BM414 - Financial Decision Making: SKANSKA PLC Analysis Report

This report provides a comprehensive analysis of financial decision-making, emphasizing the importance of accounting and finance functions within an organization. It uses SKANSKA PLC, a UK-based building contractor, as a case study to illustrate these concepts. The report discusses the roles and duties of accounting and finance departments, including systematic record-keeping, financial statement preparation, performance assessment, and aiding in decision-making. It also covers key finance functions such as asset management, profit allocation, and cash flow control. Furthermore, the report includes a detailed financial analysis of SKANSKA PLC, calculating various financial statements and ratios for 2018 and 2019, and providing commentary on the company's performance and financial position over these two years, including return on capital employed, net profit margin, creditor’s payment period, current ratio, and debtors collection period.

Financial Decision
Making

Contents
INTRODUCTION...........................................................................................................................................3
TASK 1..........................................................................................................................................................3
Discussing the importance of Accounting and Finance functions and duties and roles in organisation..3
TASK 2..........................................................................................................................................................7
Part a. Calculating the financial statements and ratios of the company..................................................7
b. Comments on the performance of SKANSA PLC and position between two years..............................9
CONCLUSION.............................................................................................................................................12
REFERENCES..............................................................................................................................................13

INTRODUCTION
Every company is dependent on its ability to make decisions. In general, companies develop
practices to help financial choices based on a set of targets and strategies. Educated judgments
propel a business forward, and it is up to the financial management to choose how to build a
plan, well how implement a set of tactics, and how much achievement will be achieved. Good
financial decisions assist the company in successfully generating profit; if the decision is correct,
the firm will be profitable at a certain period; nevertheless, bad financial judgments may result in
market loss (Mishra and Mishra, 2021). This report based on the SKANSKAPLC is a UK-based
building contractor. SKANSKA PLC was founded in 1984. In the following ten (10) years, the
firm intends to increase its activities to additional European nations. This report discusses
Skanska plc and how their financial condition aids them in developing policy guidelines, and
also how consumer loans contribute in staff procedures. This study will also explore how
funding instruments in a sector help to the establishment of brief & medium judgments, as
financial assistance aids businesses in identifying variables that are able to intensify revenues
and build a strong existing customers.
TASK 1
Discussing the importance of Accounting and Finance functions and duties and roles in
organisation
Accounting department is the discipline of capturing, summarizing, analyzing, and
analyzing monetary operations. Accountancy is responsible for preparing financial statements
that show the financial power under senior management authority in money units, as well as
choosing and accurately portraying relevant data. Accountancy is a data analysis tool used to
monitor company operations, creates statistics, and distributes them to managers.
For this role, SKANSKA PLC's management control established finance and accounting
team, which helps to regulate the company's team efficiency. The importance of an accounting
section of the company is determined by the size of the company. This part aids in the
accounting of the firm’s operational digital currencies as well as the creation of many elements
that support in the examination of the organization's different digital currencies. In Skanska Plc's

case, this assists in the growth of effectiveness by analyzing multiple accounting-related
scenarios.
Importance of accounting
 Systematic records: In the accounting records, all money transfers of an organisation are
documented in a methodical manner. Reports are generated once the information are
categorized along general headings.
 Preparation of financial statements: Accounting may be used to analyze the data obtained
of operational processes and the financial condition of a company by analyzing financial
reports such as a net income, a statement of cash flow, and a capital structure on a regular
basis. This aids in the redistribution of earnings to the company's shareholders as well as
the provision of cash for potential development (Woo, Kwon and Yuen, 2021).
 Assessment of progress: Financial information may be analyzed and interpreted to track
performance achieved in many categories as well as to take corrective measures.
Managers are given a full view of the company's finances, competitiveness, and stability.
 Aids to decision making: When performing its duties, a company's management must
make regular and wise moves. Accounting gives the necessary information to make
informed decisions. Accordance with the accounting data supplied, administration may
design upcoming plans and practices.
Role
 Helps set budgets: A financial plan should consist of anything more than a listing of
anticipated revenue and costs. A complete master budget begins with income and
expenditure predictions and then generates several statistics to aid with operations.
Financial statements, for instance, indicate when revenue comes instead to when it is
created. This keeps it from running out of money when they have expenses to pay. Rather
of utilizing predictions, a flexible budget connects their spending to their income. This
allows them to invest simply everything they have instead of the amount they predicted
would have (Malik and et.al, 2021).
 Analyzes costs: Accounting control aids in determine what it expenses to produce and
sell a commodity in such a manner that it is possible to observe how varied overall sales

