Financial Decision Making: Evaluating Accounting and Finance Functions and Roles in SKANSKA PLC

This report evaluates the significance of accounting and finance functions and roles in SKANSKA PLC, a construction company with the objective of expanding operations in Europe. It also calculates the ratios and comments on the financial performance of the company.

FINANCIAL DECISION
MAKING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
TASK 1............................................................................................................................................3
Evaluating the importance of accounting and finance functions &roles within SKANSKA
PLC (SP).....................................................................................................................................3
TASK 2............................................................................................................................................7
Calculating the ratios...................................................................................................................7
Commenting on the performance of SKANSKA PLC by mentioning possible causes, reasons
and effects for the change in the ratios........................................................................................8
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................13

INTRODUCTION
Financial decision-making is the procedure of considering all aspects regarding the
identifying, allocating and monitoring monetary resources of organization so that competitive
advantages can be gained. In the current era, there is higher competition which requires firm to
be efficient in order to take strategic decision in turn greater stability can be derived. The current
report is based on SKANSKA PLC which is construction company and has objective of
expanding operation in Europe. The present report will pay attention on evaluating the
significance of accounting and finance function along with the roles & duties. Current case study
will pay attention on calculating the ratios and commenting on the financial performance of the
company.
MAIN BODY
TASK 1
Evaluating the importance of accounting and finance functions &roles within SKANSKA PLC
(SP)
Significant of Accounting function
Accounting function is one of the significant department of organization that helps in
tracking income & expenditures. In addition to this, the particular function ensures that firm is
properly adhering accounting rules & regulation while recording transaction so that quantitative
financial information can be provided to different stakeholders.
 The one of the most important benefit that SKANSKA PLC (SP) can derive is that proper
budget planning can be exerted. This helps the business to make strategic decision in
respect to utilization of monetary resources so that proper action for accomplishing the
objective of expanding operational practices can be attained.
 Accounting as well help in having the proper records of complex transaction which is not
possible to remember manually (Hertati and et.al., 2020). SP will become able to
keeping records by collecting, organizing and interpreting information for
communicating in efficient manner. This increases chance of having relevant factors
essential for proper decision-making.
 Managing and monitoring cash flow as well is does accounting department which will
highly contribute in SKANSKA PLC to attain success. It provides assistance in having

significant amount of working capital so that all the requirements of business can be
attained.
 A proper accounting system ensures timely recording of debts so that proper statutory
compliance can be established. This shares in avoiding irrelevant legal actions so that
smooth proceeding in functional department of SKANSKA PLC can be executed.
 Prevention and detection of fraud is main benefit that can be achieved by SKANSKA
PLC for having internal control can be implementer. It ensures that accurate and fair
utilization of resources can be done to accomplish the objectives of business.
 Transparency can be implemented in the information shared through formulating
financial statement prepared for stakeholders so that trustworthiness can be gained
(Kimmel, Weygandt and Kieso, 2018). Improved payment cycle and credit building
reputation can be obtained through having efficient accounting department in SP. This
makes possible to evaluate the performance of business via considering all past records
with current data so that lacking areas can be found to make improvements.
Roles & duties of accounting
 The most important role-played by accounting department in business includes
communicating, analysing, exhibiting, summarizing and classifying financial information
(The role of accounting in business and why it is important, 2021). The recording of
financial transactions aids in building proper records so that appropriate actions for
meeting unforeseen circumstances can be identified.
 Cash receipts & account receivables are managed by accounting department that can
assist SP to be prompt and effective in respect to analyse available resources (Appelbaum
and et.al., 2017). It provides assistance in ensuring that due payments from customers are
received on time for avoiding bad debts.
 Disbursement of cash & account payable assures that payment is made accurately so that
appropriate creditworthiness can be achieved for meeting the objective of expanding
operational practice sin Europe. Payroll is as well handle by accounting department in
assuring that employees are paid on time. This aids in motivating employees in effectual
manner for achieving delegated roles & responsibilities in systematic pattern.

