Financial Management and Ratio Analysis of SKANSKA Plc

This report discusses the roles, responsibilities and functions of financial management in SKANSKA Plc, a construction company in the UK. It also includes a ratio analysis of the company for the years 2018 and 2019, with interpretation and causes of changes.

SKANSKA PLC

Table of Contents
INTRODUCTION...........................................................................................................................3
Task 1...............................................................................................................................................3
Roles, responsibilities and functions of financial management...................................................3
Part 2................................................................................................................................................7
Calculating ratio of SKANSKA plc for the two years 2018 and 2019........................................7
Interpretation of ratio result with the causes, reason and effect of changes................................8
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Financial management is a practice of planning, organising, directing and controlling the
financial activities associated with the respective financial year. This report is based on the case
study of Skansa Plc in respect to its management of finances in organisation. The organisation is
established in the year 1984. Company is associated with the construction sector in United
Kingdom. The organisation is further planning to expand its business operations in the next 10
financial year. The project will discuss the different aspects associated with the financial
management practices adopted at the business entity. Henceforth, the project will give emphasis
over the roles, responsibilities of the financial management operation in the organisation. The
importance of the financial management function will also consider in this project. Furthermore,
the aim of the report is to evaluate about the overall performance of the business entity in
respective financial year. The suggestion will also given about investing in the company.
Task 1
Roles, responsibilities and functions of financial management
Financial management is a standard practice adopted at the Skansa Plc Company in
context to management of the financial resources associated with the organisation. The practice
of financial management belong to each and every single functional direction adopted by the
organisation. Following are the points demonstrated about the all different roles and
responsibility associated with the financial management operations adopted by the company.
Take all financial decisions
The financial management at the Skansa Plc Company play a key role in improving the
managerial decision-making at the organisation. This is a key role that the financial management
practice play in the company that it allow the business entity to take on all important and
essential decisions related to the management of the financial resources at the business entity.
Financial resource ate limited in number which create a huge responsibility for the Skansa Plc to
make the optimum level of utilisation of the financial resources associated with the company.
Taking decisions in the organisation is based on different factors such as analysing the financial
requirements of company, taking significant decision in respect to allocation of funds at all
different functional activities entertain by the company, managing the finances, investment
related decisions and all other important decisions (Wakuła, 2020). The role of the financial

management technique is directly for taking the best suitable financial decision making based on
the needs and requirements of the Skansa Plc Company.
Improving investment decision-making of company
Financial management technique such as investment appraisal technique play a key role
in improving the investment decision-making at the organisation. Various investment appraisal
techniques such as net present value method, internal rate of return technique, accounting rate of
return and many other practices that support the best level of investment decision-making at the
organisation. The role of the investment appraisal decisions is that Skansa Plc Company is
involved in construction sector business. The industry constantly require investment related to
machineries, equipments and many other type of investment (Robalo and Costa, 2017). The role
of the financial management decision-making is such that when it comes to investment in
equipment or any other form of asset company need to choose particular investing option out of
availability of multiple choices. Investment appraisal technique support the organisation to take
on the best suitable investment decision-making on the basis of tne needs and requirements of
the business entity. Financial management technique support the company in maximising the
potential advantage against the investment decision-making has been done by the company.
Improving financial wealth
Financial management allow the Skansa Plc Company to maximise the wealth of the
business entity. This is a key role that the financial management practice ensure that company
get to deliver the maximum level of outcome against the financial resources adopted by the
company. Improving wealth involve channelising the financial resources associated with the
company in such a way that the business entity get to deliver the maximum possible outcome
against utilising the funds in the business (Axtell, Smith and Tervo, 2017). Wealth management
can be considers as among the key goal related to the financial management practice adopted by
the organisation. Role of financial management in enhancing the wealth of company support the
overall growth and development of the business entity.
Dividend decisions
Financial management is about to take all important decisions related to the business
operations. Dividend decision is among the crucial decision that financial manager take in
against to deliver the responsibilities. This is a decision that involve segregation of the profits in
all different investors and shareholder group associated with the company. In this aspect decision

