Importance of Accounting and Finance in Financial Decision Making

This report discusses the importance of accounting and finance in financial decision making, with a focus on SKANSKA PLC. It examines the functions, duties, and roles of accounting and finance in the company. Additionally, it provides a detailed evaluation and analysis of the financial statements and facts of SKANSKA PLC.

Financial decision
making

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Critical examination of the importance that functions, duties, and roles of accounting and
finance possess with context to the above firm...........................................................................1
TASK2.............................................................................................................................................3
Detailed evaluation and analysis of the financial statement of the firm and its facts and figures
and interpretation of various aspects that are closely related with the company.........................3
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Financial decision making is one of the most essential as well as critical aspect as it is related
with finances of a company which carries a lot of importance in the current market situation (Al
Ahbabi and Nobanee, 2019). These decisions must be taken after a detailed research, analysis,
and evaluation of all the factors that affects the working of the organisation in both positive and
negative way. SKANSKA PLC is an organisation that is established and started in the year 1984
and is situated in the UK and deals in a business of construction engineering and because of its
vast size and the nature of its operation it has captured a larger part of the market and enjoys a
loyal customer base. This report covers various aspects of accounting and finance of the above
mentioned firm that is its functions, duties, and roles with necessary and appropriate examples.
Apart from this a detailed analysis and evaluation of the facts and figures of the firm are also
elaborated in this report.
TASK 1
Critical examination of the importance that functions, duties, and roles of accounting and finance
possess with context to the above firm
A business needs its entire department to work in a systematic as well as in a synchronising
manner so that it can help it to achieve and accomplish its goals and objectives that are made at
the starting of the firm. All the areas are equally important from the firm’s point of view but
accounting and finance are much more essential as well as crucial as compared to other aspects
of the organisation so it becomes a requirement to analyse as well as evaluate all its factors in
detail. An elaborated explanation of the importance of functions, duties, and roles of accounting
are finance are done in a systematic manner below with reference to the firm that is SKANSKA
PLC-
Accounting- Accounting is said to be the backbone of the firm as it helps it to achieve the
targets that it desired to accomplish and that too within a limited period of time and hence it is
considered as the foremost as well as important area of business without which it cannot perform
effectively and efficiently (Wadesango and Ncube, 2020). There are various functions, roles, as
well as duties that it performs and it possess a lot of value and importance and all of them are
explained in detail below-

 Functions- There are many functions that accounting performs but there are mainly four
functions that are most commonly used and are old, tried, and tested functions which are
formation of planning, preparation of budget, control of financial policy, cost control, etc.
and all of the above does various things that are important for each and every firm that is
operating in the market irrespective of the industry in which they are working.
Importance of it is that it helps in future planning with the help of budgets that are
prepared in it so that it can foresee the future so that necessary as well as appropriate
actions could be taken in the business that would add to the value of the firm. Apart from
this it also helps in identification of frauds and errors in the business and as a result it
subsequently reduces the cost that is incurred by the company and thus it further helps in
increasing profits and all these aspects proved beneficial for SKANSKA PLC in
improving its value in the market many times (Antonietti, Borsetto and Iannello, 2016).
 Duties- There are various duties in it and the most important ones are analysing accounts
and preparing final statements for the company so that it can take appropriate decisions
with the help of it so that it can add value to the firm in the long run. Apart from this
compiling various paper so that lead to improvement in the business and possess a lot of
importance in the current market situation like it helps the business to grow and prosper
by correctly evaluating all the aspects that are related with the firm. SKANSKA PLC is
also knows its importance and it does and takes necessary measure so that it can become
an advantage to the firm so that it can stand ahead of all its competitors that are
prevailing in the similar market conditions.
 Roles- There are many roles but five roles are most important which are accounts
receivables and payable, payroll, financial control and reporting and all of these possess a
lot of importance for each and every industry. Importance of its is that it helps in
determining the above discussed thing in an accurate as well as precise manner so that it
can prove beneficial for the company in increasing its sales and then profitability.
SKANSKA PLC also does the same things as it understands its importance very well and
thus it has proved very critical for the business too (Blue, 2017).
Finance- It is one of the most important as well as essential part of each and every firm as it
is related with funds which is the core of every business and thus it carriers a lot of value in the
industry and for firms too in the market (Vermeer, Boksem and Sanfey, 2020). As it is an

