Financial Decision Making: Importance of Accounting and Finance in SKANSKA plc

This report discusses the importance of accounting and finance in SKANSKA plc, along with their roles and functions. It also includes the calculation of accounting ratios for Skanska plc and performance evaluation based on those ratios.

FINANCIAL DECISION
MAKING

TABLE OF CONTENT
INTRODUCTION ..........................................................................................................................3
MAIN BODY...................................................................................................................................3
TASK 1............................................................................................................................................3
Evaluation of the importance of Accounting and Finance in SKANSKA plc along with their
roles and functions.......................................................................................................................3
TASK 2............................................................................................................................................7
Calculation of the accounting ratios for Skanska plc...................................................................7
Performance evaluation of Skanska on the basis of Ratios.........................................................8
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Financial decision-making is the process which consists of the financial decisions based
on the choice between the equity and debt funds of the associated costs of the organization. In
this organization the investment decisions have been made for purchasing the long term assets.
This report is on SKANSKA plc which has the objective of expanding its business in the
organization. This project will explain the structure of the organization with the help of financial
statements. The application of the management accounting techniques for planning, control and
decision-making will also be discussed. It will also help in the calculation of the main accounting
ratios which will explain their significance in the uses of financial statement. In this project the
role of finance and accounting within the organization in respect to both the reporting and
decision-making will be discussed.
MAIN BODY
TASK 1
Evaluation of the importance of Accounting and Finance in SKANSKA plc along with their roles
and functions
Accounting plays and important role for the ongoing activities of the organization. The
importance of accounting for SKANSKA plc are,
 Accounting is considered to be very important in evaluating the performance of this
organization. The financial records of this business is seen to reflect the results of the
operations as well the financial position of the small business or corporation. In other
words it can also be said that with the help of understanding what is going on with the
business finances (Onuferová, Čabinová and Vargová, 2020). It helps this business with
cleaning up of the date records and also helpful for keeping track of the expenses of the
gross margin and the possible debt of the business. It is helpful for tracking the gross
margin and the possible debt for the comparison of the current data with the previous
accounting records.

 It helps the business ensure its statutory compliance which consists of the important lows
and regulation which can vary from the different accounting system which can help the
business for the proper maintenance of the accounting systems and process. It is the
accounting functions which helps the business to ensure the liabilities which are
considered to be the sales tax, VAT, income tax and pension funds which are very
important for being properly addressed.
 With the help of accounting this business is able to create a budget which is used for the
creating of the budget and future projection. It is considered to be very important for
breaking the business and the financial records which is very important for the business.
It helps the business to create budget and future projection which are based on the
historical financial data for keeping the operations profitable. This financial data is
considered to be the most appropriate and well-structured accounting process that
improve business efficiency (Ginting, 2021).
 Accounting as a process is considered to be very helpful in the filling of the financial
statements. All the businesses and companies are required for filling the financial
statements with the Registrar of companies. The listed entities for this organization are
required to file stock exchange methods for providing the direct as well as indirect tax
filing purpose. It is considered the accounting plays critical role towards the scenarios
related to the business operation.
The role-played by accounting in the business of SKANSKA plc are as follows,
Controlling :
The different financial performance of the business is which is presented as the financial
information of the business is considered to be the most important information for the
management of the organization. It helps the management of the company to control the
financial policies and also formulate the planning regarding the future activities of the business
which can effect the course of action.
Planning :
Accounting helps the organization to make sure that it can plan its strategies and develop
organizational goals for ensuring success (Anthony and et.al.,2019.). It helps in the preparation
of the budget which is considered to be very important aspect for the preparation of the future
activities and operations of the business.

Budget Preparation :
It help this organization in the preparation of the statements which helps the business to
analyse the future activities related to income and expenditure. Accounting also provides the
necessary financial information which is helpful in the preparation of the budget. The excluded
activities are thus, compared with the budgetary elements of the business.
Cost Control :
It is the standard of the cost which is used for the estimation of the cost. It is the also
essential for the financial information of the accounting records (Kaiser and Menkhoff, 2020).
Accounting helps in the analysation of the actual and standard cost which is very helpful for the
evaluation of the efficiency of work. It helps the business to ensure the best ways of controlling
the cost in the organization.
The following are the Significance and duties of financial analysis for SKANSKA plc,
Establishment of the business :
Financial and financial functions are considered to be the best way of leading the
business with the finance function of the business which helps it in the determination of the what
is required for the starting the business. Financial planning is very important for the creation of
the business strategies which can influence the organizational decision.
Running Business operations :
Finance is considered to be very important for the business as it help the organization
understand which is required for the day to day operating cost for paying he salaries which can
help the business in buying stationeries and raw materials for the finance function can help the
organization (Hussain, Salia and Karim, 2018). It is important for the operational efficiency and
the managerial effectiveness of the organization. Cash flow statement is one of the financial
statement which helps the business towards the analysation of the inflow and outflow of the cash
which is very essential for the management of the business operations. It allows the business to
know when it has to make some payments and analyse the when it may face financial shortage.
Current position :
Financial analysis is considered to be very effective for the analysation current position
of the business. It is said to be very effective in the performance of the organization and allows
the business to compare the current performance with its competitors and its previous years. The
current position analysis of the business helps it prepares for the future issues which it can face.

