Financial Decision Making for Skansa Plc: Importance of Accounting and Financial Functions

This report discusses the importance and role of accounting and financial functions in Skansa Plc. It highlights different accounting techniques and the use of ratios to project the financial position of the business entity. The report also discusses the significance of financial accounting in reporting and decision-making aspects.

FINANCIAL DECISION
MAKING

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Task 1...........................................................................................................................................3
Part 2............................................................................................................................................6
Interpretation of ratio analysis.....................................................................................................7
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Financial management is a practice comprises with managing the financial position
associated with the business organisation. This report is based on the case study of the Skansa
Plc in context to management of its finances. The organisation initiated its business operations in
the year 1984. The entity is further planning to expand its business operations in Europe over the
period of last 10 financial years. The role of the project is to give emphasis over the financial
management practices adopted by the organisation. Henceforth, report will give emphasis over
the importance and role of the accounting and financial functions in the organisation. Different
accounting techniques will also highlight that support the business venture to depict about the
financial position of the business entity. Furthermore, use of ratios will project along with
indicating about the significance of the ratio. Role of financial accounting will also be projected
in context to both reporting and decision-making aspects.
MAIN BODY
Task 1
Accounting and financial functions are among the most prominent functional directions
associated with the Skansa Plc. Following are the points demonstrated as the role, importance
and functional functions associated with the accounting and financial operations adopted by the
business venture.
It improve decision making of company
The role of accounting and financial management is to take strong decisions related to the
business operations and processes adopted by the organisation. Techniques like ratio analysis,
investment appraisal and many such support the Skansa Plc Company to make important
business decisions that can maximise the overall growth of the business unit (Mohamad, Azad
and Sifat, 2021). Decision making is always a key tool that allow the business unit to strategies
the growth of the venture. Financial resources are limited in number that allow the organisation
to process with the functions of financial management for demonstrating the current financial
situation of the business unit.
Improve utilisation of funds
Financial and accounting operations favour the Skansa Plc Company to improve
utilisation of financial resources available with the company. Financial resources are limited in

number which allow the business entity to make strong decisions in context to utilisations of
finances in the business operations. Investment appraisal is a technique that is use by the Skansa
Plc Company to make strong decisions in respect to utilising all different financial decision-
making (Kliestik and et.al., 2020). This involves making decision over utilising the funds and
various other decisions related tom channelising the funds in all different investment options
available with company. Availability of the limited financial resources motivate the business
entity and financial professional to ensure the best use of funds in order to channelise the
business operations.
Improve growth of company
Role of the financial management practice is also under to improve the growth of the
business venture. The role of the accounting and financial management practice is under making
important decisions on the basis of the financial requirements and needs of company. The role of
the financial management practise is to improve the overall growth of the business venture.
Financial management as a strategic choice improve the utilisation of funds in channelising the
business operations of the Skansa Plc Company (Cagle, 2020). This creates a huge scope for the
business venture to maximise the profitability and growth rate of the business venture in against
of delivering the business operations. Enhancement of the growth of the company can be denoted
as the key strategic outcome associated with financial management practice adopted by the
business entity.
Provide liquidity in operations
Role of the financial management technique ensure the proper liquidity in the business.
Management at the Skansa Plc Company drive its liquidity situation in against to ensure the
availability of proper liquidity situation at the business unit. Liquidity denotes the availability of
proper finances in order to deliver the business operation. Ratio analysis is a technique that is use
b y the company to ensure the liquidity requirements. Liquidity is among the key requirement
associated with the business entity (Susanti, Ardana and Sufiyati, 2021). The role of liquidity is
important for the organisation to ensure the proper availability of funds in the operations.
Allocation of proper resource improve the quality of operations entertain by the organisation.
Operational effectiveness is among the most prioritise operation and function entertain by the
organisation to ensure the best level of functional efficiency in the operations.

Financial statement involve income statement, balance sheet, cash flow statement and
such like statements. Financial statements are the summarise way of projection the actual
financial position of the business entity. These are the records and statement demonstrate the
income position, liquidity situation of the organisation and such like records that can project the
actual situation of the business entity. Management of the Skansa Plc Company take all
important decision related to the operations, business expansion and growth on the basis of the
position denoted in the various financial statement company prepare. This become significant for
the organisation to prepare all these records and financial statement for enhancing and supporting
the overall growth and development possibilities of the business venture (Mohammed and et.al.,
2019). The use of the financial statement in making all important business decision that can
direct and suggest the business venture in respect to all changes that is required related to the
financial management and operation management at the organisation. Profitability is considered
as the most primary aim associated with business operations channelises by the company. This is
a term that reflect the fact how effectively company is approaching its business operations. Role
of the statement prepare by the Skansa Plc Company is under to evaluate the actual situation of
the business entity and based on that this is about to make all important decision in the
organisation.
Management accounting technique
Management accounting is a systematic way of channelising the business operations.
Different techniques company use to improve the feasibility of planning, controlling and
decision making in the business organisation.
Budgetary management technique: is one of the core technique that is used by the
professionals at the Skansa Plc related to planning of business operations. This is a technique
involve planning the financial requirement of company (Easton and et.al., 2018). Planning phase
involve assessing the overall requirements of company, evaluating the resource availability of
the Skansa Plc and based on that it involve allocation of funds to all different functional areas
associated with the organisation. Budgeting is a crucial technique favour the business venture to
deliver all different business objectives of company in the best way possible.
Ratio analysis technique: is another crucial technique that is use by the Skansa Plc Company to
improve the controlling of the business operations entertain by the organisation. This technique
involve using various ratios such as related to profitability, liquidity, efficiency an such other and

