Financial Decision Making for SKANSKA PLC

The report sheds light on the importance of accounting and finance functions for SKANSKA PLC and their roles. It analyzes the financial performance of the company through various ratios and provides insights into financial decision making. The report is based on SKANSKA PLC, a construction company in the UK, planning to expand its operations in Europe within the next 10 years.

Financial decision making

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................2
TASK 1............................................................................................................................................2
Presenting the importance of Accounting and finance function for SKANSKA PLC................2
TASK 2............................................................................................................................................6
Analysis the financial performance.............................................................................................6
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Financial decision making is the process of weighing the pros and cons of a decision and
it provides a good indication by considering the long term growth and effects. Thus, it can be
stated that financial decision making assists to maintain an optimum capital structure and
determine the actual performance of a company. The present report also shed a light upon
importance of accounting and finance function along with their roles. Moreover, the report also
helps to gain the knowledge pertaining to accounting and financial decision. The entire study is
based upon the SKANSKA PLC which is a construction company in UK and it is planning to
expand the operations in other countries like Europe within next 10 years.
The report will critically evaluate the importance of accounting and finance functions
with an examples and then with the help of its financial statements, it calculates the ratio which
in turn determine the performance of a company and also helps to determine which project is
beneficial for the company through which it can be invested upon.
TASK 1
Presenting the importance of Accounting and finance function for SKANSKA PLC
In the business, there are variety of team working who actually helps to meet the strategic
aim and objectives. In the present section, both accounting and finance functions will be
discussed which helps to determine their roles towards SKANSKA PLC.
Accounting function
Accounting functions within a company are terms as set of those financial systems which
helps in bookkeeping of financial information and this act as a backbone for a business
(Alimohammadi, Tavangar and Sharifi, 2018). Thus, the main purpose of using an accounting
functions is to run a business in effective manner such that it helps to track the income and
expenditure which ensure statutory compliance and assists to make a business decision
effectively. Therefore, within each organization, accounting functions helps to meet the defined
aim and keep track the performance of a company by telling the effectiveness of a business. The
important function in the context of SKANSKA PLC is as mentioned below:

Systematic record-keeping: It is considered one of the major accounting function of an
accounting which helps in recording the transaction in the journals. In the company, the function
is used by the companies at regular basis and this in turn assists to generate the best outcomes in
near future as well (Functions of accounting, 2020). According to this function, it has been
analyzed that company can generate the best outcomes and also assists to maintain information
about business activities so that future decision can be taken. With the help of systematic record
keeping, company is able to records all the transaction which in turn assists to create a positive
impact over the business and in future the same has been also used.
Facilitating the rational decision-making: It is another important function which is used
to communicate the results such that the net profit and loss of a user which helps to make the
financial statements. Through this, company determine the interested people and their rationale
for decision making (Sedevich-Fons, 2019). Thus, the choice to decide the rationally which
makes it possible to support the decision making helps in making effective results for the
company. In the context of SKANSKA PLC, it also uses accounting functions that helps to make
effective decision otherwise company did not generate profit for the future.
Protection of business assets: It has been analyzed that accounting does not keeps the
record of all business assets, but it also ensures that assets cannot be used without any
authorization because it is belonging to enterprise. Also, it can be stated that accounting ensure
about the assets belongs to the company and it also reduce the chances of insulting the business
as well as personal assets from any claims. That is why, the accounting function aids SKANSKA
PLC to improve the overall performance and enhance the assets protection in future as well.
Identifying the profit and loss: It is another function of accounting for which the
company actually perform the work. Also, through accounting company ascertain the profit
earned and loss sustained by the firm within an accounting period. That is why, it can be stated
that it helps in transaction of a business and also determine how much revenue earned and
maintained by the firm for its future (Cvitanović, 2018). However, on the critically side, it has
been identified that without earning and loss, SKANSKA PLC cannot determine the company’s
profit and that is why, it affect the results in adverse manner within a future.
Ascertaining the profitability, liquidity and solvency of an entity: It is another function
of an accounting which help in financial statement such as balance sheet, profit and loss account

and also determine the position of an enterprise. Also, it can be stated that through effective
recording, company can analyze the business transaction and then maintained the expenses.
Similarly, in the context of SKANSKA PLC, it also uses such accounting functions that helps in
generating the best outcome and determine the solvency and liquidity or the firm as well. That is
why, such functions play an important role for the company.
Legal compliance: It is another important component or function of an accounting which
entails that there is a need to comply with laws and legislation while preparing and keeping the
company’s record. This in turn helps the business to improve the overall performance and run a
business in smooth manner as well. Through this, company run an entire business in proper
manner so that effective results can be generated and this in turn assists to improve the overall
business functions.
Finance function
It is another important part for the company which is mainly concerned with control and
planning of a financial resource. Also, it ensures that all the financial records are accurate and
kept up to date so that effective results are maintained. In the context of SKANSKA PLC,
finance function is also used that helps to make important decisions which helps to grow for
further level of success. It has been also stated that with the help of this, company determine how
much money spend and when it should be spent so that company generate the best outcome and
also stay ahead in the competition as well (Awan and Gawiser, 2020). There are many functions
of finance which used by the firm in order to derive the best outcomes so that company gain the
competitive advance and meet the objectives as well. The functions are as listed below:
Investment decision: The biggest role played by the company regard to finance is
investment which helps in allocate the capital to long term assets which is known as capital
budgeting. Thus, it is important to allocate the capital that helps in maximizing the yield in future
(Finance function, 2020). Thus, through this method, SKANSKA PLC can evaluate the new
investment in term of profitability so that it will assists to generate the best outcome. Also, it can
be stated that future is uncertain and that is why, the difficulties in calculation of expected return
might be higher. To minimize the chances of risk, SKANSKA PLC must use this functions so
that effective results can be generated.

