Importance of Accounting and Finance Functions in SKANSKA PLC

This report evaluates the significance, roles and duties of accounting and finance functions in SKANSKA PLC, a construction and project development company based in Sweden. It also highlights the financial performance of SKANSKA PLC by applying ratio analysis and provides examples related to the company.

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TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Critically evaluating the importance of Accounting and Finance functions, duties and roles
within SKANSKA PLC and also include the examples related to this company.......................1
TASK 2............................................................................................................................................5
Describing performance of SKANSKA PLC results by giving emphasis on causes, effects
and improvement action..............................................................................................................5
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Financial decision making may be defined as the process of analyzing two or more
alternative for making selection of best one. In business, it is an accountability of manager to
develop competent framework which enhances shareholders wealth. In the context of business
unit, main focus is placed on borrowing and allocation of funds which in turn required for
investment decisions. The present study is based on the case scenario of SKANSLA PLC falls
under the category of construction and project development company, based in Sweden on
expanding its operations to other countries in Europe in next ten years. The present report will
provide deeper insight about the significance, roles and duties pertaining accounting as well as
finance functions. It also highlights financial performance of SKANSKA PLC by applying ratio
analysis. Furthermore, this report will cover the examples related to the company.
TASK 1
Critically evaluating the importance of Accounting and Finance functions, duties and roles
within SKANSKA PLC and also include the examples related to this company.
Accounting- It is the process in which includes keeps the record of financial aspects and
also the recording of any organization and financial transaction in the written form . It does
evidence of taking or giving money then qualify and make the solution after that they show on
that way by which they may analysis.
Importance of Accounting
Keeps a record of business transactions-
It is one of the best importance of accounting in the SKANSKA which includes as it
keeps a systematized record of business transactions (Smith and et.al., 2018). It also includes the
current records which may help to users to compare the financial information with historical
data.
Facilitates decision making for management-
Accounting is an important for internal users may include people that plan, perform and
run the companies. The management of SKANSKA needs accounting in making the significant
decisions. It helps in improving operational efficiency like it depends on objective, reliable data.
For example, problem solving, creativity and team work.
Evaluating different sources of funds:
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With the help of accounting & finance function, a company can assess and evaluate
various sources through which it can raise finance like shareholders' funds, preference shares,
debentures, long–term loans and advances, etc. (Farj, Jais and Isa, 2016). Finance function will
evaluate all sources considering the risks and returns associated with each alternative and then
finally opting for a perfect mix of owners' funds and borrowed funds.
Facilitate comparison:
Accounting function facilitates easy comparison of financial data and information.
Comparing it with previous years' information, that is intra firm comparison, acknowledges a
company about its improvement in performance (What is Accounting, 2021). On the other hand,
inter firm comparison allows it to know where it stands in industry and for setting benchmarks.
Communicate results-
Accounting helps in communicating to SKANSKA for appropriate results to various
users. There are some external users of accounting information like investors, lenders and
creditors. It is important to establish credibility for companies and on the other side lenders need
to examine the risk.
Meets legal requirements-
A proper accounting helps to SKANSKA to make the faithful reporting of the financial
assets and liabilities. Most of the company use standardized financial statements to evaluate a
company's announced revenue. The accounting system helps the company's in financial
statements to check that are legally and correctly reported (Strough, Wilson and de Bruin,
2020). For example, in the year 2018 the loan was 1500 but it was increased 1500 in the year
2019.
Finance-
Finance is term as the management of money in which include activities like borrowing,
budgeting and forecasting etc. It is a statement for matters about management, activity, study of
money and investments and tells about how they consume or invest that money.
Importance of Finance
Generate profit-
The main motive of this company is to generate profit from various sources. When start a
business a company's may need of capital investment to generate business effectively (Bangma
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and et.al., 2017). Even the most constituted business may depend on finance and there are
purchasing materials, developing new products may rely on adequate funds. For example, in the
year 2018 the gross profit was 1350 and it was increased 300 in the year 2019.
Enable operations-
Business give large amounts every day which must include pay bills, pay to employees, a
business does not carry off its income and expenditure, it may hard to allot funds.
