Financial Decision Making: Importance of Accounting and Finance Function and Ratio Analysis of SKANSKA Plc

This report discusses the significance of accounting and finance function in financial decision making and provides a ratio analysis of SKANSKA Plc for the period of two years. It also comments on the financial performance of SKANSKA Plc using ratio analysis technique. The report suggests that SKANSKA Plc needs to focus on reducing costs, maximizing sales, and monitoring business areas to improve its financial performance and achieve its objective of expanding its operational scale.

FINANCIAL DECISION
MAKING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Explaining the significance of accounting and finance function along with its duties & roles in
the specified organization...........................................................................................................1
TASK 2............................................................................................................................................5
a. Calculating ratio of SKANSKA Plc for the period of two years ..........................................5
b. Commenting on the financial performance of SKANSKA Plc using ratio analysis technique
.....................................................................................................................................................6
CONCLUSION ...............................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Financial decision-making is concerned with analyzing, controlling and monitoring monetary
resources which helps in having significant processing in turn better outcome can be received. In
the current era, it is highly essential for the organization to pay attention on having relevant
financial decision in turn competitive edge can be derived. The current report is based on
SKANSKA PLC which is looking for making expansion. The present study will give emphasis
on explaining importance of accounting and finance function. It will give emphasis on having
significant information regarding duties and roles of these functioning within the specified
organization. It will focus on calculating ratios and interpreting financial position in effective
manner.
TASK 1
Explaining the significance of accounting and finance function along with its duties & roles in
the specified organization
Importance of accounting
Accounting is one of the significant function which is crucial in having significant
processing by obtaining information of income and expenditure in turn better decision for
achieving objectives can become possible (Ugoani, 2020). SKANSKA PLC has objective of
expanding its operational practices which require it to gain the crucial insights regarding the
income and expenses incurred & earned for achieving appropriate information. There are
number of advantages which can be derived by specified organization through implementing
accounting function.
 The one of the significant benefit which is provided by the particular department is
gaining ability to record all the business transaction which allows the organization to
have relevant processing. It aids remembering each activity which is need to be
conducted on time like collection of funds, payments, etc.
 It can provide assistance to SKANSKA PLC (SP) to make decision by receiving all the
financial information as the economic decision needs accurate & reliable insights. In
absence of accounting function SP will not be able to formulate strategic decision for
ensuring optimum utilization of resources (Rikhardsson and Yigitbasioglu, 2018).
 Managing and monitoring cash flow system helps to get proper working capital and
requirements within the business in turn accurate utilization of resources for meeting
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legal requirements. Accounting can help SP to get the ability to overcome legal
requirements of sharing information with investors and other stakeholders through
recording and publishing information about financial resources.
 Accounting department aids in communicating results to various users like lenders,
creditors, investors, etc in turn deciding ability can be provided. There is requirement to
share the information which can help user to analyze risk, controlling techniques, etc.
On the basis of this, it can be identified that accounting functioning play crucial role in
influencing operational practices in positive manner. SKANSKA PLC can get the capabilities to
incline its efficiency & accuracy in decision-making. It leads to establish effectual pattern of
communication for having transparency & visibility in both internal and external processes.
Significance of finance function
There are several objectives which are required to be accomplished by company through
maintaining and controlling financial resources (Barbera, Guarini and Steccolini, 2020).
SKANSKA PLC will become able to derived distinct kinds of benefits via executing finance
function in its management so that expansion can become possible.
 The one of the objective which is ensuring that appropriate ability to ensure that a
business operates without financial hiccups in turn reaching desirable position can
become possible. It can be helpful for the SP as it can allow attaining long term goals for
having ensuring economies of scale. The particular organization has the objective of
inclining its stability to increase profitability.
 Finance department of the enterprise facilitate business expansion by enabling
organization to recognize its requirement of capital which can be raised to through
mitigating risk by applying different forms of system. Controlling and optimizing
available resources in turn higher efficiency by conducting compliance & controlling can
for getting sufficient funds to lead smooth functioning.