to make important decisions that can ensure the bets level of control over operations of
organisation (Daryanto and Nurfadilah, 2018). Ratio analysis is an important practice support
and guide the Skansa Plc Company to maximise the utility of the financial resources available
with the company. This technique allows the business venture to ensure the best level of control
about the financial management practice adopted by the company.
Investment appraisal technique: is among the corer technique related to the financial
management adopted by the business venture. This is a practice involve analysing the investment
decision of the company. Financial professional at the Skansa Plc Company use various
techniques such as payback period method, internal rate of return technique, net present value
and accounting rate of return technique to make all important investment decision in the business
(Zieme, 2019). These are the techniques support the Skansa Plc Company to make important
decision related to acquisition of the new machinery, equipment, plant and such like decisions.
This practice or technique allowed the company to maximise the use of the financial resource
available with the business venture. The role of this technique is very significant in order to
enhance the utility of the finances available with the company.
The above stated technique supported the Skansa Plc Company to improve the financial
planning, controlling and decision-making ability to ensure the most optimum use of funds. This
is an important and most essential part of the financial management adopted by the organisation
is to make decisions and control such decisions with the use of various technique in order to
generate the best possible results in business. With the use of all the above mentioned technique
Skansa Plc Company could maximise the utilisation of funds in the business. Role of financial
management is directly associated with the wealth management of the business entity.
Part 2
Ratio Calculation
Ratios Formula 2018 2019
Finance cost 150 300
Total Assets 4470 8070
Current Liabilities 645 2220

Net Profit 600 675
Net Sales 4800 6000
Current Assets 1515 2070
Opening debtors 0 900
Closing debtors 900 1200
Net credit sales 4800 6000
Trade debtors 900 1200
Trade payable 570 2100
Cost of sales 3450 4350
Earning before
interest and tax
(EBIT)
Net Profit + Finance cost 750 975
Capital employed Total Assets – Current Liabilities 3825 5850
Return on capital
employed
EBIT/ capital employed* 100 20.00% 17.00%
Net Profit margin Net profit/ net sales* 100 13.00% 11.00%
Current ratio Current assets/ current liabilities 2.3 0.9
Average receivable
days
Trade Debtors/Revenue*365 68 days 73 days
Average payable
days
Trade payable/cost of sales*365 60 days 176 days
Interpretation of ratio analysis
Profitability ratio-
This ratio states the capacity of business to earn profit from its sales or from the capital
employed. The two ratios which are important and falls under profitability ratio are return on

capital employed and net profit margin (Al Muhairi and Nobanee, 2019). From the above table it
can be interpreted that the net profit and return on capital employed of SKANSKA company in
13% and 20% in the year 2018. whereas in the year 2019 it was 11% and 17%. and it can be seen
that ratio in 2019 is decreasing than in 2018. so it can be said that profitability ratio of company
is not good or bad when compared with previous year. The causes that net profit of the company
has decreased is because in the year 2019 cost of sales has increased but there is no increase in
sales revenue. Hence it can be said that from the percentage rate of which cost of sales has
increased in more as compared to the percentage rate from which the sales revenue has
increased. Therefore net profit is low in 2019.
If talking about decrease in return of capital employed is that company's total assets has
increased but its current liabilities has only slightly increased (Erkut and et.al., 2018). Low
ROCE means that organisation is not able to generate more profit from their capital or funds.
Negative profitability ratio indicate that company can face operational or financial risks in the
future if not worked to improve its profitability ratio. Along with profitability it can even affect
investors decision. There are chances that investors who wish to invest in 2018 will change their
mind in 2019. the reason behind this is investors see profit or revenue of company before
investing.
Liquidity ratio-
This ratio shows the ability of the company to pay its current liabilities from its current
assets. Current ratio of the company is analysed by dividing current assets with current liabilities.
SKANSKA company's current ratio in the year 2018 is 2.3 and 0.93 in the year 2019. and here it
is seen that there are reduction in the year 2019 when compared to previous year. The ideal
current ratio is 2:1 and in 2019 it is 0.93 which is very less than the ideal ratio. It shows that
company have poor liquidity and it is not giving performance as per expectations. Causes of
decrease in current ratio can be like SKANSKA company is not using its inventory or stock
properly, that is why have experienced less current ratio (Kimmel, Weygandt and Kieso, 2018).
In the balance sheet of the company it can be observed that there trade receivables are also
increasing when compared with last year.
It can be even said that company is not having enough capability that they can convert
their stock into cash. When obliquity ratio of the company is less than the standard liquidity ratio
then it can be said that company can even shutdown because they are running beyond their