Attaining long term goals-
It is very necessary to have long term goals in any business to provide targets for all
departments towards united front (Kim, Gutter and Spangler, 2017). To achieve the objectives
in SKANSKA may help the business to increase along with this increasing customer
satisfaction. For example, of a long tern goal would be becoming an attorney.
Reporting on financial health-
Business generally focus of keeping accurate records of finances along with providing
reports. It includes the reports of shareholders which shows the detail of return and security
along with tax returns. It also shows the person private financial situation includes savings,
retirement planning and financial gain spent on non-discretionary expenses.
Roles and duties of Accounting in SKANSKA PLC
Control of financial policy and formation of planning-
SKANSKA main aim to control the financial policies and formulates planning about
future activities. It is provided the significant financial information available for preparation of
the budget. Financial planning strategies help the whole financial management procedure for an
organization.
Cost Control-
Company may control cost through the comparison of actual and standard cost for
evaluating efficiency of work (Lichtenberg and et.al., 2018). It includes an order of activities
that start with preparation of budget, evaluation of effective performance and last with apply the
significant actions that are mandatory in find out discrepancies if any. For example,
procurement, financial controls, cost reporting and performance reporting.
Prevention of errors and frauds-
Company may check to prevent errors and fraud through the accounting system and to
use various methods of detecting errors like check total of trial balance (Stewart and et.al.,
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2018). The information of books and accounts may be compared with amount of balance after
that auditors check carefully in some areas where the chances of fraud in increased.
Evaluation of employee’s performance-
SKANSKA evaluate the performance of employees and assigned the task to employees
of department are evaluated, for this accounting render the important information (Forcellati
and et.al., 2021). It performs an important role because it provides feedback to their employees
on the basis of their performance which may improves their overall productivity.
Preparation of budget-
The company first to prepare the budget to achieve the maximum objectives and the
preparation of estimated statements of income and expenditure is supported on future activities.
To do effective preparation of budget they use the specific method of comparison when they
evaluate the actual results concluded the next year.
Roles and duties of Finance in SKANSKA PLC
Bookkeeping-
The main role of finance in this company is bookkeeping in which include day to day
recording, analysing and representation of company's financial transactions. (Yue, Gizem
Korkmaz and Zhou, 2020) It may include the following of all expenses and incomes of finished
products.
Management of company's cash flow-
The duty of this company is to manage company's cash flow into and out of company
and assure funds are enough available to meet day to day operations of company and to check
that vendors and creditors are compensated correctly.
Budgets and forecasting-
In the context of company works with managers to set up company's budgets, prediction
and also give response with regards to financial standing of company. It uses the past records to
find out the positive results from respective departments to form best budget and predict over
long and short term horizons.
Advising and sourcing longer term financing-
The next role of finance in SKANSKA is to advise companies on best financing mix that
may yield the company best profit. It also helps in source longer term finance at low cost like
that there is income level of liquidity. For example, that funds are raised via NBFC named Neo
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Growth Credit Private Limited through private equity routes from leapFrog Investments
amounting to rs 300 crores.
Management of Taxes-
It is the duty of this company to solve tax issues and includes create great corporate
relations with government through remitting PAYE to relevant authority and assuring
enforcement of tax matters done within framed policies (Greenberg and Hershfield, 2019). It
involves deal with timely filling of tax returns, regular financial audits and compliant with
deducting tax at source etc.
Assist managers in making key strategic decisions-
The company assist managers in making key strategic decisions like as markets and
projects to engage payback periods, to provide sufficient training to increase the efficiency of
employees. Strategic decisions are based on long tern goals and vision give the opportunity to
adjust shorter term plans with this profound, wide mission.
Management of company's Investments-
This company manages company's investment and it is also the duty of finance
department to carry off company's existent assets (Valaskova, Bartosova and Kubala, 2019).
The company's working capital is managed effectively in such way to maximum profitability
related to amount of funds. The best approach to investment management goal at achieving
certain investment objects for the advantage of clients.