 Financial recording and controlling for maintaining systematic functioning via
measuring organizational performance through comparing current with previous. This
helps in identifying lacking areas to execute suitable action for improvement.
 Day to day operations are managed by this particular function so that monitoring,
analysing and producing financial reports and statement can be done through ensuring
compliance with qualitative characteristics (Al-Dmour, Zaidan and Al Natour, 2021).The
specified department ensures that proper enforcement of accounting method, policies and
principles is utilized to avoid inaccurate situation occurring. Internal actions to make
proper improvement through identifying prevailing irrelevant aspect so that elimination
can be done to get positive outcome through strategic decision-making.
Significance of finance function
Finance department is highly important for the companies irrespective of their scale of
operation so that desirable position can be derived. SKANSKA PLC will become able to have
positive outcome through managing financial resources in efficient pattern.
 SKANSKA PLC will become possible to have ability to identify the requirements of
monetary resources so that proper action to manage needs of every function. With help
of budget planning, assessing the resources needed to carry forward business activities
becomes possible by having efficient finance department (Tenhunen, 2018).
 Financial department can provide assistance to the specified organization to calculate
the capital required to meet the objective of enlarging operational practices. This helps
in formulating the capital structure through considering business policies, strategies, etc.
it can he very useful for SP to have such capital structure that can declined related cost
to increase profitability.
 SKANSKA PLC will be benefited by having efficient financial management department
as it help in effectively monitoring resources of company. Effective allocation and
utilization of funds become possible through accurate and fair conducting of this
particular department.
 The overall value of firm can be increased by applying this function as it aids in having
information regarding the prevailing circumstances. Recognition, allocation, analysis of
unforeseen situations can be estimated by SP to develop systematic department. It

contributes in making proper and critical financial decision-making so that leading
position in industry can be obtained.
 The economic stability of company inclines by paying attention on the prevailing
lacking areas so that corrective measures can be applied to modify situation. It basically
focuses on decreasing the cost, proper price fixing, etc. so that higher profitability can be
derived. This aids in appropriate financial planning & forecasting needs so that
optimization of resources can become possible.
 Tax and compliance can be properly exerted by SKANSKA PLC with help of finance
department. The particular function helps in having adequate ability to estimate the
profits and tax on the operational activities conducted. Adhering with legal obligation
becomes easy by getting proper guidance from the financial management function of
firm. It aids in making favourable situation in industry through creating positive impact
on stakeholders which tend to incline reputation & increases chance of gaining
economies of scale.
 The finance department makes coordination and integration among all the functional
areas of business by providing all important information so that funding in required
level can be exerted. Improvement and management of cash flows by financial function
of SP allow it to make sure that objective is achieved to have desirable position.
Roles of finance function
 Raising the funds is important activity that is conducted by financial department so that
proper balance between debt & equity can be maintained. Allocation of funds depending
upon the size & growth, status, etc. is ensured by firm so that higher ability to meet
goals of firm can be derived. SKANSKA PLC's main objective is to expand its
operational practices in 10 years so that greater amount of profitability & sustainability
can be attained.
 The most essential role performed by finance function in company is risk management
by identifying, evaluating, prioritizing, mitigating threats of firm. This helps in internal
change fluctuations occurring can be recognized to make improvement so that
fluctuations can be controlled to have standard level of performance.
 Working capital management and dividend decision-making is role of this functional
area of business. With help of interpreting properly managed financial statement and its

interpretation decision to satisfy investors is taken by this department. Profit planning &
controlling through declining the cost of goods sold, eliminating non-essential assets,
etc. for maintaining liquidity & stability.
 Managing and coordinating with each department is one of the major role of this
particular department so that higher accuracy by containing crucial factors to reach
expected performance level via evaluating employees contribution towards success. It
allows making appropriate estimation of existing level of efforts shared by staff towards
success so that cost & benefit to each employee can be calculated. SP will be benefited
by this as it will result in reducing expenditure of operation.
 Proper choice of platform for raising fund through identifying related risk & rewards so
that possibilities of increasing profitability can be achieved. On the basis of this it can be
identified that in SKANSKA PLC the most important role by financial function can be
planning, investing and financing.
From the evaluation it can be interpreted that these are the main roles and functions of
accounting and finance that can provide assistance in having sustainability to accomplish the
objectives of SP in effective pattern.
TASK 2
Calculating the ratios
Return on capital employed
Particulars Formula 2018 2019
Operating profit 750 975
Capital employed Total assets – current
liabilities
4470-645
=3825
8070-2,220
= 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*36
5
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
Commenting on the performance of SKANSKA PLC by mentioning possible causes, reasons
and effects for the change in the ratios
Return on capital employed is concerned with assessing that how much an organization is
generating net profitability from its capital. It is one of the essential ratio that helps to understand
the efficiency of company to have profitability so that higher return on capital obtained can be
provided to them. There are various stakeholders that have interest in checking that how well
particular firm is providing return so that specific decision can be made. The particular
organization's performance in the terms of return on capital employed for the two years 2018 and
2019 are 19 and 16.66% respectively. On the basis of this, it can be identified that there is
declining trend which indicating that firm may get negativity impacted. The reason behind the
particular outcome may be decreased due to reduced operating profit, capital employed, etc. it
shows that firms capacity of utilizing capital for generating profits has decreased. The
stakeholders like investors, bank institutions, lenders, etc. can get negatively affected form this
and may take adverse decisions (Maheshwari, Maheshwari and Maheshwari, 2021). It can lessen
working capital, etc which may harm daily operational practices of firm. There are various
methods which can be applied by firm for improving prevailing situations. It involves decreasing
cost, inclining sales, eliminating irrelevant aspects, etc so that higher profitability can be derived.
Taking such crucial action will be beneficial for SKANSKA PLC to attract the larger investors
towards the firm in order to achieve the required level of capital to reach desirable position.
Net profit margin is associated with estimating the efficiency of making profits from
inclining sales. This helps several types of stakeholders like investors, lenders, creditors, banks,
institutions, competitors, etc. The reason underlying this shows that these mentioned
stakeholders take their investment decision by considering this specific ratio as main
determinate. From the evaluation of above computation, it can be identified that outcome derived
are 12.5 and 11.25% respectively for 2018 & 2019. On the basis of this, downward moving slop
can be recognized as it is decreasing as compared to the previous period. It can be interpreted
that SKANSKA PLC's profitability has decline due to reduced sales revenue, enhanced cost of