Financial decision: Another important function that also helps the business and must be
performed by the manager. As, it is necessary for the company make decision that helps in
acquiring funds and this is possible when company complied with finance functions (Alkhimova
and et.al., 2018). The biggest benefits gain by SKANSKA PLC is to earn the market that also
maximize the shareholder wealth. Also, it can be stated that it helps to gain the capital structure
so that effective results can be generated in an effective manner. This in turn assists to generate
the effective results and also improve the financial performance of a company as well.
Dividend decision: The main of a business is to earn a profit and generate a positive
return. This in turn helps financial manager to distribute entire profit to all the stakeholders that
helps to retain them effectively. Also, in SKANSKA PLC the financial manager’s responsibility
is to decide the optimum dividend policy which helps in maximize the market value of a firm.
That is why, it can be stated that through effective functions and utilization of entire resources
assists company to generate the best outcome. Further, to issue bonus share to the existing
shareholders will also assist to maintain the future profit. That is why, it can be stated that this
function helps the company to support in effective planning and decision making.
Liquidity decision: For the firm, it is necessary to maintain the liquidity that helps to
avoid the insolvency. Also, firm’s profitability, liquidity and risk are actually associated with the
investment in a current asset. That is why, to maintain the profitability and liquidity, there is a
need to invest the sufficient funds in order to maintain current asset. Through this function, it has
been identified that company should properly be valued and dispose from time to time that
become non profitable (Keong, 2020). By considering the positive aspects, it can be stated that
the sufficient funds must be raised so that effective results must be generated that does not cause
any negative impact over the business.
Overall, it can be stated that both accounting and finance functions plays an important
role and that is why, they are centre of a business which is responsible for ensuring the effective
financial management, along with this it also supports the business activities as well. Also, it can
be stated that both accounting and financial manager support company to meet the requirement
of a company. This in turn also contribute to improve the business decision making process so
that effective results can be generated in the future. Through the above, it has been also critically
evaluated that there is a need to comply with all the functions of accounting and finance,

otherwise the decisions affected that cause negative impact over the business performance.
Along with this, it can be stated that having an up-to-date information also helps the user to
compare the current financial information to the historical one so that full and accurate
performance can be determined by the business. Hence, it can be stated that with the help of
effective functions, company should consider the best effective methods in order to improve the
business performance by focusing upon its accounting and financing options which in turn
smoothen the business operations. That is why, manager of SKANSKA PLC must also consider
all the roles and responsibilities that assist in delivering the best outcomes that helps in gaining
competitive advantage as well.
TASK 2
Analysis the financial performance
Particulars Formula 2018 2019
Liquidity Ratios
Current Assets 1515 2070
Current Liabilities 645 2220
Stock 16 17.2
Prepaid Expenses 0 0
Quick assets
Current Assets - Stock- Prepaid
Expenses 1499 2052.8
Current Ratio
Current Assets / Current
Liabilities 2.3 0.9
Quick Ratio Quick Assets/ Current Liabilities 2.3240310078 0.9
Particulars Formula 2018 2019

Solvency Ratios
Debentures 0 0
Long term loans 37.9 39.8
Eq. Sh. Capital 27.7 43.5
Pref. Sh. Capital 0 0
Reserves 0 0
Fictitious Assets 0 0
Long term Debt Debentures + Long term loans 37.9 39.8
Shareholders
Funds
Eq. Sh. Cap.+ Pref. Sh. Cap.+ Res. -
Fictitious Assets 27.7 43.5
Debt Equity Ratio
Long term Debt/ Shareholders
Funds 1.4 0.9
Particulars Formula 2018 2019
Profitability Ratio
Gross Profit 1350 1650
Operating Profit 750 975
Net Profit/ Income 600 675
Net Sales 4800 6000
Total Assets 4470 8070
Current Liabilities 645 2220
Equity at
beginning 19.3 27.7
Equity at end 27.7 43.5
Average Sh. Equity
(Equity at beginning + equity at end)/
2 23.5 35.6