 The particular department can be useful for the enterprise to make sure operational
expenses are met. SKANSKA PLC can become to manage its operational expenses
along with mitigating associated related risk in turn running business in effective manner
can possible manner. SP can formulate financial plan in turn managing and obtaining
stability can be done. In addition to this, it provides appropriate ability to increase
efficiency & fairness in monitoring cash flow.
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From the evaluation it can be articulated that finance department play crucial role in influencing
business processing in turn attaining relevant outcome to meet objective. There are number of
significant reason for which applying financial department can be beneficial for SKANSKA
PLC in turn goal of expanding its operational scale.
Role of accounting functioning within SKANSKA PLC
There are number of roles and duties which are executed by accounting function in the
organization which provides ability to incline efficiency (The Role of Accounting & Finance in
Business Management, 2021). It becomes essential for SP to have significant ability to conduct
its activities in efficient manner.
 The accounting department play role of ensuring accuracy of financial department so that
compliance with relevant laws & regulations. The specified function is responsible for
ensuring that appropriate preparation and maintaining of crucial financial documents can
become possible. It can lead to get the decent capabilities to prepare tax return and
ensuring that taxes are paid accurately and on to get significant functioning in turn better
productiveness. In addition to this, it can evaluate financial operational activities to
recommend the best practice through identifying issues and strategic solutions in turn
running efficiently can be done.
 It offers the guidance on cost reduction, revenue enhancement and profit maximization
(Mäkelä, 2021). SKANSKA PLC can become able to get the relevant functioning
information for reducing its cost in turn better capabilities to incline profitability margin
can become possible. In addition to this, having relevant extent of profitability margin
and identifying resource requirement in turn raising capital to meet requirement of
business can be exerted. Forecasting risk analysis assessment to attain position which is
capable of reducing legal obligations.
 It helps in evaluating the performance of business through evaluating all crucial and
irrelevant aspects so that making decision regarding performance of business (Aaltola,
2021). It pays attention on tracking expenses & ensuring that non crucial expenditure are
eliminated to have significant processing.
 The specified function can permit SKANSKA PLC to ensures its statutory compliance
with proper utilization of accounting system and processes. It aids in h reducing
liabilities though relevant adherence with prevailing situations.
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 It helps in formulating budgets and filling financial statement in turn coordinating with
changing requirements of business can be done properly. In addition to this, this can be
signified that having position to make sound decision can become possible in effective
pattern.
Duties of finance functioning within SKANSKA PLC
There are various roles and responsibilities which are executed by fiancee department in the
organization and tend to provide number of advantages for accomplishing objectives.
 The one of the major role-played by finance department in the overall processing is
planning for funds. SP has the objective of expanding its operational scale in the other
countries which needs it to plan for monetary resources by focusing on analyzing the
needs and problem. It can be useful in making proper formulation of planning to raise,
manage and control financial health of enterprise. The specified organization can
identify the lacking areas prevailing in the functioning of business through assessing
what are products giving better profits.
 Predicting risk and reducing it to enhance growth & development by forecasting future
events. It can lead to increase accuracy & management by inclining awareness among
staff for preventing financial resources by eliminating fraud and error related situation.
It can be useful in creating material financial reporting (Kimanzi and Gamede, 2020).
Disposing of surplus and allocation & utilization of financial resources having ability to
risk management by removing non crucial components from the business. SP with help
of finance department conducting relevant planning to boost the position in sector
become possible. Analyzing variation by comparing current with previous can lead to
incline quality performance of the enterprise. There is requirement of ensuring that
managing skills and optimizing resources to boost organizational performance.
 The specific department is capable of conducting budget preparation which is critical
task and assist firm to ensure availability of cash for both short and long term. It help in
checkin department's efficiency to pay off debts, purchasing assets, etc which is
required to have smooth processing (Kijkasiwat and Phuensane, 2020). There are
several decisions regarding investment, financing and operating, etc can be done
through having significant ability to comply with prevailing circumstances.