important part for every firm thus below is the importance of its functions, duties, and roles
discussed in an elaborated manner with reference to the company that is SKANSKA PLC-
 Functions- There are a number of finance functions that are prevailing in the market
currently but out of them six are the most important ones that are most commonly used
by almost every firm which are financial planning and control both budgetary as well as
non-budgetary, cash inflow and outflows forecasting, raising and allocation of funds in
the market, and its effective use. It is very important in analysing and determining all the
aspects that are very much critical for the company SKANSKA PLC as it has proved
very useful and beneficial at the same time as it has increased and improved its growth as
well as profitability many folds as compared to its rivals in the similar industry.
 Duties- A numbers of duties are there in it and all of them are mostly related and
concerned with the allocation of the funds so that the available resources can be used in
the best of their capability. Its importance also can’t be ignored as it helped the firm that
is SKANSKA PLC in achieving its target of proper allocation and cash flows of the
resources which as a result helped it to decrease its cost per unit and thus subsequently
increasing profits of the organisation (Caruana and Farrugia, 2018).
 Roles- There are a number of roles that it has to perform in the current market situation
as it is one of the most important aspect for each and very firm that is operating in the
market like assisting accounts department so that all the information can be reported in an
accurate as well as precise and correct manner which would further be useful for the
company in the long run. SKANSKA PLC is also used it in an effective manner and thus
it has proved very important for the firm as it helped in determining role of every
individual so that the business can achieve its target and that too within a limited period
of time.
TASK2
Detailed evaluation and analysis of the financial statement of the firm and its facts and figures
and interpretation of various aspects that are closely related with the company
Financial statement is one of the most crucial as well as critical aspect for each and every
firm as it helps in determining the most important aspects that is finance of the business and each
and every organisation must give attention to all its factors as it has the ability as well as

capability to make business grow and prosper in the long run. But if it is not analysed in an
appropriate manner it can prove dangerous and risky for the company (Malekinejad, 2016).
Below is all the calculations done for the organisation that is SKANSKA PLC by using
appropriate as well as necessary measures-
 Return on capital employed- It is a ratio that helps in determining the earnings that
a firm is generating with reference to the capital that has been invested in the
business. It is preferable if a company have 15 percent return on capital employed
and above it is said to be very good and below is considered as not good and it is
done for SKANSKA PLC below-
Particulars 2018 2019
EBIT 1125 1650
Capital employed 3825 5850
ROCE= EBIT/ Capital
employed*100 29.41176 28.20513
From the above it can be clearly seen that the firm is doing exceptionally well in this aspect
as in the year its return on capital employed was around 29 percent while in the next year it was
around 28 percent. Though it has decreased a bit in 2019 as compared to the previous year still it
is much better placed than any of its other competitor and there can be many reasons for it like
increase in capital invested by the owners and earnings and its subsequent effect is that the firm
has managed to increase its value in the market (Eimer and Garkaz, 2018).
 Net profit margin- It is one of the most important aspect as it helps in determining
the profit on the basis of sales of a particular firm and it proves very helpful in
analysing various factors that impacts the working of the firm. A net profit margin
of 10 percent is considered to be perfect for a company while above that is
considered to be excellent and below that is considered to be not that good for a
business. It also acts as a tool of determining the performance level so that necessary
and appropriate measure can be taken if it does not stand up to the expectations of
the management.
Particulars 2018 2019
Net profit 600 675
Sales 4800 6000

Net profit margin= Net
profit/Sales*100
12.5 11.25
As it can be seen from the above calculations that SKANSKA PLC is performing at an
excellent rate and has managed to keep its net profit margin 12.5 percent in the year 2018,
though in the next year that is 2019 net profit margin dropped a bit to 11.25 percent but still the
company is well above of its competitors and is performing in an appropriate manner in the
industry. There are many reasons of decrease in net profit margin and the foremost of them is
that, though the sales of the firm has increased from a good amount but its net profit margin does
not increase rather it dropped below and it can be due to increase cost that is incurred by the
firm. The effect of this decrease will be that there would be a subsequent decrease in the value of
the firm in the market and it can lose its market position too if the situation worsens as the time
passes (Gao, 2016).
 Current ratio- This ratio is one of the simplest ratio to calculate but at the same time
it possess a lot of value too in each and every industry and thus it has to be
calculated in that way only otherwise it can damage and disrupt the image and
market value of the company but at the same time if it is used in a correct and
precise manner it can prove very beneficial in adding the value to the firm. The
ideal ratio of it is two times that is current ratio of a firm must be twice than that of
its current liabilities which means that the company is well capable of paying off its
liabilities. It measures short term paying capacity of the business and thus it is very
essential as well as important for every company and below is the calculation of the
same done for the firm SKANSKA PLC-
Particulars 2018 2019
Current assets 1515 2070
Current liabilities 645 2220
Current ratio= Current
assets/ Current liabilities
2.348837 0.932432
It can be seen from the above that the firm performed greatly in the year 2018 as its current
ratio was above two times which is considered to be very good but in the next year that is of
2019 the company performed poorly and this ratio came down to below 1 which indicates that
the firm’s short term paying capacity is under stress and it is not able to pay off its liabilities well