EBIT 750 975
Capital Employed Total Assets - Current Liabilities 3825 5850
Gross Profit Ratio Gross Profit/ Net Sales 28% 28%
Net profit Ratio Net Profit/ Net Sales 13% 11%
Operating Profit
Ratio Operating Profit/ Net Sales 16% 16%
Return on
Investment Net Profit/ Total Assets 13% 8%
Return on Equity
Net Profit/ Average Shareholder
Equity 2553% 1896%
Return on Capital
Emp EBIT/ Capital Employed 20% 17%
Particulars Formula 2018 2019
Efficiency Ratio
COGS 103.3 126.5
Average Inventory (Opening + Closing Inventory)/ 2 13.75 16.6
Average Accounts
Receivable (Opening + Closing Recievables)/ 2 9.75 14.05
Average Accounts
Payables (Opening + Closing Payable)/ 2 29.95 36.4
Average Total
Assets (Opening + Closing Total Assets)/ 2 108.65 146.95
Net Credit Sales 11.8 16.3
Net Credit
Purchases 34.6 38.2

Net Sales 177.9 232.9
Debtor Turnover
Ratio
Net Credit Sales/ Average
Accounts Recievables 1.2 1.2
Creditor
Turnover Ratio
Net Credit Purchases/ Average
Accounts Payables 1.2 1.0
Inventory
Turnover Ratio COGS/ Average Inventory 7.5 7.6
Asset Turnover
Ratio Net Sales/ Average Total Assets 1.6 1.6
Particulars Formula 2018 2019
Trade Debtors 900 1200
Revenue 4800 6000
Average receivable
days Trade Debtors/Revenue*365 68.4375 73
Trade payables 570 2100
cost of sales 3450 4350
Average payable
days Trade payables/cost of sales*365 60.3043478261
176.2068965
517
The overall performance of Skansa Plc Company has seen a decreasing trend. The gross
profit of company remain the same but on the other side net profit margin of company could go
down. Operating profit margin also remain the same for the company (Maden and et.al., 2018).
Return on investment of company is reported as 13% in the year 2018 whereas the same is
reported as 11% in the financial year 2019. Return on investment is also decline from 13% to
8%. Further the return generated over capital employed of company is 20% and 17%. The

overall performance of the Skansa Plc has seen a downfall in the market as compare to the earlier
financial year. Debtor turnover ratio of company is 1.2 in both the years whereas average
account receivable days are more than the earlier financial year (Zhao and et.al., 2019). This
could further affect the liquidity situation of the company which resulted into company is
requiring more number of days to pay or clear its creditors. The gap is huge between the year
2018 and 2019 in respect to the payment of the trade creditor of the business enterprises.
The current ratio of company is declined from 2.3 to .9 in the financial year 2019 which
indicate the fact that current liability of company become stronger in comparison to the current
asset of the business venture. On the other hand quick ratio is demonstrated as 2.32 in the year
2018 whereas .9 in the financial year 2019. In context to the financial year 2019 the balance
between assets of company and liability hold by the business venture could go down. This denote
the fact that the Skansa Plc Company could not positively approach its business operations in
comparison to the financial year 2018 (Assrani and et.al., 2018). The impact of this is directly
over the performance of the business venture. Debt equity ratio os company is 1.4 in the financial
year 2018 whereas .9 in the year 2019. All this demonstrates the fact that the Skansa Plc
Company could not perform efficiently in the year 2019 in comparison to the financial year
2018.
Ratio clearly demonstrate all the facts regarding the performance of the business venture
and in context to the financial ratios that provide the factual details about the overall
performance of the business venture. Skansa Plc company is growing rapidly in the year 2018
but due to various circumstances company could not perform as effective as it was performing in
the earlier financial year. Profitability is always a right indicator to assess the overall
performance of the company. In the year 2019 the net profit margin which is like a ultimate gain
that business house gain in against of delivering the overall performance of the business venture
is lower than the earlier financial year. This is a negative sign in context to the overall
performance business venture achieve in the respective target market (Alaica and et.al., 2019).
The ultimate aim of the business operation deliver by any corporate house is to gai profit and
also to increase the margin in the coming financial year. This is a key target that uphold by the
business venture to significantly increase the overall performance of company in term of profits.
Hence the Skansa Plc could not perform as impressive as it could in the year before to 2019. This
can be stated as the weak side of the business operation entertain by the company. The

organisation must give strong emphasis over establishing a proper control over the business
transaction entertain by the company and channelises all its operations in a more strategic
manner.
CONCLUSION
By summing up above report, it has been concluded that to run a business in an effective
manner, there is a need to consider all the function of accounting and finance. This in turn assists
to generate the best outcome and also improve the overall performance of a company. From the
first part of a report, it has been concluded that both finance and accounting assist to keep the
records in the systematic manner that helps to compare the data of financial information from
historical one. This in turn reflected that with systematic accounting and financial functions,
company is able to assess the performance of a company over a period and this in turn assists to
generate the best outcomes too.
Moreover, through the calculation and ratio analysis, it has been concluded that company
has a strong performance in 2019 and that is why, it helps to improve the performance in near
future as well. Further, it can be also summarized that through the financial statement and ratio
that the return on investment is decline and that is why, there is a decreasing trend identified that
affect the overall result in negative manner. Thus, company should focus upon its policies that
aid to improve the financial performance in order to get better result in future.

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