impact profitability. The very first step is to remove their expenditures into two
categories: administration and productivity. Whenever companies sell similar products
again and again, the manufacturing costs may be pretty consistent. When companies sells
more units, their fixed costs, these included things like insuring, promotion, electricity,
and building rental, should fall per unit, permitting them to cut their pricing and grow
their quantity and market dominance.
 Finds trends: They may not realize they are not optimizing their earnings when they
merely look at their selling totals and can see they're rising. A financial manager or
management will break it down their revenues by profitability to see whether they should
remove one or maybe more goods that aren't profitable, or whether they can increase
costs and increase profitability. Whenever sales are stable or increasing but profitability
is falling, accountant’s employees will investigate if overhead or manufacturing expenses
are the root of the issue (Goswami and et.al, 2021).
Function
 Making payments: Assuring that the firm pays all invoices on time and for the lowest
feasible price. When a reduction is offered for making payments promptly, the accounts
team will generally pay the rent as order to make sure that the firm pays such little cash
as feasible. Workers are in charge of all outbound transactions and ensuring that they will
be spending the proper amount.
 Payroll: The accounting department is responsible for ensuring that all payments are
made as well as on schedule. They must also ensure that all workers are spending the
correct amount of tax because no errors with tax rates or federal subsidies have been
made on their account (Andrade and et.al, 2021).
 Receiving payments: Contributions must also be received by the accounting department,
which must ensure that they are managed appropriately. Those are transactions for
services or goods that the firm has given, and they must guarantee that all applicable
taxes have been received. There would also be a component of tracking down funds and
ensuring that all repayments are made available.
Finance: Finance refers to the distribution of assets. Individuals may associate finance
concepts with money planning. Whenever it comes to financial fundamentals for newcomers, it

refers to the process of supplying funds for a business. The money, loans, and other kinds of
finance used to build wealth are called financial capital. Consumers primarily use their financial
centre for investing purposes. To better comprehend financial ideas, users need also increase
their understanding of different sources of payment.
Function
 Determining asset management policies: Controlling cash flows and non-monetary assets
is a problem for all financial operations. It's simple to figure out why. Finance leaders
must recognize how much money will be invested in different none (or non-liquid) assets.
It is impossible to assess and plan for required financing needs alone without knowledge.
In reality, establishing reliable and satisfactory portfolio management rules is a necessary
precondition for budget management (Cairns, 2021).
 Allocation of net profits: This refers to the company's retained earnings (savings) and
payout strategy. The majority of businesses must strike the right balance between two
options: paying dividends and keeping revenues to invest in new properties.
 Cash flow requirements and control of such flows: One of the most essential
responsibilities of the financial manager is to guarantee that cash is able to be obtained. A
firm's seamless functioning may not be feasible elsewhere. Because cash flow is
generated by profits and cash demands are directly linked to overall sales, enough money
can only be given at the appropriate moment once profit potential have been forecasted.
Importance
 Budget in forecasting: The finance department collaborates with management to produce
the firm's budgeting and projections, as well as provide input on the firm’s financial
position. This data may be utilized to meet each agency's financial demands, manage
business employment rates, and budget for asset purchases and expansions until they
become essential. In addition, the finance department may leverage historical data from
other divisions to effectively estimate and anticipate across shorter and longer time
frames (Wang, Zhan and Zhang, 2021).
 Advising and sourcing long term financing: The finance department's purpose is to guide
firms on the optimum financing mix that will generate the highest revenue and to assist

