Financial Decision Making: Evaluating the Importance of Accounting and Finance in SKANSKA Plc

This project evaluates the importance of accounting and finance in SKANSKA Plc, a construction company based in the UK. It explains the structure of financial statements and the roles and duties of accounting and finance functions. The project also reviews the financial performance of SKANSKA Plc with the help of financial ratios. The financial ratios include return on capital employed, net profit margin, current ratio, accounts receivable days, and accounts payable days.

FINANCIAL DECISION
MAKING

TABLE OF CONTENTS
INTRODUCTION ..........................................................................................................................3
TASK 1............................................................................................................................................3
Evaluating the Importance of accounting and finance ................................................................3
TASK 2............................................................................................................................................7
Calculation the financial ratios....................................................................................................7
Reviewing financial performance of SKANSKA Plc..................................................................8
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Financial decision-making is the process of understanding the pros and cons which are
related to the decision-making of the company for the use of money. In this project the chosen
organization is SKANSKA Plc which is construction company based in UK. This project will
explain the structure of the financial statements while critically evaluating the importance of the
accounting and finance functions, duties and roles within this organization. This project will use
some examples from this organization to complete the project. In this project the financial
statements of the organization is also going to be used for the calculation of the ratios that will
help in commenting the performance of company for the investors.
TASK 1
Evaluating the Importance of accounting and finance
Accounting and finance of the company plays a vital role in the business management.
The major purpose of managing accounting is to know about financial performance of the
company. If the company's finance is stable then it can directly impact the business operation in
positive way. In addition to this, finance and accounting is a very important for business as it
keeps record the financial transactions. With the help of accounting and finance the owners of
the company can evaluate the financial position and health of the firm. For example- to be
successful, the managers of the company focus on controlling money. According to Akbulaev,
Mammadov and Shahbazli (2021), all the business operate on financial resources and if the firm
don't control that amount of money then they can run business smoothly.
 Recording transactions- With the support of finance and accounting books, the
company can easily understand the cash flow like what comes in, what goes out. With the
help of finance the company is able to track on their expenditure which helps them to stay
very organized while making decisions. They are able to make proper budgeting,
anticipate sales and revenues and make proper decisions about how to manage business
transactions.

 Filing taxes- By going through the financial records of the business, the owners and
management team of the company can see what good it did and where the cash went, on
the basis of that they make informed decisions (Han and et.al., 2018).. It is essential for
the firm to comply with laws and rules related to it. They must focus on regulations in
order to avoid any legal issues which can harm business operations in the future.
 An accountant and finance manager helps the firm to maintain expenses and income and
also keep record on the money flow to make strategic business decisions. Not only this,
finance and accounting of SKANSKA plc can develop the business strategy which helps
them to earn more profit. For example- business strategy such as setting financial goals,
keep monitoring loss and profit reports, keeping records of cash expenditure with the
team members will help them achieve success (how are accountants playing a role in
business strategy, 2022).
 Analysing financial performance- Keeping the accounting books in a proper manner,
can help the business to know about whether they can pay bills on time or not. It helps
the firm to keep analysing performance of business by referring to their previous
performance. By doing, so they can understand the current business condition and make
necessary adjustments.
 Comparison of financial reports- the accounting department of the company helps the
business to know about the success and progress of the firm. By doing comparison the
firm is able to know about the financial position with other firm (Han and et.al., 2018).
This can allow the company to evaluate and monitor their progress compared to their
competitors. From this, SKANSKA plc can improve their areas which they are lacking
behind. By doing so, the firm is able to discover investment opportunities and grasp it
immediately for the success of business. In order to take action the financial department
can make proper reporting of cash inflows and outflows. For this they must work in
harmony with other people in the organization so that they can centralize important
financial information. Less stress- Also, they can understand whether they can pay salaries and wages to
workers and employees. If the company know about their capacity then they can make
run business less stressful which is beneficial for both employees and company's
performance.