goods sold, ineffective marketing & sales practices, higher competition, etc. It is one of the
important ratio as helps in identifying financial performance in terms of capacity of generating
profits (Boisjoly, Conine Jr and McDonald IV, 2020). Downward sloping trend can influence the
decision-making procedure and affect the liquidity position of SKANSKA PLC. It is essential for
specified organization to pay attention on improving SP's net profitability margin through
implementing certain crucial action in order to modify financial condition in sector. The
important measures which can be applied by SP obtained improvised condition. It comprises
selling more goods, using appropriate pricing strategy, attaining competitive advantage through
having different marketing practices, eliminating irrelevant factors, etc. In order to make changes
organization can apply different ways so that greater profitability & sustainability can be
attained. These mentioned course of action will help enterprise to be prompt & effective in
taking crucial measures for overcoming prevailing barriers with help of availability of
profitability.
Current ratio is related with ascertaining efficiency of company in paying short term
liabilities with help of cash & equivalent resources. It is one of the significant ratio which is
highly analysed by creditors, financial analyst, investors, financial institution, lenders, bank, etc.
The main reason behind using this specific ratio is to assess that how effectively an organization
is using its resources to pay off debts. From the computation of this specific ratio, it can b
articulated that firm's performance for the two years such as 2018 and 2019 involves 2.34 and
0.93 times. The ideal ratio regarding this which is accepted by each industry lies between 1.2 to
1.5 times. By comparing the current performance with standard bench marking it can be stated
that it has reduced. It is indicating that SKANSKA PLC efforts to overcome the prevailing
obligations has decreased and needs certain action for uplifting in order to boost the
organizational performance. The reason behind this can be stated that decreased liquidity,
inappropriate payment system, etc. There are various patterns in which this specific aspect can
harm the firm by impacting its creditworthiness and trustworthiness among stakeholders
(Valaskova and et.al., 2020). For the purpose of making changes specific firm can execute
different kinds of actions in turn greater positive influence can be achieved. The course of action
which can be executed involves making accurate payment system, paying off unproductive
assets, improving current assets by rising shareholders’ funds, cutting off cost, etc. it will provide
assistance in gaining the competitive advantage so that favourable outcome can be attained.