them in obtaining relatively long borrowing at the least price in order to maintain a profit
liquidity position. One of the several different ways a corporation might raise cash to
support its operations.
 Management of taxes: Taxes are a component of running a business, and the finance
department is in charge of dealing with them. This involves establishing positive business
connections with the administration by refunding PAYE (Pay As You Earn) to the
appropriate agency and guaranteeing that taxation problems are implemented in
accordance with established regulations.
Roles
 In every organizational form, the finance department's duty is to guarantee that enough
money is available for the capabilities needed to fulfill the organization's goals. The
division also guarantees that expenses are under check, that working capital is
appropriate, and all profitability standards are established and monitored. These are all
critical to the smooth operation of any business (Huang, Hu, Chen and Dai, 2021).
 One of the main responsibilities of the financial department is to find suitable accounting
transactions before passing it on to executives and judgment so how they can create well-
informed decisions that affect the firm or business. The finance section also generates
financial papers and accounting records for use by management and for monitoring.
 Updating bank documents, bill payments and costs, collecting past-due balances, overall
fund management, and paying wages and benefits are all tasks that must be completed.
However, it might be maintained that the financial department's primary responsibility is
to reveal information to the company's owners and judgments.
TASK 2
Part a. Calculating the financial statements and ratios of the company
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
Creditor’s payment period
Particulars Formula 2018 2019
Trade payable 570 2100
COGS 3450 4350
Creditors payment
period
Trade
payable/COGS*365
60 176
Current ratio
Particulars Formula 2018 2019
Current assets 1515 2070
Current liabilities 645 2220
Current ratio Current assets/Current 2.34 0.93

liabilities
Debtor’s collection period
Particulars Formula 2018 2019
Trade receivables 900 1200
Sales revenue 4800 6000
Debtors collection
period
Trade
receivables/Sales*365
68.43 73
b. Comments on the performance of SKANSA PLC and position between two years
Return on capital employed: The returns on capital employed ratio are used to calculate how
much money a firm makes from the capital it has on hand. This ratio determines how well
protracted investment is being utilized to generate profits for the company. The ratio also aids in
determining a company's chance to create steady income to pay its capital expenses. This figure
represents the revenue provided to financial managers as a proportion of the strategic and long
investment. It considers the sources of funding. It is an essential and helpful performance
indicator since it compares the amount of capital used to the amount of profit generated (Rehm,
2021).
According to the above-mentioned data, the derived conclusion for the years 2018 and
2019 is 19 and 16.66 percent, correspondingly. On this premise, it may be deduced that the firm's
performance in making revenue in order to give a return on invested capital has decreased in
comparison to the previous year. It may be deduced that the company's productivity has
decreased, and this is result of a variety of factors that must be identified by the firm before
given ample time can be done. This might have a detrimental impact on corporate operations
since investors would be adversely influenced. Investors may be unsatisfied with current
performance levels, which must be increased in order to ensure the long viability.
Debtor’s collection period: Receivables Debtors turnover ratio is another name for turnover
ratio. This shows how many times ordinary debtors have been turned into cash over the course of

