Importance of Accounting and Finance Functions in SKANSKA Plc

This report discusses the importance of accounting and finance functions in SKANSKA Plc, a construction company. It evaluates the roles and duties of the accounting department, including financial accounting, management accounting, tax function, and auditing function. It also examines the functions of the finance department, such as investment function, financial function, dividend function, and working capital function. The report further includes the calculation of ratios and analyzes the financial position of the company.

FINANCIAL DECISION
MAKING

Executive summary
The report is based upon the case study of SKANSKA Plc which is working
under construction industry. Further the study determines the importance of different
finance and accounting department such that it will assist the company to run in
effective manner. Such that with the help of accounting department, company
determine the cashflow during a particular period, while finance department assist to
determine the overall money required for a particular transaction. Further with the
help of the ratio analysis the financial position to the company was analyzed. With
assistance of the ratio analysis the most important thing identified was that the
overall performance of the company has decreased. This is majorly because of the
reason that the company has either increased their day to day expenses or their
income has reduced.

Table of Contents
INTRODUCTION..........................................................................................................3
TASK 1..........................................................................................................................4
Critically evaluating the importance of Accounting and Finance functions,
dutiesand roles within SKANSKA Plc.......................................................................4
TASK 2..........................................................................................................................8
a. Calculation of ratios............................................................................................8
b. Commenting on performance of company...........................................................9
CONCLUSION............................................................................................................11
REFERENCES...........................................................................................................12

INTRODUCTION
The financial decision are the most important and essential decision to be
taken in order to manage and maintain the business in effective manner. The major
reason underlying this fact is that the finance is the only resource without which the
company cannot function. Thus, if the decision relating to finance is not taken in
effective manner then this will affect the working of company to a great extent. The
current report is based over the company SKANSKA plc which is a construction
company based in UK and started in the year 1984. The current report is based on
the discussion over the function of both the accounting department and the finance
department separately. Next the report will calculate the different types of ratios and
in the end the financial position as per the calculation will be discussed.
Further now in the present case the company is planning to expand its
operations in Europe. The company deals in commercial property, development,
residential development, infrastructure project and many other related projects. The
total number of employees working in the company is33225 and the net income of
the company is almost SEK 6.054 billion. The brief SWOT analysis of the company
is as follows-
Strength: Strong market position in the construction industry.Robust client base
including international brands.
Weakness:Inability to generate positive cash flow. Poor management and
administration
Opportunity:Expansion of infrastructure project. Major focus on sustainability and
environment protection.
Threats:Industry faces higher competition. Rise in the prices of raw materials and
supplies.

TASK 1
Critically evaluating the importance of Accounting and Finance functions, dutiesand
roles within SKANSKA Plc.
Accounting department provides accounting services as well as manages
the finance of a firm. The main responsibility includes records accounts, paying bills
as well as track the assets of an organization.
 Financial accounting: It is the important function of accounting department
in which business keep track of their operations and also determine the
financial health of a firm. Therefore, with the help of financial statements,
company determine the overall performance of the business which includes
balance sheet, income statement. Also, an organization can give investors
and lenders more power in order tomake decision for the welfare of a firm. For
example, in SKANSKA Plc, manager of the firm determine the financial
performance of the firm by using financial statement like with the help of
Balance sheet and P&L account, it will be easy for the company to compare
the performance from last years. Thus it is stated that the statement and
reports generated by financial accounting are used to communicate data with
regards to overall health of a firm with external parties, whether it will be bank
or suppliers (Noland, Mauldin and Braun, 2019). In the same way, quoted firm
is also uses this information and communicate the same with contractors,
investors and suppliers that assist to analyze the performance.
 Management Accounting (MA): Another important duty of an accounting
department in which management accountants provides a key insights that
assist a firm to make better decision. With the help of this, cited firm getting
ready their administration reports and provides measurable data to directors
which assist to determine whether the aim and objectives are met or not (Al-
Khalifah, 2018). Thus, it can be stated that with the help of MA, the financial
as well as non-financial information is presented at regular intervals to the
management which includes proper forecasting, budget and in-depth analysis.
On the other side, SKANSKA Plc collect information through management
accounting and develop strategy (like modify the sales strategy). Therefore, it is not
regulated by any law and hence management decide the areas which require

