Financial Decision Making: Importance of Accounting and Finance Functions in Organizations

This report discusses the importance of accounting and finance functions in organizations, focusing on Skanska plc. It explores the role of different departments such as financial accounting, management accounting, tax function, auditing functions, and finance department. The report also analyzes the financial performance of Skanska plc through ratios such as return on capital employed, net profit margin, current ratio, debtors collection period, and creditors collection period.

FINANCIAL DECISION
MAKING

Executive summary
In this report the finance decision making is very effective in all organization to take the best
decision by evaluating all kinds of resources and funds and facilitated the company to take
informed decision. It importance is increasing day to day in today’s world as this enhance the
productivity and effectiveness in the organization. In the selected company, it is being discussed
the different ratios and analyses them thoroughly to evaluate their needs and benefits in the
company. It is also being analyzed different departments that is useful and play their roles and
duties.

Contents
Executive summary.....................................................................................................................................2
INTRODUCTION.......................................................................................................................................4
TASK 1.......................................................................................................................................................5
Identifying the importance of accounting and finance functions and duties in the organization..............5
TASK 2.......................................................................................................................................................7
Performance of Skanska plc....................................................................................................................8
Return on capital employed.....................................................................................................................8
Net Profit.................................................................................................................................................9
Current Ratio...........................................................................................................................................9
Creditors collection period....................................................................................................................10
Effects of changes in ratio.....................................................................................................................12
CONCLUSION.........................................................................................................................................12
REFERENCES..............................................................................................................................................14

INTRODUCTION
This report revolves around financial decision making and how financial decisions in
organization help in making effective decision regarding financial resources of organization and
how it contributes in growth and development of organization (Aina and Bipath, 2020). Every
organization productivity and profitability depends on organization finances and effective
utilization of financial resources in organization help in achieving goals and objectives. Financial
decision making also plays crucial part in utilizing resources as it is important for organization to
maintain their efficiency by utilizing organization resources effectively. This report revolves
around organization Skanska plc which is a multinational construction and development
organization. Skanska plc headquarters are situated in Sweden. Skanska plc is considered as fifth
largest construction company all across the globe and its major function is to develop effective
and efficient structures for its clients. This report includes information about Skanska plc and
how their financial decision making help them in making effective decisions and this report also
focuses on how financial decision help in ensuring success of organization. This report also help
in understanding how financial resources in an organization help in taking long-term and short-
term decision as financial resources help organization in developing strategies which can help
them in boosting their revenues and also assist them in gaining competitor advantage over their
competitors. This report also includes financial information about Skanska plc which helps in
understanding its current position and help organization in developing its strategy for future
scenario.

TASK 1
Identifying the importance of accounting and finance functions and duties in the
organization
The importance of accounting department in the company that depends on the size of the
company that used to work (Al-Bahrani, Buser and Patel, 2020). This department is useful in
maintaining the accounts and different types of reports that will help in evaluating the different
monetary transaction in the organization. In the context of Skanska Plc, this help in developing
the effectiveness through analyzing the different scenarios related to the accounts. In the
accounting department there are following another department are as follows-
 Financial accounting- This involves in recording, summarizing the report and helps in
evaluating the efficiency and effectiveness of the company. In the context of Skanska Plc,
the role and duties that this type of department is providing the essential requirement that
facilitates in taking the informed decisions. This is also used by the stakeholder, manager
and other stakeholder to make appropriate steps which leads to many benefits to the
company. The main function is that it provides useful information about the many types
of other department to the creditors as well to check the solvency, liquidity and
creditworthiness of the business.
 Management accounting- This is the process where manager able to check the
efficiency of the organization and maintain the day-to-day tallying of financial
information. The importance of this department is that it assist the manager to decide the
price of product by providing all essential information related to cost, market factors and
other profitability factors. This helps in providing the insight in giving the important
information to take insight to the management. In the context of Skanska Plc, the role and
duties of the management accounting in the company is to integrate all financial
information together and helps in formulating the adequate plan to control the operational
functions and activities. The other role is to make sure that it able to build the effective
difference in the management and helps in forecasting, profit planning and programming
for the capital investment and financing (Ampatzoglou and et.al., 2021).
 Tax function- Tax is very essential part of the accounting and without that further legal
procedure cannot be completed and has its own importance in the constitution. This used