capacity. Company should have make efforts to increase their current assets so that they can pay
their current liabilities effectively.
Efficiency ratio-
This ratio states the capacity of the organisation in order to manage the operational unit
and functioning of the company should also go smooth on regular basis. Average receivable days
means the time which is taken by company to recover money from their debtors. On the basis of
above calculation it can be said that in the year 2018 it was 68 days and in year 2019 it was 73
days. It means that there is some liquidity issues which company is facing. As the number days
from 2018 to 2019 is increasing (Svatošová, 2019). The reason can be organisation have poor
credit policy. There are also probability that cash sales has decreased and credit sales of the
company has increased. When any changes occur in the company then it affects liquidity
position of the company. Financial position is one of the most important thing for every business.
Bad liquidity results in poor financial position of the organisation. Average payable days of the
company in 2018 was 60 days and in 2019 it was 176 days which is also not good for company.
As number of days has increased then previous year. So it is require that company should have
introduced strategies so that Average receivable days can be decreased. They can provide
discounts to their debtors for early payments.
When company will receive payment early then they will be able to use money in
carrying out various business activities. It can said that company have given more credit to their
clients and does not focus on increasing the sales. SKANSKA Plc. Should ensure that they take
wise decision so that there goodwill in the market will increase. As every wrong decision will
impact the reputation of the company in the market. In order to solve efficiency ratio related
issues. Company should improvise their credit policies. They should have started decreasing
credit sales and encourage cash sales (Lo, Marlowe and Zhang, 2021).
Interpretation of company-
Current ratio of the company has decreased in 2019 as compared to 2018 means that
company is not using its current assets properly to pay their current liabilities. It will affect
company's performance in the future. Net profit margin and ROCE of company is also
decreasing which is negative thing and it will negatively impact the company's performance. If
company will make less profits than it will discourage investors and they will not make up their

mind to invest in the company. So it is important that SKANSKA Plc. Should have change their
management strategies and should have implemented new strategies which can help company in
achieving their objectives. Debtors collection period of company is also increasing which is
showing that their debtors is taking more time to pay money to them. Time has come when
company should strictly see towards it.
Debtors collection period can be reduced if company will start giving goods on cash. It
can even reduce by providing discount to their debtors for paying early. Company should have
even improved their profitability ratio because it is poor which means that company is more
exposed to financial risks (Sobkow, Garrido and Garcia-Retamero, 2020). In order to come out
from the risk company should have improved their liquidity, profitability and efficiency ratio.
Improvement in these ratios not only decrease the chances of risks but also a tract investors
towards the company. As investors will invest in those company which have higher profits and
also efficient to pay their liabilities on time.
Role of financial and accounting
Financial and accounting play a crucial role in both the processes decision-making and
reporting the financial position of the organisation. Following are the points clearly demonstrate
how the role of financial and accounting influencing the reporting and decision-making practices
adopted at the Skansa Plc Company.
Reporting: is one of the core role accounting practices play in the organisation. This practice is
about to depict the financial position of the business entity in the various books of accounts main
by the Skansa Plc Company. The organisation prepare documents like cash flow statement,
income statement and balance sheet to project or reflect the overall financial position of the
business entity (Jovanović, Todorović and Grbić, 2017). All these documents are well suitable to
project about the liquidity situation, income situation and the financial stability associated with
the business venture. Reporting is among the key part of the accounting practices adopted by the
company. The main aim of reporting is to depict the current financial situation associated with
the business venture.
Decision making: is another key aspect associated with the financial management practice
adopted by the business unit. Decision making involve taking all important decisions related to
business expansion, acquisition of funds, investment decision-making and many such decisions.
Financial management technique favour the business unit for taking all important decision that

require financial resources (Muñoz-Izquierdo, Segovia-Vargas and Pascual-Ezama, 2019). With
the use of suitable technique to improve the decision-making process of the Skansa Plc Company
the venture try to strengthen the financial stability at the work place. Ratio analysis is one of the
core technique that favour the business unit for approaching the business decision in the best way
possible.
CONCLUSION
Skansa Plc Company could not perform as effective in comparison to the earlier financial
year. The overall performance of the business venture is decreased due to challenged liquidity
situation of company and many such core reasons. Ratio analysis support the company for taking
all important decisions in the business. This allows the business unit to strengthen the financial
management aspect of the business entity.

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