Financial Decision Making: Importance, Roles and Duties of Accounting and Finance Function within Skanska PLC

This report analyses the importance, roles and duties of the accounting and finance function within Skanska PLC. It also calculates accounting ratios and comments on the performance of the firm from the point of view of an investor of £1 million.

Financial Decision
Making

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK 1............................................................................................................................................3
Critically evaluate the importance, roles and duties of the accounting and finance function
within SKANSKA PLC..............................................................................................................3
TASK 2............................................................................................................................................6
With the help of financial statements of SKANSKA PLC, calculate the accounting ratios and
comment on the performance of the firm from the point of view of an investor of £1 million..6
CONCLUSION .............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Financial statements are the collection of formal reports of the financial activities of a
company. It assists in analysing the financial position of the firm and comparing it with the
reports of the competitors. Accounting and finance section of any firm frames these statements
by applying various techniques on the final accounts of the company (Badu and Appiah, 2018).
The report is based on the Skanska plc. It is a UK based multinational construction company
which started its operations in the year 1984. It has handled many big projects like renovation of
World Trade Centre Transportation Hub, Unions Nations Headquarters, MetLife Stadium etc.
The report is divided into two tasks. The first part of the report has put a light on the importance
of accounting and finance function along with their roles and duties. The second part of the
report analysis the performance of the company with the help of accounting ratios.
TASK 1
Critically evaluate the importance, roles and duties of the accounting and finance function within
SKANSKA PLC.
Accounting and finance function of Skanska refers to that section of the company that
deals with the maintenance of accounting books like ledger, preparation of bills, framing and
analysis of financial statements and many more. It is one of the most important pillar of an
organisation which leads it to the path of success. This department is responsible for handling the
economic section of the firm. It is very important for the firms, especially those who are
working at large scale like Skanska to have a different accounting and finance section in the
firm (Morris 2018).
Importance of accounting and finance section to Skanska
 To know the profit and loss to the company- Accounting and finance function of
Skanska prepares financial statements which helps it in generating the accurate
knowledge of the profit earned or losses incurred by the firm. As the employees of firm
will be expert in their field, they will calculate the gains and losses accurately. If
Skanska did not have this department, the firm will not be able to differentiate between
the types of expenses and incomes. This will affect the knowledge of profits and losses to
the owners.

 To assess the financial position of the firm- This department consists of the analysts
along with the general accountants who uses various techniques to analyse the final
statements and balance sheets of Skanska. With the help of this evaluation, they ascertain
the financial position of the firm (Helmold and Samara, 2019). In the absence of finance
department, Skanska will not be able to interpret the position of the company as
understanding the financial statements is not everyone's cup of tea. It requires specialised
person to understand these statements.
 For ensuring the compliance of various laws- Rules and laws of accounting changes
from time to time and from state to state. For a big company like Skanska, it is not
possible for the owners of the firm to take care of financial laws along with managing the
firm. So, the accounting department of the firm helps it in complying with all the rules.
They keep themselves aware about the changes occurring in laws and apply them in
accounts of the company. In the absence of this function, Skanska may not be able to
apply all the legal rules properly. This can make the firm to face some legal consequences
and even keep the firm restricted from taking the advantage of changes rules.
There are various roles and duties performed by the accounting and finance department
of Skanska.
Roles of accounting and finance section to Skanska
 Preparing various accounts and reports- Accounting department of Skanska takes
care of preparing all the financial accounts and statements of the company. They collect
data from various sources like bills, bank statements, vouchers, debit and credit notes etc.
Inefficiency in working of this department can bring heavy losses to the firm (Abdullah
and Tursoy, 2021).
 Preparing Budgets- Skanska's finance section performs the role of preparing financial
budget for the business. It is a construction company which demands a well framed
budget for each project. So, this department helps the management team of the company
in forecasting the amount of expected expenses and how much it could earn. This unit is
expected to perform its tasks by analysing the inflation rate and past experiences of the
firm properly. Otherwise, Skanska may prepare a wrong budget which will restrict it
from either getting orders or guilty in front of clients. For example, accounting team of
Skanska did not recognised the impact of inflation rate and framed a low priced budget