The financial statements which include the balance sheet helps the organization to assess the
financial position of the organization as it represents the assets, liabilities and equity of the
business for the given time.
Management of the organization :
Financial analysis of the organization is considered to be very helpful in the assessment
of the different resources of the firm which can be used by them in the most efficient ways
possible. It helps the organization with the analysation of the financial conditions of the firm
which is said to be sound towards the determination of the company's operations. It helps the
business in also analysing the individual performances and appraising those with effective
performance. It is also important for the organization to evaluate the system of internal control
which is effective for the business of the organization (Schroeder, Clark and Cathey, 2019). It is
also considered to be very effective in the investigation of the future prospects of the enterprise.
Trade payables :
The financial statements of this organization are said to be very influence in meeting the
short-term obligations. It helps the business to appraise its ability for meeting those short-term
obligations. It is also very essential in Judgement of the profitability of the company which is
continued for the financial obligations in the future. It is also very important for the analysation
of the firm's ability for meeting the claims of creditors over a very short period.
Lenders :
Financial statement also consists of the supplier information which are concerned with
the long-term debt about the firm's solvency and survival. It is the analysation of the firm's
financial statements which can help the business in ascertaining the profitability of the company
for the given period. It helps the business in the determination of the company's ability for the
generation of cash and help in the analysation of its position for paying the interest and
repayment of the principal amount. Financial statements helps in the assessment of the
relationship between the various sources of funds (Song, Wang and Zhu, 2018). The financial
statements are also very essential as they consist of the information related to the past
performance of the business and helps in the interpretation of the future forecasting of the rate of
return and the assessment of risk.
Investors :

The financial statements are said to invest their money in the firm's share of interest
which helps the organization in the organizational earning and future profitability of the
organization. It helps the financial statement to predict possibility of bankruptcy or failure
probability of the business enterprise. The awareness of the probable failure helps the investors
to take preventive measure towards avoiding any sort of losses.
TASK 2
Calculation of the accounting ratios for Skanska plc
Return on capital employed (ROCE) :
Particulars Formula 2018 2019
Operating profit 750 975
Capital Employed (Total assets – current liabilities) 4470-645
=3825
8070-2220
= 5850
Return on capital
employed
(Operating profit/Capital
employed*100)
19 16.66
Net Profit Margin :
Particulars Formula 2018 2019
Net profit 600 675
Sales revenue 4800 6000
Net profit margin (Net profit/Sales revenue*100) 12.5 11.25
Current Ratio :
Particulars Formula 2018 2019
Current assets 1515 2070

Current liabilities 645 2220
Current ratio (Current assets/Current liabilities) 2.34 0.93
Debtors Collection Period :
Particulars Formula 2018 2019
Trade receivables 900 1200
Sales revenue 4800 6000
Debtors collection
period
(Trade receivables/Sales*365) 68.43 73
Creditors Payment Period :
Particulars Formula 2018 2019
Trade payable 570 2100
COGS 3450 4350
Creditors payment
period
(Trade payable/COGS*365) 60 176
Performance evaluation of Skanska on the basis of Ratios
Return on capital employed is a type of profitability ratio which is used for measuring the
efficiency of the company for the utilization of the profit it has generated. It can be considered as
the metric which one of the best profitability ratios. The use of this ratio is very common in the
investors as it helps them to determine how suitable to organization is for an investment
(Carreras Simó and Coenders, 2020). Its calculation is done by dividing the operating profit of
the organization with its capital employed and then multiplying it with a hundred for percentage
of return on capital employed. The ROCE for this organization shows the operating income of
the organization which is generated for each unit of investment. From the above calculations