analysis as well as investigation. Also, it is the way that assist managers of quoted
firm to make planning by using executive’s reports and records (Ifeanyieze and
et.al.,2019). In addition to this, MA contrast from money related bookkeeping and
that is why, it recognize, measure, break-down or convey the data which in turn
assist business to meet the define aim.
 Tax Function:In the globalized era, tax issues are become more complex
and that is why, companies are investing their time in tax functions. Such that
International Government legislation wants all business publish their tax
strategy online or free of charge. Thus, companies need to invest within tax
functions which in turn assist to take care of fiscal affairs (Wei, Idrus and
Abdullah, 2017). Also, in accounting department taxation assist business
because governments can fund this money back to an economy in a form of
loans as well as other funding forms. So, it assist to raise the standard of
living within a country. Such that higher the standard of living, higher will be
the consumption.
Therefore, it is stated that in SKANSKA Plc, tax is a function of all the
organization, but it is not actively involved within a crucial decision with regards to
changing in finance process and technology. Therefore, it is stated that with the help
of tax function, it is not only result in increase tax risk to a company but also
determine the hidden cost as well as lost opportunities within a firm.
 Auditing Function: One of the most important function of accounting
department whose aim is to provide an insight into an organization’s culture,
policies as well as procedure that assist management team to verifythe
internal controls. In the same way, SKANSKA Plc also assist to improve the
efficiency of operations such that it keep review the organization’s policies
and procedure and make decision frequently in order to mitigate the chances
of risk (Abd Karim, Nawawi and Salin, 2018). Further, an internal audit
programalso assist all the management and stakeholder of a quoted firm
prioritize the risk through a systematic risk assessment. Hence, it assist to
identify gaps within environment and also allow to keep track the changes
within any documents.

Hence, with the help of this function, company also ensure the legal
compliance and assesses the organization control which in turn assist to improve the
overall performance of a business. That is why, it is necessary for all he firm
including SKANSKA Plc to perform internal auditing that mainly focus upon the
enterprise risk management functions.
Finance Department: It is pillar of an organization that is responsible for
obtainingfunds for a firm and also manages the fund which in turn assist to make
planning for expenditure of a funds on various assets (Cano, 2020). Also, it make
sure that organization’s cash flow is properly done and there is enough funds
available in order to meet day to day payments. In SKANSKA Plc, when there is a
need of a cash beyond day to day working capital, only finance department is
responsible for provide better advice as well as sourcing long term finance too. The
department have so many function but some of them are as mention below:
 Investment Function: It is the most important function which refers to the
investment interest rate relationship. Therefore, with the help of this, finance
department tend to determine its value as well as size by influencing the
growth and profitability of a firm. So it can be stated that with the help of
investment decision, company make a decision for a capital expenditure
decisions (Dobija, 2018). There are many methods which are used by
SKANSKA Plc to determine capital investment proposal such that Net present
value that examine the profitability of an investment project. Hence, financial
department of the company also ensure that given investment is profitable for
the firm or not.
For example, as per the case study of SKANSKA Plc, different statement isgiven
which in turn assist to examine the overall performance of the business. Also by
calculating its NPV, company determine the investment option is profitable or not.
Hence it is clearly examine that investment is all about addition to capital and this in
turn provide a new chance to critically evaluate the best investment option for a firm.
 Financial function: In every business, finance function involves acquiring as
well as utilization of funds which are consider the importance operation. It is
also examine by Huang, Yang and Zhou(2017) that finance is a lifeblood of a
company because within this function, company could not run easily. With the

help of financial function, company raise funds and make financial decision as
well. On the other side, this function involves dividend functions, liquidity
functions and investment decisions. So, the function involves to establish a
business and also run a company in better manner. Also it can be stated that
with the help of this finance functions, business needs to grow otherwise it
may become redundant (Finance function, 2020).
For example, in SKANSKA Plc the finance department determine the need of
finance and then allocate the same to their other departments with an aim to run
a business at better manner. Moreover, it also compare the cost and risk involved
within a business to make better decision. Therefore, it is clearly stated that
choosing a best source of financing that suits a business needs is determine with
the help of financial function within a business.
 Dividend function: the dividend is defined as the reward or the extra cash
which is paid to the shareholders of company (Greenberg and Hershfield,
2019). Dividends are paid in different forms like payment of cash, in form of
stock or any other form. The dividend function is very important for the
company to take in order to attract the shareholders of the company. The
major reason underlying this reason is that if the shareholders are not paid
anything extra then this will have a great impact over the position of the
company. Hence, for this the major thing for the company is to pay dividend to
the shareholders the major aim of the company is to earn profit and if the
company has to pay dividend then they have to earn good amount of profit.
This is particularly because of the reason that when the company will earn
profits then only they will provide dividend to the company.
For instance if SKANSKA Plc if the company pays more dividend to the
shareholders then this will attract more of the shareholders and more people will
invest in company. On the other side if the company will not pay enough dividends to
the shareholders then this will affect the goodwill of the company. The major reason
underlying this fact is that when dividend will not be paid then people will not invest
in the company. Working capital function: this is also an important function which the
company has to undertake in order to manage the daily operations of the
company. The working capital function of the company deals in management

of the money used in for the day to day operations of the company. This is
essential for the company to effectively manage the difference between the
current asset and the current liabilities. The major reason for this is that the
difference in these two is the working capital (Valaskova, Bartosova and
Kubala, 2019). Also, the working capital assists the company in covering all its
short term expenses that is the expenses which are due in the time frame of
one year.
For example, the company SKANSKA plc has to decide that how they will be paying
off all the expenses and if they are not able to manage it then how they will be using
the sources of finance to pay off all the current liabilities.
TASK 2
a. Calculation of ratios
Ratio analysis is a tool which assists the company in managing and
comparing the line items within the financial statements of the company in order to
evaluate the position of the company (Eberhardt, de Bruin and Strough, 2019).
Analyzing the ratio is helpful in taking effective decision relating to finance and its
use. For this the major ratio of SKANSKA plc is calculated in the following part-
(i) Return on capital employed
Particulars Formula 2019 2018
EBIT
975 750
Capital employed 5850 3825
Return on capital
employed
EBIT / Capital
Employed 0.167% 0.19%
(ii) Net profit margin
Particulars Formula 2019 2018
Net profit 675 600