for a project. After starting the work, suddenly the prices of the material increased and
they felt it impossible to complete the project in the assigned budget. In this situation,
either the company has to face losses by using their own money for completing the
project or they had to feel guilty in front of the client for raising the budget which will
hamper the reputation of the firm.
 Managing Taxes- The accounting and financing department of Skanska is responsible
for calculating all the types of taxes in time and keeping the money aside before hand so
that the firm does not have to pay any penalty for the delay in the payment of tax amount
(Zhang, Shan and Chang, 2020). They also keep a keen sight on the changes occurring in
various taxation laws and assists the management in taking decisions while involves tax
in it. Inefficiency of this department can lead to evasion of taxes or misapplication of
taxation rules which would be charged as penalty by the government officials against the
firm.
Duties of accounting and finance section to Skanska
 Handling investments- It is the duty of the finance department of the Skanska company
to handle the existing investments and other assets in addition to making new investments
by the firm. It is very important to manage the current and fixed funds in order to gain
maximum profits from them as these assets defines the liquidity condition of the firm
(Kumar, 2018). The department of the firm have to analyse the opportunity of new
investments form all the different aspects like rate of interest, financial position of the
that company to whom that investment belongs to, various policies related to the policy
etc. The decision of investment is taken only if the analysis shows sign of growth. For
example, Skanska wants to make some investment in some PVC sheets manufacturing
company to increase its area of operation . It is the duty of the accounting team to collect
financial reports of all the companies of the state dealing in this product and make an
analytical report about their performances in last few years and anticipate the future
trends. They further assists the management team in deciding the best investment
opportunity from all the firms.
 Controlling the flow money- Accounting and financing department of Skanska is
responsible for managing the flow of cash in the company and makes it sure that the firm
has enough money to meet its everyday requirement of money. They also takes care of

the debt collection and credit payment policy of the firm so that the company can get
collect its payment in time and can clear its debts in required time and correctly. This
department also analysis the wastage of funds in the form of over expenditure and tries to
control them.
 Assists in framing financial strategies- It is the most important function of the finance
department of Skanska to assist the management team of the firm in taking strategic
decisions (Adi, Baridwan, and Mardiati, 2018). They helps the managers in generating
information about budgets of the different projects, expected pay back period for
purchasing fixed asset, amount of dividend to be distributed etc. This sections frames a
best financing mix for the company through which the firm can yield the maximum
profits and its money can used in a best possible way.
TASK 2
With the help of financial statements of SKANSKA PLC, calculate the accounting ratios and
comment on the performance of the firm from the point of view of an investor of £1
million.
Accounting ratios depicts the relation between the various accounting figures and helps
the firm in taking various financial decisions. It compares two or more financial reports which
helps it in ascertaining the performance of the company in respect to its last year results or with
that of to another company. It uses the statement of profit and loss account and balance sheet of
the firm to calculate various accounting ratios. Here the various ratios of Skanska has been
calculated to know its financial position so that the investor with £1 million can take the decision
that whether it should make the investment or not (Moepya, Nelwamondo and Twala, 2017). The
ratios with their analysis are as follows-
 Return on capital employed - This ratio is used by the companies for analysing the
efficiency of the firm in utilizing its capital through which it generates profits. Higher
percentage of this ratio is beneficial for the company. But generally, double return on
capital is considered good.
Return on Capital employed= Earning Before interest and tax(EBIT)/Capital employed
For the year ending 31 December 2018

= 750 / 3825 * 100
= 19.61%
For the year ending 31 December 2019
= 975 / 5850 * 100
= 16.67%
Return on the capital employed of Skanska decreased by around 3% in the year
2019 as compared to the year 2018. This means that the efficiency of the firm is decreasing as it
is not able to utilize its capital properly. The firm has increased its loan amount to 3 million
pounds from 1.5 million pounds. But still its profits on capital is decreasing. This shows that
either the business is not able to utilize its funds or the company did not actually required this
increase in loan (Dewi Anggadini, 2018). Decrease in this ratio will make the investors
uninterested in blocking funds in the business and can provoke the existing investors to pull back
their money firm the organisation. The company should take care of its extra expenses and
analyse its incapacity of utilizing its funds.
 Net profit margin -This ratios describes the efficiency of a firm in earning profits from
the sales. This ratio is really beneficial for the creditors, investors and the business itself
as it indicates the profitability position and financial health of the firm. Usually a
percentage of 10 is considered good.
Net profit margin = Net Profits / Net Sales * 100
For the year ending 31 December 2018
= 600 / 4800 * 100
= 12.5%
For the year ending 31 December 2019
= 675 / 6000 * 100
= 11.25%
The net profit of Skanska fallen short by 1 % which means the firm is not earning
sufficient profits even though it has increased its sales amount. The gross profit of the firm has
increased according to the sales of the firm but its net profit has fallen short because of the
interest, it is required to pay on the loan (Rutkowska-Ziarko and Pyke, 2018). The profits of the
firm has not increased with the growth in the sales. It will negatively impact the reputation of the