this year. This is also known as the gearing ratio, and it assesses a firm's capacity to generate
income. It also aids in determining the effectiveness of a firm's profits in the most efficient
manner. For the years 2018 and 2019, the resulting result for the given ratio is 68.43 and 73 days,
respectfully. It shows an increase in the number of days it takes to collect money from
customers. It is preferable to have fewer debtors’ payment days since it implies that the company
is receiving payments more quickly (Ginting, 2021). The ACD in 2019 is higher than in 2018,
which will have a negative effect on the company. This ratio must be adjusted by a variety of
activities in order to prevent negative effects such as decreased availability, poorer revenue, and
so on. They may all be overlooked by reducing prices to consumers, promoting invested
significant, and so on, in other to get appropriate operations and achieve competitive advantage.
Frequent contact with users and staying up to current on client data can help shorten the time it
takes to recover debts.
Creditor’s collection period: An account payable turnover ratio is a metric that measures how
long it will take a company to repay a loan to borrowers. It aids the firm in comprehending the
transaction patterns and the speed with which payments are made to debtors. It's a commonly
used liquidity indicator for determining ability to repay the loan and determining whether or not
a company is having trouble paying its lenders. It must be guaranteed that a firm does not take an
excessive amount of time to pay off its debts. SKANSKA PLC's average trade payables grew
from 60 times in 2018 to 176 days in 2019. This indicates that SP is going to take longer to
ability to pay short debts. As a result, an investor should avoid the firm. For such an investment
to determine whether or not it will buy the shares, the optimal Average Payable Days is 90 days.
The trader should not engage in SKANSKA PLC since its APD has beyond 90 days. Retaining
monitoring of the corporation's economic movements might improve overall Average Payable
Days. SP's cash flow condition can be enhanced by enhancing the cash flow budget. To improve
flexibility, the firm must cut costs by selling old or unproductive assets, strengthening inventory
levels, restructuring, and so on (Yin and et.al, 2021).
Current ratio: The current ratio is a formula that determines if current operations are sufficient
to meet its debt obligations. The ratio examines the organization's capacity to service liabilities
over the following twelve months in particular. In other respects, it is a measurement of an
ability to pay short stability. It uses the actual assets and liabilities of a company. Money and

goods that can be turned into sales inside a year are considered current commodities. Borrowings
that must be paid within the next year are referred to as current liabilities.
From the analysis, it can be deduced that the current ratio of SKANSKA PLC for the
chosen time frame is 2.34 and 0.93 times, accordingly. The current ratio's conventional quality
assurance ranges from 1.2 to 1.5 times. It may be determined that it is in a downward - sloping
demand state by drawing comparisons year achievement to prior year success. The ideal ratio is
greater than the current year's result, suggesting that the corporation needs to make adjustments.
The acquired outcome may have a detrimental impact on the business's operations since
financiers, customers, and other stakeholders may see the business as untrustworthy, resulting in
a reduction in help finance ability (Adal and Tuş, 2021).
Net profit margin ratio: It's a tool for assessing selling and economy. It aids in assessing how
much of a company's revenue has been turned to profits. In 2018, Skanska plc's net earnings
grew by 13%. It is reasonable to state that the firm achieved a better income of $0.13 for every
dollar of sales profits raised in 2019, with an 11 percent net profit. In compared to the prior
quarter, the company's total revenue was decreased in 2019. Despite increasing earnings in 2019,
Skanska plc's profitability from revenues was adequate. The above underscores the company's
low core operating profit. Despite the fact that earnings were low in 2018, the revenues
generated from exchanges were exceptional and reasonable.
Difficulty of increased performance, insufficient working capacity, difficulty to pay
debts, and other factors can have a negative impact on a company. SKANSKA PLC can take a
number of steps to make changes that will have a beneficial impact on the firm. It entails
lowering costs, determining a suitable pricing, improving profit margins, growing sales volumes,
removing obstacles that hinder success, maintaining an adequate inventory level, and so on.
These specific actions might be considered when looking to improve organizational
performance. These activities can result in accounting & financial conclusions that are extremely
beneficial to SKANSKA PLC in terms of improving its high ranking (Hao and et.al, 2021).

CONCLUSION
As per the above report it has been concluded that choosing the smart choice at the right
moment will contribute to a team's operations; to do so, one must first assess the facilities
allocated and then set certain objectives. To attain such aims and goals, several tactics will be
implemented. The influence of investments on the firm and how lucrative it will be, as well as
the function of taxes, will be explored after that. Whenever it comes to producing business
strategies, except when large sums of money are implicated and the distinction between team
losing and profit is significant, financial choices are more dangerous and complicated. Even so,
there are several practices and regulations by which the probability of an investment future can
be lowered or the loss minimized.

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