Financial Reporting and analysis-
The company takes raw accounting entries and transform into meaningful and usable
financial statements. The financial departments impart to organizational growth through
measuring and covering on everyday bases, key numbers that are essential to success of
company.
TASK 2
Describing performance of SKANSKA PLC results by giving emphasis on causes, effects and
improvement action.
(i) Return on capital employed
Particulars Formula 2018 2019
Operating profit 750 975
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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
(ii) 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 11.25
(iii) Current ratio
Particulars Formula 2018 2019
Current assets 1515 2070
Current liabilities 645 2220
Current ratio Current assets/Current
liabilities
2.34 0.93
(iv) Debtors collection period
Particulars Formula 2018 2019
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Trade receivables 900 1200
Sales revenue 4800 6000
Debtors collection
period
Trade
receivables/Sales*365
68.43 73
v) Creditors payment period
Particulars Formula 2018 2019
Trade payable 570 2100
COGS 3450 4350
Creditors payment
period
Trade
payable/COGS*365
60 176
Return on capital employed is one of the significant ratio which has been determined to
ascertain company's efficiency of using capital to provide return to its shareholders. It is
expected to be 15% which indicates that company is capable of providing appropriate return by
utilizing capital. From the computed result for the two years of performance is 19 & 16.66%
respectively. On the basis of obtained figure it can be interpreted that organization performance
is in decreasing trend which reflecting reducing capacity of using capital for generating higher
return which maintain with bench marking of industry (Dayıoğlu, 2021). This downward falling
position reflects that company may face situations like less ability to attract & retain investors,
bad reputation, losing competitive advantages, etc. this can result in reduced efficiency and
progress of company to accomplishment of objectives. This is indicating that SKANSKA PLC
(SP) should pay attention on taking suitable actions in turn greater ability make better
performance of company to achieve objective of expanding operational practice in industry. The
methods that can be applied by firm for improving the organizational growth and productivity
comprises reducing cost of production, eliminating irrelevant aspect, proper allocation and
utilization of resources, diversifying r capital raising method to mitigate risk, etc. These
techniques will share in modifying organizational growth & productivity.
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Net profit Margin is concerned with ascertaining efficiency of company to earn
profitability from sales so that greater liquidity can be derived. These helps in assessing how an
organization generate revenue by declining cost of goods sold, etc. On the basis of derived
output regarding net profitability for the present and previous year involves 12.5 and 11.25%
respectively. From the 2018 to 2019 net profitability margin has been declined which is as well
higher than ideal margin of 10%. From making comparison it can be articulated that company's
efficiency has been reduced as per the previous margin. It may influence decision-making
criteria of various stakeholders like investors, suppliers, financial institution, competitors, etc.
The decreased margin may affect firm by shifting the attention of investors towards competitors
organization (WANASIDA and et.al., 2021). The negative results include less liquidity, less
working capital, inability to meet unforeseen circumstances, etc. There are variety of
approaches which can bye utilized by firm in order to modify the prevailing situations. It
becomes essential for the enterprise to take some serious measures for taking firm towards
success. These methods include lessening cost of goods sold, utilizing suitable pricing strategy,
selling more goods, covering larger market share, obtaining raw material at cheap expenditure,
etc can result in making changes in current performance. These approaches can help in
improving SKANSKA PLC's net profitability margin in turn greater stability in sector can be
achieved. SP can concentrate on forecasting demand so that proper operational practices can be
conducted to meet market forces. This will contribute in attaining greater liquidity through
higher profit s that can provide opportunity to accomplish object of expansion in Europe.