company as decrease in net profit margin will create a downfall trend of Skanska in the minds of
the various stakeholders. It will not impact only the investors but also the employees and share
prices of the firm as losses to firm will make them feel insecurity of their jobs. The firm should
make sure that it earns enough through which it can balance out its various expenses.
 Current Ratio - This ratio helps in analysing the liquidity position of the firm. It
calculates that how much the current assets of the firm is able to pay off in short term
liabilities in a period of 1 year (Hay and Cordery, 2021). A ratio of 2 : 1 is considered
good. This ratio varies according to the type of work and amount of cash required by the
business for operating its daily tasks and on the number of days in between the payment
to creditors and collection form the debtors.
Current Ratio = Current Assets / Current Liabilities
For the year ending 31 December 2018
= 1515 / 645
= 2.35
For the year ending 31 December 2019
= 2070 / 2220
= 0.93
The liquidity position of Skanska is deteriorating. The ratio of the company has fallen
from 2.35 in year 2018 to 0.93 in the year 2019, which is not a good sign. Its current assets are
not enough to pay its short term liabilities. Even the liabilities of the company is more than the
assets in the year 2019 showing a very poor liquidity condition. Skanska is a construction
company and it requires to pay off its labourers on daily basis, for which the requirement of cash
holdings is high for the business. Shortage of cash can hamper the process of construction as the
workers can stop their work if they are not paid in time. Also, the shortage of the funds can effect
the credit facility available to them. The creditors had to think before giving supply on credit to
Skanska.
 Average Receivable days / Debtors collection period – The liquidity condition of the
form also depends on the time period in which the debtors of the firm make their
payments and for how time the company is able to hold this money for generating profits
out of them (Burton and Tanyi, 2019). This ratios alone cannot interpret anything if

creditors collection days are not calculated. Lowest number of days are generally good
for the business because it indicates that the firm collects is payments faster.
Debtors collection period = Debtors * 365 / Net Sales
For the year ending 31 December 2018
= 900 * 365 / 4800
= 68 Days
For the year ending 31 December 2019
= 1200 * 365 / 6000
= 73 Days
The Debtors collection period of Skanska has increased by 5 days which means now the
debtors of the company takes more time to repay their debt and firm's access to this money has
shortened by 5 days. The liquidity position of the firm is already not good and increase in this
time has worsen the situation. But the analysis of the position of the company cannot be made
only on this basis. The average collection period is required along with collection days for
examining the efficiency of this ratios.
 Average Payable days / Creditors collection period – It depicts the time taken by the
firm to settle down its payables to the creditors (Porter and Norton, 2017). It gives the
information that whether the firm is able to take advantage of the credit facility available
to it or not. The number of days in this context is desired to be high as it gives the
company an opportu8nity to use take advantage of the funds before paying them to the
creditors. This ratio also cannot survive alone. It demand a comparison with debtors
collection period for generating any result.
Creditors collection period = Creditors * 365 / Cost of Goods Sold
For the year ending 31 December 2018
= 570 * 365 / 3450
= 60 Days
For the year ending 31 December 2019
= 2100 * 365 / 4350
= 176 Days

The collection period of Skanska has increased by around 3 times exhibiting a good sign
for the firm. This means that now the company has to pay off its debts in 6 months and it can
hold and invest its money for more time period (Schofield, 2018). In this span of time, the firm
will collects its debts 2.5 times which will help it in maintaining its liquidity. The increase in this
ratio will also create a good image of the business on the minds of the investors as they will feel
that the firm is trustworthy and can pay off its debts efficiently and holds the opportunity to take
the advantage of the cash until the creditors are not paid.
Performance of Skanska from the perspective of an investor with £1 million.
The financial position of Skanska is not bad, but it is also not very good. The
performance of the company is deteriorating when comparing the ratios of the year 2019 with
that of the year 2018 (Dempsey, 2019). The return on capital employed and profits of the
company has decreased depicting a downfall in the profitability position of the firm. The
liquidity position of the company is also not good. A the end of the year 2019, the firm did not
even hold the current assets equal to the amount of its current liabilities. Though the credit
payment period of the business has increased to a great extent but along with that its expenses
are also increasing. The financial position of the company is not bad, but it is recommended to
analyse the trend for at least one quarter to ensure that the firm is not following the same trend of
downfall.
CONCLUSION
It can be concluded from the above report that accounting and finance department of a
company is very important to control the flow of cash in the firm. There are various activities
which cannot be performed by any other person and demands the expertise knowledge of
accounts and taxes. For this purpose, it is required to have a separate accounting and finance
section in the firm. There are various roles and responsibilities performed by this unit like
managing the funds, advising the owners regarding various investments, preparing accounts and
budgets. They also analyse the financial position of the company by preparing different financial
statements. On analysing the position of Skanska, it can be interpreted that a firm must take its
capital introduction decision by analysing its need efficiently. Decrease in profitability or
liquidity can make the stakeholders disinterested in the firm and can motivate them to pull their
money back.

REFERENCES
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