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From the evaluation of the presented information regarding the accounting and finance
department and their roles within SP. It can be specified that important to focus on application of
these course of action as objective achieving become possible by applying accurate conducting
of accounting and finance department. In addition to this, there are several advantages can be
achieved by executing roles and responsibilities in effectual pattern. It can incline efficiency,
productiveness, optimum utilization, sound decision-making, etc. it can be interpreted that
achieving objective of expansion can be exerted in effective manner through identifying and
eliminating non significant aspects and raising funds priory to coordinate with changing business
requirements.
TASK 2
a. Calculating ratio of SKANSKA Plc for the period of two years
(i) Return on capital employed
Particulars Formula 2018 2019
Operating profit 750 975
Total assets 4470 8070
Current liabilities 645 2220
Capital employed Total assets - current liabilities 3825 5850
ROCE
(Operating profit / capital employed) *
100 19.61% 16.67%
(ii) Net profit margin
Particulars Formula 2018 2019
Net Profit (NP) 600 675
Net sales 4800 6000
Net profit margin (NP / Net sales) * 100 12.50% 11.25%
(iii) Current ratio
Particulars Formula 2018 2019
Current assets (CA) 1515 2070
Current liabilities (CL) 645 2220
Current ratio CA / CL 2.35 0.93
(iv) Average Receivable days’/ Debtors collection period
Particulars Formula 2018 2019
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Receivables 900 1200
Revenue 4800 6000
Receivable period (Trade debtors / Sales) * 365 68 73
(v) Average Payable days’/ Creditors collection period
Particulars Formula 2018 2019
Trade payables 570 2100
Cost of goods sold
(COGS) 3450 4350
Payable period (Creditors / COGS) * 365 60 176
b. Commenting on the financial performance of SKANSKA Plc using ratio analysis technique
Ratio analysis may be defied as a tool which helps in evaluating and presenting
company’s performance in quantitative terms (Choi and et.al., 2018). This technique helps in
assessing the extent to which company’s performance has been improved or deteriorated.
Ratio analysis of SKANSKA PLC for the period of 2018 and 2019 is enumerated below:
The above depicted table shows that SKANSKA Plc made over investment in assets
from £2955 to £6000 respectively. Business unit failed to increase revenue by making use of its
assets level. In the period of 2019, not enough or higher returns were generated by the company
referring capital employed. In order to improve ROCE firm need to make focus on reducing
cost, maximizing sales and monitoring business areas. By this, company would become able to
assess inefficient operations and thereby can take prominent measures for growth.
By doing assessment, it has identified that GP ratio of SKANSKA plc declined from
12.5% to 11.25% at the end of FY 2019. Profitability position of the firm deteriorated over the
time irrespective of incline in both sales and margin. However, in comparison to sales, profit of
the firm was not increased to the significant level. Due to the rise in COGS and finance cost
business unit failed to get desired returns. In the year of 2019, finance cost increased by 50%
from £150 to £300 respectively. Hence, for decreasing cost of goods sold SKANSKA Plc need
to follow variance analysis technique. By this, firm would become able to reduce unnecessary
expenses and thereby leads high profit margin. Further, business unit should focus on either
repayment of loan or finding other cost effective funding sources. Hence, by taking significant
measures firm can improve profitability to the large extent.
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Ratio analysis outcome clearly exhibits that liquidity position of firm deteriorated in
2019 from 2.35 to 93. It shows that, in the accounting period of 2019, SKANSKA Plc was not in
position to meet short-term obligation from its current assets. For ensuring smooth functioning
of business management is required to maintain enough working capital as per ideal ratio such
as 2:1. According to this, company’s liquidity was far from ideal framework which in turn
places direct and adverse impact on company’s performance. During the concerned period,
payables of the organization was inclined by 268%. In addition to this, cash balance of
SKANSKA Plc also reduced and accounted at £15 respectively. Thus, for ensuring uninterrupted
production company needs to make focus on maintaining enough current assets in line with
short-term obligations.