Accounting and finance department work together to handle the records of financial
transactions. All the important person in the company such as investors, managers, leaders and
creditors performance is depended on the financials of the firm. They all are depended on the
accurate information of accounting which helps them to make informed and important decisions.
By managing all the financial records, the finance and accounting managers can direct the
course of the business which helps them to achieve progress in their department.
Functions of accounting and finance
The major function of accounting and finance is to summarize, storing financial
information, systematic tracking on business transactions and keep records of financial
transaction from which company can make important decisions (Conley, Gonçalves and Hansen,
2018). The financial managers of the company along with its team members focus on developing
and managing liabilities and assets to avoid any uncertainty in the future. Hence, it has been said
that no company can run its business and operate smoothly without the support of an accounting
and finance team.
In business, utilization of funds which is necessary to run operations smoothly and
acquiring those funds is the major function of finance. By doing so, finance managers can
achieve success for the betterment of financial position of company.
The accounting and finance for this organization has the following function,
Accounts payable and receivable :
Accounts payable is the disbursement of the money which is referred to the money which
goes from the business towards the recording of the liability in the accounting book. This is
considered to be the factor which is responsible for keeping records of the goods and services for
the company which pays for the ensuring the business and its expenses (He and et.al., 2022).
Accounts receivable is the referring to the money or cash that is used by the business and
accounting department which is in-charge of the tracking and accounting for cash payments by
the customers for the goods sold and services rendered. This also includes the revenue which in
business makes and the invoices that to be fulfilled.
Auditing finances
The accountants of the company provide corrective solutions after the find any
discrepancies in the financial records (Conley, Gonçalves and Hansen, 2018). By keep auditing
the financial reports the accounts managers and finance managers of SKANSKA plc can make

informed decisions. Due to errors in auditing the managers may not be able to make proper
decision-making process. Chance of fraud is the major negative aspects of auditing activities on
firms like SKANSKA PLC. So, the accounting department is responsible to keep track on audit
activities in order to ensure that it does not lead to frauds and mistakes in the business operations.
Preventing mismanagement
The another major function of the accounting department is to make sure that no
mismanagement occurs which can harm the reputation of the company (Brooks and Oikonomou,
2018). Plus, they make sure to keep track on accurate results which helps them to know about if
any wastage occurred. So to deal with this, SKANSKA plc is regularly kept monitoring their
ongoing activities in order to review in details about any financial results. They are establishing
the importance and concept of financial processes.
Payroll of employees
Managing payment related work is the major function of the accounting team. By
managing the payroll issues and provide them on time payroll the accounting department is able
to motivate employees (functions of accounting, 2022). For example- If the employees get on
time payroll they are highly encouraged to work for the success of business. The major function
of accounting department of SKANSKA plc is to make sure that earning of staff members are up
to date. Not only this, their duty is to keep track on time off taken by staffs, sick leave, holiday
and absence as well. Plus they are responsible to calculate incentives and bonuses of staffs. In
addition to this, payment of government taxes is also a important function of accounts.
Inventory cost management
The another main function of accounting department is to keep record total number of
goods that the firm owns in its warehouse. By keeping track on inventory company can increase
its profit margins. They focus on reducing unnecessary expenditure and also ensure that payment
are processes on time to avoid future uncertainty (Brooks and Oikonomou, 2018). They also
keep detailed records on all the purchases of stock made by the firm. The records have been kept
by the firm's accounting department such as overhead, materials and labour which helps them to
reduce risk of overselling and better inventory accuracy. By managing inventory, the accounting
and finance department of SKANSKA plc is able to avoid any excess stock which is not
beneficial for the firm.
Financial statement and reports

The delivery of financial statement is the major function perform by accounting
department. By collecting financial information and records the company is able to maintain
accurate books in which all the income and expenditure is recorded (Han and et.al., 2018). As we
all know that business owners make better decisions by referring to financial reports. Example-
cash flow statement, income statement and balance sheet is used to communicate with external
investors and other parties of SKANSKA plc who are going to contribute in growth of business
in long run.
Financial control and legal compliance
The another major function should be performed by every business accounting
department is to keep track on relevant financial laws. Also, they must master themselves in
handling the tax functions for the betterment and success of company. The accounting
department of SKANKSKA Plc keep track on all taxable income that the firm has to pay and
make sure about timely payment in order to avoid any penalties related to tax (Cockcroft and
Russell, 2018). They keep track on changing tax laws which can impact the business operation's.
They also ensure to detect theft and fraud by using their best practices and skills in order to save
the business from any uncertainty or losses.
Budgeting
The Accounting department make sure to focus on budget of the firm. They are
responsible to stay within the limit so that they can protect the firm from spending more which
can harm business position in the market (Han and et.al., 2018). For example- accounting
department of SKANSKA plc achieve accurate information about their performance by
managing budget report from which they can easily know about where to spend money and
where not. Hence, it is said that budgetary control is needed to be successful in the competitive
world. By managing budget can enhance the company's cash management system which can help
them to make proper performance evaluation and decision-making processes. The major
drawback of budgeting is it requires a lot of time and efforts to make right decision. If the
SKANSKA plc accounting department does not able to make decision-making process related to
financials on time then they cannot achieve financial goals.
TASK 2
Calculation the financial ratios
Return on Capital employed