Debtors collection period specifies the period within which firm can collect the payments
from its clients. It is s one of the crucial determinate of liquidity and need to be estimated as
helps in identifying the prevailing the situation in terms of available capital. The above illustrate
table regarding the debtors' collection period prepared for the period 2018 and 2019 is reflecting
results like 68.43 & 73 days respectively. It is presenting that organization's period for collecting
the payment has been increased as compared to the previous year. There are various factors
which largely contribute in influencing the business's liquidity and debtors’ collection period is
one of crucial element. On the basis of this, it can be identified that various factors affect it
which involves credit policy, relationship with customer, availability of funds, etc. Business
needs to collect money as soon as possible, the reason behind this is to reduce the chances of
occurring bad debts (Walters, 2017). There are several actions which can be applied by
SKANSKA PLC to make certain alteration to modify existing situation. There are different kinds
of method which helps in boosting the performance of firm in terms of liquidity. This involves
making changes in credit policy, sending reminders to customers, offering special offers like
discounts, flat % off, etc. can help in boosting liquidity. It will contribute in avoiding irrelevant
aspects such which may hinder organizational performance. This involves bad reputation, incline
rate of default payments, etc. which forces firm to implement few courses of action in turn
positive functioning can be attained.
Creditors payment period helps in analysing the duration within which enterprise is
enabled to overcome its financial obligations. There are various reasons for which it becomes
essential for the firm to give emphasis on this specific outcome. From the computation, it can be
identified that for the two specified period derived outcome is 60 & 176 days. This is
representing that the duration within which firm is paying off its obligation has increases as
compared to the earlier period. It is negative sign of possessing liquidity which need to be
modified by executing certain crucial actions. It is required to be lower than compared to the
present year's performance so that credibility in industry can be maintained (Abdel-Basset and
et.al., 2020). The crucial reasons behind this can be articulated that low fund availability,
ineffective credit payment policies, higher cost, etc. These can be improved by several distinct
actions which comprises ensuring clear policies, increasing in efficiency in identifying,
evaluating and controlling funds allocation, raising from diverse pattern for having positive
impact on the company. These mentioned plans can largely help in achieving the positive

outcome in effectual manner. this will contribute in attaining the different competitive
advantages.
CONCLUSION
From the above report it can be concluded that financial decision-making is crucial for
gaining competitive advantages by taking all crucial factors into consideration. The current
report has involved significance of accounting which comprises budget planning, monitoring
cash flow, prevention of errors & frauds, etc. The important role-played by accounting
department includes analysing, communicating, summarizing, classifying, etc. Present report has
given emphasis on significance& duties of finance department that involves identifying needs,
raising funds, tax compliance, risk management, developing coordination among departments,
etc. Present case study has paid attention on calculating ratios like net profit margin, current
ratios, debtors collection, creditors payment period, etc. The reasons, impact and improvement
actions have been included in current report.

REFERENCES
Books and journals-
Abdel-Basset, M. and et.al., 2020. An integrated plithogenic MCDM approach for financial
performance evaluation of manufacturing industries. Risk Management. 22(3).
pp.192-218.
Al-Dmour, A., Zaidan, H. and Al Natour, A. R., 2021. The impact knowledge management
processes on business performance via the role of accounting information
qualityAbdel-Basset, M. and et.al., 2020 as a mediating factor. VINE Journal of
Information and Knowledge Management Systems.
Appelbaum, D. and et.al., 2017. Impact of business analytics and enterprise systems on
managerial accounting. International Journal of Accounting Information Systems.
25. pp.29-44.
Asif, M and et.al., 2021. A COMPREHENSIVE FINANCIAL DECISION-MAKING
LITERATURE REVIEW 1964-2021. Academy of Accounting and Financial
Studies Journal. 25(5). pp.1-9.
Boisjoly, R. P., Conine Jr, T. E. and McDonald IV, M. B., 2020. Working capital management:
Financial and valuation impacts. Journal of Business Research. 108. pp.1-8.
Hertati, L. and et.al., 2020. The effects of economic crisis on business finance. International
Journal of Economics and Financial Issues. 10(3). p.236.
Husain, T. and Sunardi, N., 2020Abdel-Basset, M. and et.al., 2020. Firm's Value Prediction
Based on Profitability Ratios and Dividend Policy. Finance & Economics Review,
2(2), pp.13-26.
Kimmel, P. D., Weygandt, J. J. and Kieso, D.E., 2018. Financial accounting: Tools for business
decision making. John Wiley & Sons.
Maheshwari, S.N., Maheshwari, S.K. and Maheshwari, M.S.K., 2021. Principles of Management
Accounting. Sultan Chand & Sons.
Tenhunen, M. L., 2018. The important need of general accounting and management
accounting. Euromentor Journal-Studies about education. 9(04). pp.37-43.
Valaskova, K and et.al., 2020. Financial compass for Slovak enterprises: modeling economic
stability of agricultural entities. Journal of Risk and Financial management. 13(5).
p.92.
Walters, D., 2017. MarketinHusain, T. and Sunardi, N., 2020. Firm's Value Prediction Based on
Profitability Ratios and Dividend Policy. Finance & Economics Review. 2(2).
pp.13-26.g and Financial Management: new economy-new interfaces. Macmillan
International Higher Education.
Online
The role of accounting in business and why it is important. 2021. [Online]. Available through:
<https://www.pdr-cpa.com/knowledge-center/blog/role-of-accounting-in-
business>