within time. the reason for this decrease is that, though current assets of the organisation
increased with a good amount but current liabilities also rose and that too with a huge margin
and that made the difference that bigger. The major effect of this will be that there will be
increase risk on the company as its paying capacity is reduced by a noticeable difference as well
as new shareholders would not be interested in investing in such a firm and thus its position in
the market will decrease by a good amount (Goldstein, 2017).
 Debtor’s collection period- It is the most essential as well as crucial aspect as it helps
sin determining the amount of a particular company is struck in the market. It
reflects the time period that is taken by companies to recover its dues from the
debtors and it is preferable at lower side because if the money or the amount is
recovered quickly it can be further reinvested in the business cycle or at some other
place that would fetch a much higher rate of return for the company (Kautsar and
Asandimitra, 2019). But if it is higher which indicates that the funds of the firm are
with the debtors for a longer period of time and thus generated no returns and
subsequently resulting in losses for the firm. Below is the calculation of debtor
collection period done for the firm SKANSKA PLC-
Particulars 2018 2019
Average debtors 900 1200
Credit sales 4800 6000
Debtor collection period=
Average debtors/ Credit
sales*365
68.4375 73
As it can be seen from the above that the firm is performing horribly in this regard as it is
recovering its dues from its debtors on an average of approximately 68 days in the year 2018
while it rose to 73 days is the next subsequent year that is 2019. There are many reasons for this
poor performance of the company and the foremost one is that the sales of the organisation is
increased in 2019 as compared to 2018 and debtors also rose with a good margin which made the
difference. The major effect of this on the firm is that it will lead to slowness in the business
cycle and other areas which will further result in decreased value of the company in the industry
in which it operates and thus it is not a good sign as it can damage the operations of the business
adversely (Huang, Yang and Tu, 2020).

 Creditor’s payment period- It is a ratio that is very important from the firm’s point
of view as it helps in determining the number of days amount of creditors was with
the company. It is preferable at higher side which means that the fund is in the
business for a longer period of time and that can be invested and further reinvested
at various places that can give a higher return to the company which will
subsequently increase and improve its overall working (Jung, Glaser and Köpplin,
2019). While if it is low which indicates that the amount is not with the firm till long
and thus it cannot fetch a good return due to this. Below is the calculation of this
aspect done for the firm SKANSKA PLC-
Particulars 2018 2019
Average creditor 570 2100
Credit purchases 2700 4800
Creditor payment period=
Average creditor/ Credit
purchases*365
77.05556 159.6875
From the above calculations it can be seen that the firm is performing a commendable job in
this aspect as its creditor payment period was around 77 days in 2018 while it rose drastically to
around 160 days in the next year which was 2019. There are many reasons for its change but the
most important one is that there is increase in credit purchase and as a result creditors also rose
up to a certain level and thus all these factors impacted it in a positive way. There are many
effects of increase in creditor payment period on the firm as it increased its market value in the
industry as well as there is a subsequent improvement in the operations of the organisation which
is one of the most impactful effect of this ratio on the working of the firm (Jones and Knaack,
2019).
CONCLUSION
Financial decision making is a very important aspect and all the firms have to take it in an
appropriate and precise manner so that it can add to the market value of the company and that too
in the long run. From the above it can be concluded that the firm SKANSKA PLC is performing
very well in the market, though there are some areas of concern for the organisation that have to
be evaluated on an immediate basis. Apart from this it can be concluded that both accounting and

finance are very important for every firm and have to be manage in that way only so that it can
prove beneficial for the firm.

REFERENCES
Books and journals
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management & sustainable financial growth. Available at SSRN 3472313.
Antonietti, A., Borsetto, A. and Iannello, P., 2016. A metacognitive approach to financial
literacy. In International handbook of financial literacy (pp. 57-68). Springer,
Singapore.
Blue, L., 2017. There are serious problems with the concept of ‘financial literacy’. The
Conversation. pp.1-3.
Caruana, J. and Farrugia, B., 2018. The use and non-use of the government financial report by
Maltese Members of Parliament. Accounting, Auditing & Accountability Journal.
Eimer, F. and Garkaz, M., 2018. Investigating the relationship between the dark triad of
personality and opportunistic decision making of financial managers in accounting.
Gao, Q., 2016. An Empirical Study for the Application of the Evidential Reasoning Rule to
Decision Making in Financial Investment.
Goldstein, D. A., 2017. Financial toxicity in cancer care—Edging toward solutions. Cancer.
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Huang, J., Yang, W. and Tu, Y., 2020. Financing mode decision in a supply chain with financial
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Jung, D., Glaser, F. and Köpplin, W., 2019. Robo-advisory: Opportunities and risks for the
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Springer, Cham.
Kautsar, A. and Asandimitra, N., 2019. Financial Knowledge as Youth Preneur Success Factor.
Journal of Social and Development Sciences. 10(2 (S)). pp.26-32.
Malekinejad, R., 2016. The effectiveness of financial statements in management decision
making. International Journal of Accounting Research. 42(3495). pp.1-5.
Vermeer, A. B. L., Boksem, M. A. and Sanfey, A. G., 2020. Third-party decision-making under
risk as a function of prior gains and losses. Journal of Economic Psychology. 77.
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Wadesango, N. and Ncube, C., 2020. Impact of quality of financial reporting on decision-making
in state universities in Zimbabwe. Journal of Nation-building & Policy Studies. 4(1).
pp.97-119.