RETRUN ON CAPITAL EMPLOYED
Particulars 2019 2020
Earnings before interest and tax 1350 1650
Capital Employed 2,145 5220
ROCE 0.63 0.32
Net profit Margin
Net Profit Margin
Particulars 2019 2020
Revenue 4800 6000
Cost of sales 600 675
Formula (Net Profit/Revenue)*100
Net profit margin 13% 11%
Current Ratio
Current Ratio
Particulars 2019 2020
Current Assets 1515 2070
Current Liabilities 645 2220
Formula Current Assets/Current Liabilities
Current Ratio 2.35 0.93
Accounts Receivable Days
Average Receivable Days
Particulars 2019 2020
Receivables 900 1200
Revenue 4800 6000
Formula (Receivable/Revenue)*365
Average Receivable Days 68 73
Accounts Payable Days
Average Payable Days
Particulars 2019 2020
Payable 570 2100
COGS 2700 4800
Formula (Payables/COGS)*365
Average Payable Days 77 160

Reviewing financial performance of SKANSKA Plc
The performance of this organization can be explained with the help of the financial
rations,
Return on capital employed :
Return on capital employed is the financial ration which is calculated with the help of
dividing the operating profit from the earning before interest and taxes. This is also considered to
be the ratio which is helpful for the analysation of the performance and the different between the
assets and current liabilities. For this organization the financial performance of can be judged on
its ROCE (Zorn and et.al., 2018). This ratio of this organization has decreased in comparison to
that of the 2019, which shows the lack of income it has been generated in comparison to that of
the investment that it has done in the organization. It needs to utilize new methods of marketing
and sales.
Net profit margin :
The net profit margin in the ratio which shows how much net profit the company has
made in comparison to that of the sales (Ningsih and Sari, 2019.). This ratio for this organization
has increased effectively and has been able to explain the factors that are related to the
organizational operations that can bring growth to the organization. These factors are considered
to be the areas which are responsible for the growth for the organization in order to analyse the
operation so the business it is very important of make sure that organization of the creating more
and more profit of the out of the operation of the business. The profitability of this organization
has decreased a lot in comparison to that of its operations in 2019.
Current ratio :
Current ratio is the financial efficiency ratio that has been able to explain the
organizational efficiency of the organization this is considered to be the factor which is
responsible for the calculation of the organization operations (Kadim, Sunardi and Husain,
2020.). This is the ration which helps in finding the ability of the organization in paying of the
short term obligation which are considered to the ration that can also help the investors make
financial judgement towards the organization. This is the factor which is considered to be
responsible for the creation of operational growth. The current study has been able to explain that
the current ration of the organization in 2019 was idea and has fallen significantly.

Average receivable days :
This ratio has been able to explain the organization operation and also understand the
efficiency of the organization which is dependent of the level of income the business is able to
make in the given period. This is also the ratio which explains how fast the business is able to
recover the debts. The shorter the number of days in this financial metrics the better for the
organization. Analysation of this ratio for this organization explains that this business has
increase the number of days of average receivables hence it can be said that this is bad for the
organization in the financial terms.
Accounts payable days :
The accounts payable days are able to explain the efficiency of the organization and also
is able to examine the organization and its performance. This is the factor that is responsible for
the management of the time that the organization takes for paying of the liabilities. It is also the
factor which is considered to be the area of the development that can help in the management of
the organizational performance. These days are considered to be the better it is higher. Hence, in
the ratio we can find that the account payable days have increased.
CONCLUSION
With the help of this project it can be concluded that the growth of the organization has
improved in the 2020 in comparison to that of the 2019. In this project the financial performance
of the organization has been analysed with the help of the financial rations. In this project the
different tools and ways of using the financial statements has been covered. This project has been
able to explain the factors that are related to the functions roles and responsibilities of the
accounting department.

REFERENCES
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Cockcroft, S. and Russell, M., 2018. Big data opportunities for accounting and finance practice
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