Importance of Accounting and Financial Function in Skanska PLC

This report discusses the significance, duties, and roles of the accounting and finance section in Skanska PLC. It also evaluates the financial position of Skanska by applying the technique of accounting ratios. The report covers two tasks, the first task analyses the importance of the accounting and finance section, and the second task evaluates the financial position of Skanska using accounting ratios.

Financial Decision
Making

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK 1............................................................................................................................................3
Analyse the significance, duties in addition to the roles of the accounting function in context
with SKANSKA PLC.............................................................................................................3
TASK 2............................................................................................................................................6
Evaluate the performance of the firm by using accounting ratios.........................................6
CONCLUSION .............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Financial statements can be defined as the group of various reports but out of all of them ,
the three reports are very important – the income statement, the balance sheet and the statement
of cash flows. The aim of these statements is to examine the financial position of the firm with
the help of various analytical techniques. These all activities are executed and controlled by the
accounting and finance section of the company(Holtkemper, 2020). This department holds the
responsibility of managing the movement of cash in the business. The company chosen in this
report is Skanska plc. It is a UK based construction company. The company was started in the
year 1984 and has handled many projects at big level. Two tasks are covered in this report. The
first task of the report analysis the importance, roles and duties of the accounting and finance
section of the company and the second part evaluates the financial position of Skanska by
applying the technique of accounting ratios.
TASK 1
Analyse the significance, duties in addition to the roles of the accounting function in context with
SKANSKA PLC.
The section of the administration of Skanska which is responsible for maintaining the
ledger books and preparing the financial statements of the business is regarded as the accounting
and finance department of the firm. They are responsible for collecting all the proofs before
recording any transaction in the books of the finance. This department of the company provides
the value added services to Skanska by preparing budgets and comparing them with the actual
results, by giving suggestions to reduce the cost of the products etc. Absence of or inefficiency in
this department can lead a company to the losses. So, it is very important, especially for the large
companies to have a separate and efficient accounting department in the firm (Lu, Yeh and
Huang 2018).
Importance of accounting and finance section to Skanska
 For recording all the transactions properly- The accounting and finance accounting
department of Skanska is responsible for recording all the financial transactions of the
company. This includes all the transactions related to cash and credit sale and purchase,
any kind of income and expenses and all sorts of investments made by the company and
in the firm. They are also responsible for collecting all types of bills, notes or any

supporting proof for recording the transactions in the books. Absence of these proofs can
create a problem for Skanska at the time of auditing because the officials demand a
supporting document for all transactions. Otherwise, they can also put penalty of absence
of proof on the firm. It also helps prevents the business from taking any wrong advantage
of the company . For example, Skanska made a cash payment of £1 million to its creditor
ABC Ltd. After one year the debtor denied the occurrence of the transaction and asked
the firm to make payment. The account of Skanska have the habit of taking receipts from
the parties while making any payment. But the same practice was not exercised in the
ABC Ltd. The former showed the signed receipt to the creditor and proved the later
wrong.
 For ensuring the efficient use of resources- The accounting department of Skanska
ensures that the monetary resources of the company are being used judiciously and
efficiently (Wang, 2021). They examines all the expenses incurred by the firm from time
to time and tries to recognise the wastage of resources in it along with finding measures
to control them. The finance department of the company analysis the various investment
opportunities and suggest the management in taking various in vestment and
disinvestment decisions.
 For taking various accounting decisions- It is very important for Skanska to take
various financial decisions by discussing it with the finance department of the firm. They
assist the company in ascertaining the value of the assets and determined the time of
replacement of variable machines. Accounting section helps the business in assessing the
financial position of various businesses and helps in deciding about the acquisition and
merger deals.
Financial Roles
 Prepares Budget- It is the obligation of the accounts department of Skanska to prepare
a budget for the company (Bavoso, 2018). Skanska is a construction company and it has
to prepare budget for filling tenders to acquire big level projects. They also prepare
budget for the daily operations, acquisition and disposing off the asset. The accounting
department of the firm compares the actual results of the project with that of the budgeted
results and tries to find out the reasons for the difference. They make sure that while