Current ratio is associated with estimating efficiency of firm to overcome short term
liabilities with help of assets. Current ratio of SKANSKA PLC for the year 2018 and 2019 is
2.34 and 0.93 times respectively. From the analysis of current ratio it can be identified that 2.34
times outcome of 2018 which is greater than ideal ratio of 1.2 -1.5 times. As compared to this,
the current performance of enterprise in 2019 is 0.93 times that is lower than the standard bench
marking. This is negative indication of organization that need to be improved in order to get
sustainable position in industry. It can adversely influence processing of company by creating
bad image in industry that can impact trustworthiness and credibility (Kee, binti Juseef and binti
Shamsuddin, 2021). Stakeholders like creditors, lenders and suppliers may make unfavorable
decision for the SKANSKA PLC that can outcome in non accomplishment of objectives. The
main cause for the achieved outcome is improper inventory management, inappropriate
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strategies and methods to continue operational practices. These results can be improved by
bringing certain changes in company which can be cash & equivalent & decreasing liabilities. It
involves pay off liabilities, selling off unproductive assets, rising shareholders funds, cutting
overhead expenses, etc These will contribute in inclining ability to overcomes short term
liabilities which may incline sustainability. It will make stakeholders satisfied and help
enterprise to retain investors for longer duration. This will increase capability of enterprise to
meet organizational objectives in turn better performance of enterprise.
Debtors collection period helps in assessing that how an organization effectively
achieve due payments (Holzer and Ballard, 2021). This play significant role in maintaining
liquid position in effectual manner. These account is created by firm for selling the goods on
credit basis. From the calculated ratio it can be interpreted that for the year 2018 and 2019
performance of company is 68.43 & 176 days respectively. It is one of the crucial indicator of
organizational performance that can be measured with help of availability of funds through
declining chances of bad debts. There are several non favorable aspects that can rise due to
enhancing days of collecting payments from the customers. This can be outcome in lower
availability of funds, higher risk of default payments, less credibility, ineffective
accomplishment of organizational objectives, etc. These can create adverse business
environment which may tend to impact financial condition of firm. For making improvement
there are various techniques which can be applied to execute changes (Strough, Wilson and de
Bruin, 2020.). It comprises paying attention ob credit policy which is responsible for deciding
the terms & conditions for dealing with debtors. The few other course of action which can be
taken into consideration includes providing discount & combo offers, altering payment terms,
comprising diverse method of collecting payments, establishing automatic credit control,
external credit control, improving stock control, etc. Having these methods can largely
contribute in achieving leading position in industry by increasing liquidity. By applying this
pattern of payment collection firm will become able to improve organizational performance.
Creditors payment period as calculated in the table has increased from 2018 to 2019 that
is, from 60 days it has drastically increased to 176 days. It is an important ratio to evaluate the
efficiency and liquidity of company as it indicates how much time a company takes to settle
their dues with creditors on time. A longer payment period can be beneficial to organization
because it means a company is having surplus funds in hand to invest it in short term ventures.
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However, SKANSKA plc is taking 176 days which is quite a longer time, and it can adversely
affect the credibility. It indicates that firm is not having enough money to make cash payments
on time. Suppliers can impose credit restrictions and can describe it as a bad customer.
Organization needs to maintain a healthy payment period by keeping adequate funds in hand to
meet its short term obligation on time and have cordial relations with suppliers and creditors. It
can also improve this ratio by drawing budgets according to market analysis and spending only
what is required. Another way to reduce payment period is by maintaining stock levels which
can be done by following LIFO, FIFO and HIFO method.
CONCLUSION
From the above report, it can be summarized that accounting and finance function are the
most important function in any company to survive and grow in competitive market. These two
functions assist in planning, organizing and controlling the financial activities of organization. It
can also be articulated that these function provide financial data that is required in preparing
budgets, strategies, policies, etc. The report also concluded there are various duties and
responsibilities assigned to accounting & finance function such as maintaining financial
statements and interpreting them to all stakeholders. Report further calculated various ratios to
evaluate the financial condition of SKANSKA Plc.
After analysing ratios, it can be depicted that there is a need to take several measures in
order to improve the overall financial performance of company. Organization can improve its
current ratio by employing unproductive assets to better use, reducing collection period by
making faster collections from debtors or by accepting online payments (Wadhwa, 2019).
Another way to enhance performance is to enhance the return on capital employed by increasing
net income of company. It can resort to social media marketing practices for enhancing sales of
company.
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Online
What is Accounting? 2021. [Online]. Available through:
<https://corporatefinanceinstitute.com/resources/knowledge/accounting/accounting/>
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