to vary from one place to another according the rules and regulation and every
organization has to strictly follow all essential requirement of this department. This helps
in attaining the neutrality in the economy and useful in allocating the resources. In the
context of Skanska Plc, the tax department plays its role and duties of this department in
the organization through rigorously follow all rules and regulation. In the company, this
useful in managing the certain important functions and activity related to tax matters and
facilitated in other financial advice to the manager and top management. The duty is to
properly formulate all necessary needs and requirement of tax statement as to reduce the
chances of illegal affairs and other problems. This helps the company to make sure that
company is efficiently follow all necessary steps and assist in making the audits report
and other important statements (Fan and Chatterjee, 2018).
 Auditing functions- This is also important part of accounting world as well it play
essential role in keeping the record related to financial effectively. It examines that all
records are accurately maintained and no mistake is found and monitor all transactions
closely. In the context of Skanska Plc, the role of auditing is to make sure that all
statements, report and necessary transaction is properly prepared and scrutinize them in
very professional manner. This do so to avoid any future problem related to legal
documents and other process.
Finance department- This is the pillar of every company in terms of managing all
financial related activities and functions. In the context of Skanska Plc, this plays
important part in maintain the effective role in analyzing the efficiency and effectiveness,
Certain departments are as follows-
 Investment functions- This refers purchasing and selling of stocks and shares,
debenture. This helps the company to grow more through investing in profitable projects.
In the context of Skanska Plc, this helps in maintaining the investment procedure of the
company and induce them to invest them in proper manner. This could be done in many
other forms such as mergers and acquisition, taking franchise and other in other manner.
This helps in improving all over efficiency of the company and achieve maximum profit
(Ibtasam and et.al., 2018).
 Financing function- This concern with activity that used to control and plan the financial
resources to achieve optimum results in the company. This helps in integrating all efforts

of department that used to work towards the fulfilling the goals and objectives. In the
context of Skanska Plc, the financing department helps in achieving the best way to
finance their assets, leasing them and making the best use out of it so that it reduce the
wastages. This also diversify the role of expanding, modernizing and diversify the
available funds to make the effective use of all resources in the organization.
 Dividend function- This is the portion of the company that comes in the use of
distributing the profit among all shareholder according to their investment. Many
organization users their different types of dividend policy to satisfy the shareholder so
that they were motivated to make more investment in the company. In the context of
Skanska Plc, the dividend policy play important role in guiding and regulating the
dividend policy in the company. This helps in fulfilling the satisfaction that they have
towards the company and improve the image of management in the eyes of shareholder
and enhance overall reputation (Jun, Dinçer and Yüksel, 2021).
 Working capital function- This function is also plays important role in managing the
financial health and operational success of the company. The main importance is that it is
useful in maximization of operational efficiency and build the growth and smooth
functioning in order to achieve the goals and objectives. In the context of Skanska Plc,
this function emerges as essential role in maintain the assets and liabilities of the
company and helps in understanding the role of cash in the management. The necessary
role is that it gives attention to the department to give attention to manage the operational
efficiency in the company (Lang and Presbitero, 2018).
TASK 2
This part of report focuses on understanding financial information of Skanska plc and helps in
determining its performance. Every organization financial performance helps in determining
their current position and help in developing strategies which can be effective for them in future.
This part of report involves information about ratios and profit/loss of organization which helps
in determining their current strategy and also helps in identifying the gaps in current strategy of
Skanska plc.

Performance
of Skanska plc
Ratios Interpretation
Return on capital employed
Return on capital is explained as process of return on capital utilized is the way well organization
is creating extra benefits from by utilizing accessible capital (Nguyen, Gallery and Newton,
2019). This proportion shows execution of financial resources of organization with respect to its
Skanska Plc Ratios
2018 2019
EBIT 750 975
Capital Employed 3825 5850
Return on capital employed= EBIT/Capital
Employed 0.20 0.17
Net Profit 600 675
Net sales 4800 6000
Net Profit Margin = Net profit/Net sales 0.13 0.11
Current Assets 1515 2070
Current Liabilities 645 2220
Current Ratio = Current assets/current liabilities 2.35 0.93
Debtors 900 1200
Net sales 4800 6000
Debtors collection period = Debtors/Net sales*365
68.44
Days 73Days
Payables 570 2100
Net Purchase 2700 4800
Creditor collection period = Creditors/Net
Purchase*365 77.06Days
159.69Day
s

debt. Ideal ROCE ratio lies between 10 to 20 percent. In 2018 profit from capital utilized is 20%
and in year 2019 it is 17%. It can be determined from this calculation that performance of
organization in year 2019 is poor than 2018.
Net Profit
It is explained as process of estimating productivity and profitability. It helps in understanding
that how much sales of organization have changed over into profits for organization. In the year
2018 net profits of Skanska plc was 13%. It helps in understanding that organization had overall
profit of $0.13 for every dollar of sales produced and in the year 2019 net profit was 11%. There
is less net profits gained by organization in the year 2019 in comparison with 2018. In the year
2019 sales were high yet profits produced from sales were not good enough for Skanska plc.
This is the reason organization is having low overall profits margin. In 2018 sales were low yet
profits created from the deals are very good and satisfying for organization (Rasheed and
Siddiqui, 2019).
Current Ratio
Current ratio helps in estimating organization capacity to meet financial needs and commitments.
In the scenario that current ratio value is two, then organization is performing positively however
assuming current ratio is under two, it helps in understanding that organization has a greater
number of liabilities than assets and organization have to deal with issues in achieving its short
term financial goals. Then again, Current ratio is more than two then it implies organization isn't
utilizing its assets efficiently and appropriately. Skanska plc's current ratio in the year 2018 was
2.35 and in year 2019 it was 0.93. It obviously shows that in 2019 have a higher number of
liabilities than assets and organization may deal with issues in achieving their short term goals
and paying their short term debts. While, in 2018 circumstance was very different as
organization had more assets which means organization can take care of its debts without dealing
with any issue yet organization isn't dealing with its assets effectively and efficiently (Roa,
Garrón and Barboza, 2019).
Debtors Collection Period
Collection period is explained and characterized as average number of days needed to gather
receivables from clients. For example, if any organization is giving two months free credit, it

