Financial Decision Making

FINANCIAL DECISION
MAKING
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TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................4
TASK 1............................................................................................................................................4
Importance of accounting and finance function, duties and role within Skanska plc.................4
TASK 2............................................................................................................................................8
A) Calculation of five ration for two years..................................................................................8
B) Overall performance of Skanska Plc as per results from two years and their respective
cause, reason and effects for change in ratio.............................................................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13
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INTRODUCTION
Financial decision manager is responsible for taking all decision related to liabilities and
stockholder equity of company. Capital budgeting, capital structuring, dividend decision and
working capital management are four areas in which financial decision are taken for achievement
of end objectives. There are several internal factors that affect financial decision making such as
size of business, cost and risk involved and nature of business. This report is about Skanska Plc
that is Construction Company in United Kingdom that has started its operation in 1984.
Furthermore the company is planning to expand its business operation in other European
countries in order to earn higher profit margin. It has covered detailed related to importance of
accounting and finance function, its duties and roles with Skanska plc. Moreover, has interpret
financial ratio in terms of its causes, reason and effects for the changes in ratio between the two
years that is 2019 and 2018.
TASK 1
Importance of accounting and finance function, duties and role within Skanska plc
Accounting can be defined as the art of recording, classifying and summarising the
transactional, event related to money in well organised manner so that they can be easily
interpreted in financial terms. It plays an crucial role in running the business as it track overall
income, expenditure and ensure all statutory regulation are followed. Thus, it provide necessary
information about the company to its management, investors, government, senior executive and
many other stakeholder that are interested in growth and operation of business (Meriam, Achsani
and Novianti , 2017). Accounting and financial help in generating three financial statements
which can be stated as follows:
1. Income statement that provide crucial detailed pertaining to overall profit and loss that
company have generated during the year.
2. Balance sheet is another financial and accounting record that provides clear information
related to financial position of company on specific data as well as time.
3. Cash flow statement is the third record that is manage by account and finance that
provide necessary information pertaining to actual cash in and out flow from business
during particular year (Schotten and Morais, 2019).
There are various reasons which illustrate the importance of accounting and finance in the
company such as:
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1) Ensure statutory compliance: It can be stated that the proper maintenance of accounting
and finance is necessary because it helps in ensuring that all legal regulation, laws are
implemented as well as abided by the company. The law vary from state to state and
country to country but systematic accounting process and system contribute in complying
to all legal laws and effective operation of business (Fischer-Pauzenberger and
Schwaiger, 2018). Therefore, the accounting and financial function of Skanska plc to
ensure that all liabilities such as VAT, pension fund, income tax and sales tax are
appropriately addressed.
2) Helps in creating budget and future projection: The another importance of
maintaining accounting and financial for Skanska plc is that it contribute in creating
effective budget as well as future projection. Likewise the manager of company generally
takes decision related to future strategies on the basis of historical financial data and
information for effective operation of business in external environment (Wilkerson and
Bassani, 2020). Well structured accounting and financial process and system maintained
by Skanska plc manager has helped it in making the appropriate budget of the company
and planning future project. So that it can easily grow and succeed in future
circumstances for longer time frame.
3) Help in filling the financial statement: This is also one of the importance of accounting
and finance of Skanska plc as business required to fill their financial statement with
registrar of companies. Moreover, it need to list entities in order to file with stock
exchange, direct and indirect tax filling purposes. Therefore it can be interpreted that
accounting and financial management play an important role in filling financial statement
for smooth operation of business in external environment or construction industry of
United Kingdom.
4) Facilitate decision making: It is also analysed that accounting and finance facilitate
effective decision making as manager of Skanska plc by knowing the financial
information is able to take right decision at right time. For example: the management of
company can make use of financial information to take decision related to geographical
expansion of business or improving its efficiency for better results.
5) Helps in effective communication with stakeholders: The accounting and financial
records are best way to communicate crucial information of company to all interested
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