about the return on capital employed it is calculated that in 2018 the ROCE of this organization
was 19. However, this ratio fell in the upcoming year for this company to 16.66. As this is a
profitability ratio the fall of this ratio explains that the organization has been less profitable in
comparison the last year. ROCE is considered to be more favourable if it is higher and indicates
that the organization is generating more profit from the capital employed. The ROCE of 19%
suggests that the business was in much better position in the year 2018 than in 2019 as it feel to
16.66%. This organization needs to analyse what mistakes it has made so that it can improve the
efficiency of the organization. Increased efficiency of the capital employed can automatically
increase the profitability of this organization.
The net profit margin is also known as the margin which indicates how much net income
is required for the company to make from the total sales which it has achieved. Higher net profit
margin indicates the efficiency of the organization which is used for converting the sales into the
profit of the organization. The calculation of the net profit margin in not as same as the gross
profit. In the net profit margin ratio all the costs incurred by the company is included for finding
the actual benefit of the business. Net profit margin is a very important tool of ratio analysis as it
helps in the calculation of the profit margin (ALI and FAISAL, 2020). This ratio is considered to
be the one which shows how successful an organization is in evaluating the performance against
the competitors. The comparison of this ratio with other organization helps the business in
performing against the competitors which help them in comparing different countries. For
Skanska plc the calculated net profit margin for the year 2018 was 12.5%. This shows the
percentage of net profit against its revenue generated. In 2019 Net profit margin of this company
fell and amounted to 11.25%. This fall in the Net profit margin of the organization shows that it
has failed to work efficiently in 2019 in comparison to the net profit margin of 2018. It is
considered the higher the Net profit margin is of an organization is more effective is the
company in the management of its cost.
Current ratio is a type of liquidity ratio which indicates the total capacity of the company
for the payment of its short-term loans which is considered to be due for the next year. This ratio
is considered to answer the question of what amount of money in current assets are said to be
covering per unit of the current liabilities. Current ratio is calculated by dividing the current
assets with the current liabilities and helps in the determination of the short-term debt of the
organization which helps in receiving the cash from the customers (Rinaldo and Endri, 2020).

This ratio shows the liquidity of the business which is very important for the organization in
paying of the short-term debt of the organization which is helpful to certain risk. The idea current
ratio for a business is considered to be 2:1 which suggests the business has more convertible
assets in comparison to its current liabilities that are required to be paid. For Skanska plc the
current ratio for the year 2018 was 2.34 which is higher than the idea ratio 2:1. This explains that
in this year the business was very capable in meeting its short-term obligation. However, the
current ratio of this organization fell tremendously in 2019 to 0.93. It shows the lack of capacity
of the organization of sufficient funds for meeting the current obligations which it has to face for
providing sustainability in the performance. It also suggests that the trading level of the business
is beyond the capacity of the business.
Debtors collection period is the amount of time which is taken for the collection of trade
debts. Lesser time taken by the organization in the collection of the debt indicates that the
business will be able to use the money which is collected from the debtors for reinvesting it for
business productivity purpose. It can be said that the longer the time taken by the organization it
is considered to be the indication of the problems which is helpful for the business and its trade
towards the overall efficiency (Maisharoh and Riyanto, 2020). This period is the representation
of the time which is taken from the day business provides its debtors credit to the day they
actually receive the credit amount. This is the reason why a lower debtor's collection period is
more preferred than a high debtor collection period. For Skanska plc the average days in which it
was able to collect the debtors amount in the year of 2018 was 68.43. It means that in average the
debtors of this organization pay the debts of the organization in an around 68.43 days. However,
in 2019 this debtor collection period increased slightly and amounted to 73. Increase in the
debtor collection period is bad for the business of the organization. Thus, it should provide
discounts to its debtors for early payment of its dues.
Creditor payable days are the average number of days which are taken by the
organization in paying the creditors their money. Having a higher average credit payment period
is much more beneficial for the organization as it provides them the opportunity of utilizing the
payment amount for a longer period (Firdaus and Endri, 2020). The higher number of days for
the payment to the creditors is very influential for the business as it is considered that longer the
business holds on to the amount it can use it for its productivity purpose. It depends on the

creditor, as some creditors provide discount on early payment of the dues. For Skanska plc the
calculated creditor payment period for the year of 2018 is 60. This shows that the business was
very capable and had the money to repay the dues. However, in 2019 the credit payment period
of this organization increased a lot which is also a positive aspect the business and its operations.
High average payment period will help this business in using the amount for other more
productive purpose. Thus, the increase in the payment period is a positive result for this
organization.
CONCLUSION
With the help of this project it can be concluded that for Skanska plc requires accounting
and finance as it play various different important role, duties and functions in the organization. In
this project the financial analysis of this organization has been shown with the help of the
financial analysis. In this organization the structure of the organization and its financial
statements have been explained. This project also showed the application of management
accounting techniques for the planning, control and decision-making of the organization. This
project also explained the company financial position with the help of accounting ratios. In this
project the significance of the use of the financial statement for this organization is also
explained. In this project the key role of the finance and accounting within the organization with
respect to both reporting and decision-making of the organization has been explained.

REFERENCES
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