By analyzing financial statements, it has found that, in FY 2019, SKANSKA Plc
received money from debtors within 73 days. On the contrary to this, in the period of 2018,
receivable period of the firm was 68 days. This shows that business unit is offering more
products or services to the customers on credit basis. It is recognized as one of the main cause
behind high receivable period. Receivable period and working capital is adversely related with
each other and have impact on business functioning as well. Moreover, high receivable period
may result into reduction in working capital and thereby overall operations (How to Analyze and
Improve Debtors Turnover Ratio / Collection Period?, 2021). Referring all these aspects, it can
be stated that SKANSKA Plc need to tighten credit policies for improving both cash flow and
working capital.
Outcome of ratio analysis entails that extended credit period was offered to SKANSKA
Plc from creditors side. Moreover, inclining trend can be seen in the payable days from 60 to
176 which considered as good for the organization. Now, business unit has enough time in
relation to making payment. It offers opportunity in relation to retaining money for longer
duration. Hence, by using such funds in other investment opportunities or options SKANSKA
Plc can maximize benefit. In other words, higher payable means business unit has additional
funds for dealing with short term liabilities.
At the end of this section, it can be said that monetary performance of SKANSKA Plc
decreased over the time period. Company’s profitability, liquidity and efficiency position was
not increased. However, from investors’ perspective, investment can be made as all the ratios are
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not decrease to a great extent. With the help of sound strategic and policy framework
SKANSKA plc can enhance performance and thereby gets desired level of outcome or success.
CONCLUSION
By summing up this report, it has been articulated that accounting and finance functions
help in drafting monetary statements prominently. It can be seen in the report that accounting
manager plays a crucial role within SKANSKA Plc. Accounting team prepares budget and
analyzes financial information so that appropriate decision can be taken. Ratio analysis tool is h
highly effectual as it helps stakeholders in evaluating company’s performance from several
perspectives. It can be summarized from ratio analysis that financial position of SKANSKA plc
declined in 2019 as compared to 2018. Hence, for improvement purpose, company needs to
make significant measures so that cost reduction and profit maximization can be ensured.
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REFERENCES
Books and Journals
Aaltola, P., 2021. The financial mindset in managerial work: Strategic roles of accounting. JYU
dissertations.
Barbera, C., Guarini, E. and Steccolini, I., 2020. How do governments cope with austerity? The
roles of accounting in shaping governmental financial resilience. Accounting, Auditing &
Accountability Journal.
Choi, K. B. and et.al., 2018. Amplification ratio analysis of a bridge-type mechanical
amplification mechanism based on a fully compliant model. Mechanism and Machine
Theory. 121. pp.355-372.
Kijkasiwat, P. and Phuensane, P., 2020. Innovation and firm performance: The moderating and
mediating roles of firm size and small and medium enterprise finance. Journal of Risk and
Financial Management. 13(5). p.97.
Kimanzi, M.K. and Gamede, V.W., 2020. Embracing the role of finance in sustainability for
SMEs. International Journal of Economics and Finance. 12(2). pp.453-468.
Mäkelä, H., 2021. Roles of Accounting for the Contested Terrain of Social Enterprises. Social
and Environmental Accountability Journal. pp.1-22.
Rikhardsson, P. and Yigitbasioglu, O., 2018. Business intelligence & analytics in management
accounting research: Status and future focus. International Journal of Accounting
Information Systems. 29. pp.37-58.
Ugoani, J., 2020. Accounting Function as Management Performance Tool in
Organizations. Business, Management and Economics Research. 6(6). pp.67-74.
Online
How to Analyze and Improve Debtors Turnover Ratio / Collection Period?. 2021. Online.
Available through: <https://efinancemanagement.com/financial-analysis/how-to-analyze-
and-improve-debtors-turnover-ratio-collection-period>.
The Role of Accounting & Finance in Business Management. 2021. [Online]. Available through:
<https://smallbusiness.chron.com/role-accounting-finance-business-management-
65620.html>.
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