should be collected by organization within 90 days. Debtor collection period helps in
understanding time span between free credit given to client and credit payment is made by client
or received by organization.. In 2018 debtor collection period of organization was 68.44 days
and in 2019 it was 73 days. Payments from creditors being received late which made impact on
cash flow and income of the organization.
Creditors collection period
It shows number of days taken by a organization to takes to take care of its debts and focuses on
the time span in which debts should be paid off by organization. It is determined by dividing
payables by average purchases that are made every day. If an organization can pay its debts
inside 30-60 days, it is considered as reliable organization which can pay its debts inside specific
and provided time. In 2018 Skanska had the option to pay its debts inside 77.06 days yet in 2019
there was high spike in number of days which was 159.69 days. It influences goodwill of the
organization and makes negative impact on image of organization and also it creates bad image
in creditors mind (Semin and et.al , 2020).
Thus overall it can be said performance of company in year 2019 was not quite satisfactory
compared to year 2018. If company’s performance is not compared, then it is an average
performance. Following improvements can be done to improve financial performance of the
company which are mentioned below:
Expense reduction
Organization should focus on reducing their expenses and cutting their costs where needed.
Operating costs of Skanska plc are higher in 2019 than 2018. It is clear that organization
expenses are reduced then it will automatically help in boosting its profits. Higher operating
affects net profits of organization negatively. Organization should focus on cutting expenses like
advertising expenses and marketing expenses etc.
Revenue Enhancement
Boost in revenues helps in boosting organization performance and it also helps in maximizing
productivity and profitability of organization. Skanska plc has to ensure that profits should be
generated by using their financial resources effectively and efficiently. It helps in understanding

that if organization revenues are increased then it automatically affects organization performance
and it will be more profitable for organization.
Setting an average collection period
It is explained as average collection period time set by the organization to collect receivables
from clients and setting a time period to pay off the debts set by the organization. Setting time
period helps organization in settling their debts and also helps in maintaining goodwill and image
of organization. Goodwill of company plays crucial role in making it profitable. It is an
intangible asset. It is associated with purchase of one company with another (Shahab and et.al,
2019).
Changes in ratio
Changes in assets
It helps in understanding change in assets which are recorded by organization as change in
assets are increased or decreased then it help in making positive and negative impact of
ratios. Increase in number of assets makes positive impact on ratio and if organization assets
are decreased then organization has more liabilities. In Skanska plc there is change in assets
in 2019 and it directly affects current ratio of organization.
Change in operating expenses
Operating costs plays significant part in change in ratio. Organization should keep its
operating costs low. Low cost helps in boosting profits and by reducing operating costs
organization can improve its financial performance (Siegrist and et.al, 2020).
Changes in liabilities
Increase in liabilities is considered as a negative sign for organization. In the above table, it is
seen that current ratio is changed because of progress in assets and liabilities. A low current
ratio show that increase in liabilities which means organization has a higher number of debts
to pay in comparison to assets.
Changes in net profit

Profits which are made by organization sales in 2019 is responsible in decrease in overall
revenue of organization. Sales in 2019 are higher than 2018 however profits acquired by
organization are similarly low. Operating costs of organization are high and it affected entire
net profit margin of 2019 (Sobkow, Garrido and Garcia-Retamero, 2020).
Effects of changes in ratio
Finacial ratios of organization help in understanding about financial performance of organization
and help in understanding their performance in comparison with their competitors. There is
various impact of financial ratios in different ways which are mentioned below:
Financial situation
Changes in ratios made a general effect on financial performance of organization. Different
ratios of Skanska plc have seen changes and this leads to general financial performance of the
organization. Skanska plc can compare its financial performance with other companies by using
ratios as a tool. So that organization can improve its financial performance with its competitors.
Profits
Profitability ratio helps is analyzing performance of organization that shows organization is
making profits or not. Assuming overall revenue is high, organization is performing better.
Skanska plc overall revenue is low when it is compared with earlier year. Profits are
influenced by costs incurred by organization. It can be assumed that productivity of
organization is affected by ratios (Teresi, Ocepek-Welikson and Lichtenberg, 2017).
CONCLUSION
This report concludes about the importance of financial resources in an organization and helps in
understanding how financial performance of organization helps in achieving competitor
advantage over their competitors and also helps in boosting profits of organization. This report
concludes about financial performance of Skanska plc and help in understanding how
organization performance is analyzed by using ratios. This report also concludes about impact of
operating expenses on Skanska plc and how it can be improved by cutting and reducing
operating expenses.

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