Net sales 6000 4800
Net profit margin NP / Net Sales 11.25% 12.50%
(iii) Current ratio
Particulars Formula 2019 2018
Current assets 2070 1515
Current liabilities 2220 645
Current ratio
Current assets /
Current liabilities 0.93 2.35
(iv) Average Receivable days’/ Debtors collection period
Particulars Formula 2019 2018
Net sales 6000 4800
Accounts receivables 1200 900
Average Receivable days
365*(account
receivable/ net
sales) 73.00 68.44
(v) Average Payable days/ Creditors collection period
Particulars Formula 2019 2018
Net credit purchase 4800 2700
Accounts payable 2100 570
Average Payable days (365*account
payable)/ net credit
159 77

purchases
b. Commenting on performance of company
ROCE
The return on capital employed is a ratio which assists the company in identifying the
return which the shareholders are getting on the capital employed by them. This ratio
is very important to be calculated as this will assist the company in identifying the
fact that how much they are returning to the shareholders from whom they have
taken the money.
In current the ROCE for 2019 is 0.167 % and in the year 2018 it was 0.19 %. Thus,
this suggest that the return earlier was low but in the year 2019 the return increased
by a change of 30.77 %. This is good for the company as when the return provided
to the shareholder is high and this increase in goodwill of the company. The major
reason behind this increase in the rise in the sales of the company as income of
company has increased and this result in increase in return as well. The major way
of improving this ratio more in future is to try to work on improving the sales of the
company as increase in income will result in increase in return as well.
Net profit margin
This ratio is related with the calculation of the percentage of net profit as a part of the
sales. In the present case of SKANSKA plc currently the ratio is 11.25 % which is
less as compared to the last year. In year 2018 the ratio was 12.50 % which has
decreased and affected the working to a great extent. As compared to the last year
the change within the company net profit margin was 10 % and this may be because
of the reason of increase in the expenses of the company. Thus, for this it is
essential for company to improve it and for this they can take the step to try to
decrease the expenses of company so that income of the company can be utilized in
some other thing.
Current ratio
The current ratio is the one which list out the fact that whether the company is having
enough current assets to pay off the current liabilities of the company. The ratio of

SKANSKA plc was 0.93 in 2019 and in 2018 it was 2.35. Thus reflect that there is a
drastic decrease in the current ratio and this has its impact over the working of
company. The change of the two year was around 60.30 % and this is majorly
because of the reason that current liabilities of the company increased very rapidly.
Further there was not proportionate increase in the current asset as well as
compared to the current liabilities. Hence, for improving this position the company
needs to try to decrease the current liabilities and try to increase number of current
asset.
Debtor’scollection period
The debtor collection period is the one which states the amount of time which is
incurred in collecting all the debts. In the current year that is 2019 the collection
period was 73 but in 2018 it was 68.44. This situation reflects that the time frame for
collecting the dues has increased and now it will take more time to clear all the
receivables. The major reason for this can the less flow of money in the economy
and because of this company is also not getting money. Hence, for improving this
stage the company needs to limit the credit sales so that the they need to recover
the amount due.
Creditor collection period
The creditor collection period is a type of ratio which indicates the time in which the
company has to pay the current liabilities which is outstanding for company. The
collection period for 2019 was 159 and for 2018 it was 77. This has increased with
the change of 194.75 % which is good for the company. The major reason for this is
that earlier the company had to pay its liabilities in 43.34 days but in 2019 the time
increased and now the company can pay off its liabilities in 127.75 days of time.
Hence, for this now the company has to maintain this position.
CONCLUSION
From the above study it is evaluated that the financial decision making is the most
important thing for the company in order to manage the position of the company.
This is particularly because of the reason that when the finance will not be effectively
managed then this will have a great impact over working of company. From the
calculation of the above ratios it is clearly visible that the position of the company

SKANSKA plc is stable and it can be provided with loan for expansion. The major
reason for this is that the return which the company is providing to shareholder on
their capital employed has increased which reflects that the profits of company has
also increased. Thus, it can be said that company is applying the finance in effective
manner and because of which the company is able to manage the operations of
company. Furthermore, it is recommended to Camden limited to provide loan to
SKANSKA plc as they are also having good creditor collection period and as they will
get more time to pay off to the creditors and hence till that time the company can
effectively make optimum use of the finance being applied and used within the
business. Further in addition to this company must compare all the ratios with past
year and if there is growth then loan must be provided otherwise not.

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