects firms purchase
account and cash balance. Recording transactions helps firm to know about its expenses
and income so that it can show it to external parties for raising fund into the business
(Lichtenberg, and et.al, 2019).
 Preparing final accounts: Finance department is responsible to make its financial
statements such as profit an loss account and balance sheet. These statements helps firm
to know about its overall liabilities and assets.
 Providing management information: Finance managers require for financial
information for making decisions and arranging funds according to it. In that situation
finance department managing its all financial information for its day to day activities and
investment decision-making.
 Management of wages: Finance department is responsible for managing employees
wages and salaries and helps firm by organising income tax and insurance for the
organisations revenues. As it managing and organising fund related activities, it is
responsible for calculating wages and salaries.
 Raising finance: The finance department is responsible for providing information in
order to raising fund from investors through loans and repayment of interest on that
finance (Madaan, 2016). Firm issues its shares into the public and raise funds from them
and provide dividend to them.
Roles of finance department in Skansa plc:
 Managing investment functions: Finance department plays vital in investment function
as managers managing all finance related activities. Investment functions such as finance
department ensures that how and from where it raise money for investing into firms
operations. Finance manager using various techniques for investments such as payback

period, net present value and internal rate of return etc. and helps it to know which option
can give better return on investments.
 Dividend function: As firm raising fund from shareholders to expand its business,
finance department makes dividend policies in order to pay dividends to the shareholders
from its profits. Dividend refers to earning which is pay to the shareholders on their
investments (Peng and Huang, 2020).
 Financing function: It is the role of finance department for planning and organising its
financial resources that ensures company for better utilisation of its funds. Financial
functions includes investments, managing funds, merger and acquisition and other
financial strategic decisions etc.
 working capital function: Working capital refers difference between current assets
current liabilities. It is important to manage working capital in the business in order to
pay its short term liabilities. To manage working capital in better way it helps firm to
increase its portfolio, increasing profitability, improve overall efficiency etc.
TASK 2
Financial analysis of Skansa PLC with significant ratios:
Current ratio: Current ratio is refers the relation between current assets and current
liabilities. It shows firms liquidity and efficiency in order to pay its debts. It provides options to
the company how it can maximise its assets in order to pay its liabilities. Small businesses should
focus on this because they have to pay daily wages and salaries to its employees. It is also known
as working capital ratio because it considers current liabilities and current assets (Teresi,
Ocepek-Welikson and Lichtenberg, 2017).
Current ratio
Particulars 2018 2019
Current assets 1515 2070
Current liabilities 645 2220
Result 2.35 0.93
As per above data it shows relationship between current liabilities and current assets. It
shows current ratios of Skansa plc for the year 2018 and 2019. the ideal current ratio is 2:1 that

means 1 liabilities over 2 assets. According to its data in 2018 firm has enough liquidity to pay
its debts as ratio are 2.35:1 but in year 2018, it was 2.35:1 that is ideal for business and shows
firms ability to pay its liabilities.
Return on capital employed: Return on capital refers to financial ratio that used in
assessing financial performance and profitability (Vanauken, Ascigil and Carraher, 2017). These
ratio used to determine how company generates its return on its capital. It is important as it
allows investors to compare various companies. It helps in understanding how much profit on
each share firms generates.
Return on capital
employed
Particulars 2018 2019
Net profit 600 675
Capital employed 3825 5850
Result 15.69 11.54
As per above data it shows return on capital employed for the year 2018 and 2019 that
shows relation between capital employed and net profits of the company. In 2018 it shows 12.5
that is decreased by 11.25 in 2019. According to this data it shows firms less efficiency in order
to manage its resources. Higher the capital employed gives high ratio and favourable to the
company as it manages its capital efficiency that attracts investors to invest more in that
company.
Net profit ratio: Net profit ratio defines by net profits of the company divided by sales.
It is the percentage of net profit upon its revenues which is generated in accounting year. It helps
firms to analyse its financial profitability on its sales and how company uses its resources
efficiently.
Net profit margin
Particulars 2018 2019
Net profit 600 675
Sales 4800 6000
Result 12.5 11.25

As per the above data, it shows net profit margin of the company with the relation of net
profits and sales. The ideal net profit would be 10%, according to it in 2018 it shows 12.5 and in
2019 it was 11.25 that means firm has maintaining its profitability efficiently. But in 2019 it
shows firms less sale as it decreases its net profits.
Creditors collection period: it is the tool of financial analysis that shows firms
efficiency to pay its debts to its investors and suppliers. It pays company on its purchase and
loans taken by suppliers and investors. Larger the payment time that means company has enough
cash to run its daily activities.
Average payable
days
Particulars 2018 2019
Account payables 570 2100
Cost of goods sales 3900 5250
Result 53.35 days 146 days
As per above data firms creditors collection period is increasing in 146 days that shows
firm has cash with it in order to run its activities. If creditors collection period increasing by
normal trading that means the business is not paying to suppliers as efficiently that should
happens.
Debtors collection period: Debtors collection period refers to firms capacity and
efficiency in order to collect payments from customer so that it can make liquidity into business
and run its daily activities. It is about how company manage its debtors collection policies to
manage cash in the business (Walczak and Pieńkowska-Kamieniecka, 2018).
Average receivable
days
Particulars 2018 2019
Account
receivables 900 1200
Annual total sale 4800 6000
Result 68.44 days 73 days

As per the above data it shows relation between account receivables and sales that shows
firms efficiency in order to collect its payments from debtors. According to this firms collection
period in 2018 was 68.44 days and in 2019 was 73 days. In 2019 company exceeds its
collections period that shows its less efficiency to maintain debtors and its collection policies and
cash for its regular activities.
CONCLUSION
From the above report it has been concluded that financial decision-making is the process
of managing finance activities such as raising funds, investment decisions and merger and
acquisitions. Firms finance manager take decisions regarding how and from where it can raise
money for running and expand its business. Every firm has accounting and finance department in
order to managing its finance activities. Accounting and finance department has various
responsibilities such as recording transactions, making financial statements, managing funds, tax
decisions, investments decisions etc. firms using financial analysis for ensure its financial
position by ratio analysis techniques so that it can manage its liquidity, solvency and
profitability. Firms makes invest decisions by using investments techniques such as payback
period, net present value, internal rate of return etc. so that it can achieve higher return and
profitability.

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