preparing it, the employees of the section has to keep in mind that they analyse the
expected impact of the changes in the value of currency and inflation rate.
 Ensures the security of the accounts- The accounts department of the company is
responsible for ensuring the security of the accounts of Skanska. They prevents the
whole data from any kind of misrepresentation, hacking, theft or fraud. If someone
hacked the password, then that person would have access to the whole data of the
company and can misuse it against the company by altering the information or deleting it
(Ahlin and Sen, 2020). The thieves can even sell the knowledge of the accounts to the
competitors which will pull Skanska back in the competition. The accounting department
of the firm do not give access of the accounts to any person who is not concerned with it.
For instance, an accountant of Skanska disclosed the confidential data of a budget of the
tender to be acquired to its friend who was working in competitor firm. The person
disclosed the information to its organisation and they took the advantage of the
information and prepared a plan of the project by using it. At the time of results, Skanska
got disqualified for the tender as the authorities thought that there budget was copied with
that of the competitor firm.
 Making financial statements- It is the duty of the finance unit of Skanska to prepare
various financial statements from the raw data provided to them. They record all the
transactions properly and make sure that all the rules and regulations have been
considered while recording them. They prepare various budget reports, capital
improvement program, annual financial reports and various other reports (Ramsay and
Webster, 2019). The department is also responsible for preparing reports for the
management team and the board of directors in relation to the performance of the
company annually, half yearly and quarterly.
Duties
 Prevents from committing any fraud- It is the responsibility of accounting department
of Skanska to prevent the firm from any type of financial fraud with and by the
company. They ensure that all the employees of the accounting unit are performing their
duties efficiently and with loyalty. There is no case of misrepresentation, hiding or
stealing of the information in this department. Accounts records all the transactions
according to the rules and regulations governing them. They keep themselves updated

about the changes occurring in the taxation laws and implement them accurately in the
system of the firm. Suppose, the government announced at the beginning of the year that
a particular type of charity is not permissible to be claimed as deduction under tax. The
accountant of Skanska ignored it and showed it as deduction at the end of the year. The
taxation department found the firm guilty and imposed penalty on them.
 Analysis the various financial statements- Making of final accounts is not worthy if it
not been analysed by the expert person. The accounting department of Skanska performs
this duty. They use various analytical tools to examine the financial statements through
which company and various stakeholders evaluate the performance and position of the
business in the market (Sacarin, 2017). Ratio analysis, cash and fund flow analysis,
common size and comparative statements are some of the tools used by them. This
analysis cannot be performed by any other person and requires some expert person. So, in
the absence of accounting department, a firm will not be able to ascertain its position.
 Creating long term financial plans- The accounting department of Skanska assists the
firm in creating long term plans which are beneficial for the company. These plans can be
related to acquisition and disposal of the asset, finding the most suitable investment
opportunity and preparing the budget. At the time of buying any asset, they compare all
the substitutes of the product, their life time period, manpower engagement, space
required, maintenance cost, depreciation etc. While selecting any investment scheme, the
position and trend of various companies is assessed by the department.
TASK 2
Evaluate the performance of the firm by using accounting ratios
These are the analytical tool used by the industries for interpreting the financial position
of the company. These ratios are calculated by comparing the various figures of the statements
and creating links among them (Mita and et.al., 2018). It helps in determining the position of
the firm in comparison to the previous year or with some other firm of same field. The new
management and product plan or any changes in the procedure of the operations are determined
on the basis of the results obtained from the evaluation of this technique. The financial
statements of Skanska has been analysed by using the tool of accounting ratios to generate the
information about its performance from the point of view of an investor with £1 million.

 Return on capital employed – It is a financial ratio that helps in ascertaining the
capability of the firm in using its capital for generating profit. This ratio is very much
useful for the various stakeholders for making investment. Generally, a percentage of 20
is regarded as efficient (Lugovskу and Kuter, 2019).
Return on the capital employed of Skanska was good in year 2018 but it
decreased in year 2019 by 3% which depicts that the company is not performing to the level of
its known capabilities. The corporation has increased its amount of loan by 1.5 million pounds
even then its profits are decreasing. Though the expense of the organisation has increased in the
form of interest on loan but still the implication of these funds should be aimed at increasing the
profitability of the business. The firm either did not required this loan or was unable to make
proper use of it. Decrease in this ratio will reduce the interests of the investors which will further
impact the value of its shares in the market.
 Net profit margin – It depicts the percentage of profit earned by the firm from the sales.
This ratio ascertains the efficiency of the company in converting its sales into profits
(Mastrosimone, 2017). It is used by the investors, creditors and the firm in creating
knowledge about the profitability and monetary health of the company. Usually, 10% net
profit margin is considered good for the business.

Skanska is performing good with a profit more than 10 %, but it is clearly visible that its
profits has decreased in year 2019 with comparison to previous year. The amount of sales has
increased but even them profitability margin of the firm is decreasing. Company's gross profit
has increased with respect to the sales but its net profit is not increasing accordingly. One reason
for this can be the amount of interest it requires to pay for the loan. Falling ratio can have a
negative impact on the minds of the investors which will hamper the reputation of the firm. It can
also lead to decrease in the value of the shares and job insecurity in the minds of the employees.
 Current Ratio – It is a liquidity ratio which helps in analysing that whether the firm is
able to pay off its short term creditors with the help of its current assets. In short, this
ratio assists the company in knowing its liquidity position (Lai, 2020). This ratio varies
from the industry to industry on the basis of their daily cash requirement but generally the
ratio of 2 : 1 is considered good.

The liquidity position of Skanska is not very good. In the year 2018, the company was
performing well with the ratio of 2.35 : 1. But a sudden fall is viewed in this ratio. After 2019,
the firm is not even able to pay off its current liabilities showing a poor sign. Skanska is a con
construction company and requires cash on daily basis for making regular payments to the
labourers. Insufficiency of cash will create hindrance in the operations of the business as the
workers can stop their work and the creditors will also resist in giving credit facility to them.
This will also create a negative impact on the minds of the investors.
 Average Receivable days – It helps in determining the time taken by the debtors to make
the payment of the organisation. The time duration taken by the firm also helps in
ascertaining the liquidity condition of the firm and the extent of advantage the business
can take by investing the money received from the debtors (Barth, Israeli and Sridharan.
2021). But this ratio alone cannot justify anything, it requires the support of creditors
payment period for interpreting any result.
The Debtors collection period of Skanska is showing a n increasing trend which is not a
good sign. Now, the debtors of the firm takes 5 extra days for making their payments which
means that the access of money for the firm has decreased. But the interpretation this data cannot
be done alone, it needs to be compared with the payable days of the firm.
 Average Payable days – It measures the number of days the firm takes to make payment
to its creditors. The high ratio depicts that the firm hold the money with itself for long
time period to take advantage of that cash. But lower ratio depicts that the business is
able to meet its monetary obligations in short time. This ratio also cannot exist alone, it
requires debtors collection period for its analysis.

The creditors collection period of Skanska is showing an increasing trend with a
multiplication of around 3 times. This simply means that now that company can hold its money
and invest it in other things for around 6 months. Though it can be interpreted by some persons
that the firm is not able to repay its debts in short span but from the point view of an investor, it
is a good ratio. It will enhance the reputation of the company in their minds and the investors
will show trust in the business which will also leverage its market share.
Performance of Skanska with a point view of an investor with £1 million.
When looking from the point of view of an investor, the position of Skanska is not very
good. It is showing a downfall trend in almost all the ratios which is not a good sign of
profitability. The return on capital employed and profitability ratio of the firm is decreasing.
Also, the liquidity condition of the firm is not good enough. The company needs to pay off its
debts in a period of 6 months. But still it does not hold enough money to prove its liquidity. The
organisation was performing good in year 2018 but it deteriorated in the subsequent year. It can
be said that the losses faced by the company are due to increase in the amount of interest on loan
and the business has not yet experienced the positive impact of this loan which can come in
future. So , it is recommended that the investor should wait for making investment for at least
half year and then again analyse the performance of the company. The decision of investment
should be done on the basis of that analysis.
CONCLUSION
It can be concluded from the above report that it is very important for any business for
having a separate accounting and finance department in the company. They are one of the most

important pillar of the firm which helps it in managing its cash and accounting obligations. These
persons holds the expert knowledge of the accounting and tax related terms which helps the firm
in complying with all the finance related laws, rules and regulations. They also examine the
performance of the company with the help of various strategic tools like ratios. On the basis of
these ratios, it is concluded that the financial condition of Skanska is falling and it needs to think
about it.

REFERENCES
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