is taken related to allocation of funds at all the shareholder associated with the company. In
against to investing in the business investors and shareholders also expect a potential revenue
against making the investment in business (De Villiers and Maroun, 2017). Dividend decisions is
considered as among the core decision that company take as a part of the financial management
decision making in the business.
Working capital management
Financial management also play a key role and responsibilities in managing the working
capital at the organization. This support the business entity to take all important decisions related
to the management of working capital at the busies entity. Working capital is a amount of funds
that Skansa Plc Company is allocated to deliver the regular operational and functional
responsibilities belong to the general management of company (McMillan and Casey, 2018).
This is a difference between the current assets and current liabilities hold by the company.
Working capital management support the liquidity situation of the organisation. Managing
working capital also involve allocation of surplus funds so that the expected level of working
capital requirements can be meet by the management.
Analysing nd interpreting the financial statement
The financial management practice play crucial in analysing and interpreting the financial
statement associated with the organisation. This involve assessing the financial situation
reflected in the books of accounts maintained by the Skansa Plc Company. The financial
statement are the true and fair position or situation associated with the business organisation.
This clearly stated about the net outcome company could gain against delivering the business
operations. Interpreting the financial statement is also done with the use of ratio analysis
technique of financial management (Malo-Alain, Aldoseri and Melegy, 2021). Professionals at
the Skansa Plc Company also compare the performance of the company with other key
competitors in market. Comparing ratio of different companies guide the business unit to
understand about the efficiency of the business operations deliver by the company. If the
financial statement and ratio analysis denote the positive facts about the company this indicates
that the business is moving in a right direction. This is among the key practice associated with
the financial management practice adopted by the organization.
Acquisition of funds

Financial management operation and function also involve acquisition of funds. This is
among the core role and responsibility associated with the financial management function
entertain by the company. Skansa Plc Company is a small company which clearly demonstrated
the fat that company hold a very limited amount of funds and financial resources. Construction
company further need huge amount of funds to deliver several operations. IN the normal
business situation company constantly require funds top be invested in various projects
undertaken by the organisation (Alimbudiono, 2020). In order to approach all different business
operations company need to select a particular investing options or the funding entity that can
cater the potential financial resources to the Skansa Plc at a very reasonable and profitable rate
of interest. Role of financial management in identifying such profitable funding option that can
allocate the maximum level of funds at the best price possible. Selection of funding option is
based on multiple factors that involve interest rate, security that is to be deposited against
acquiring funds from the particular financing option and such like factors. The role of the
financial manager is to assess the feature of each individual funding option and to make the best
suitable decisions related to acquisition of financial resources from a particular funding option.
Budgeting
Budgeting is one of the core role associated with the financial management operation's
entertain by the Skansa Plc Company. This is a practice that involve assessing the financial
requirement of each functional activity and about to make an estimate about the financial
requirements belong to each functional activity (Prasad, Mubeen and Rajani, 2020). The role of
the budgeting is about to make an estimate about all different projected cost belong to the
upcoming financial year. Financial professionals at the Skansa Plc Company prepare different
budgets such as sales budget, fixed expense budget, variable cost budget, flexible budget ad
many such budget that can support the company in allocating proper funds based on the
individual requirements of the organisation. This practice of financial management play a
significant role in ensuring the best level of quality related to each functional activity entertain
by the organisation.
The above stated points demonstrated about al the roles, responsibilities and functions
that the technique of financial management play in the organisation. All these roles support and
guide the company to achieve the best level of financial outcome against delivering the various
business activities. Ensuring the proper allocation of funds at all different functional activity is

very important (Lestari and Khafid, 2021). The basic role of the financial management technique
is to ensure the most optimum level of utilisation of the financial resources in the organisation.
Part 2
Calculating ratio of SKANSKA plc for the two years 2018 and 2019
Ratios Formula 2018 2019
Finance cost 150 300
Total Assets 4470 8070
Current Liabilities 645 2220
Net Profit 600 675
Net Sales 4800 6000
Current Assets 1515 2070
Opening debtors 0 900
Closing debtors 900 1200
Net credit sales 4800 6000
Opening creditor 0 570
Closing creditor 570 2100
Net credit purchase 2700 4800
Earning before
interest and tax
(EBIT)
Net Profit + Finance cost 750 975
Capital employed Total Assets – Current Liabilities 3825 5850
Average receivable Opening debtor + closing debtor/ 2 450 1500
Average payable Opening creditor + closing creditor/ 2 285 1620
Return on capital
employed
EBIT/ capital employed* 100 20.00% 17.00%
Net Profit margin Net profit/ net sales* 100 12.50% 11.25%

Current ratio Current assets/ current liabilities 2.3 0.93
Average receivable
days
Average receivable/ Net credit sales*
365 days
34 days 91 days
Average payable
days
Average payable/ Net credit purchase*
365 days
39 days 123 days
Interpretation of ratio result with the causes, reason and effect of changes
Profitability Ratio:
Profitability of the company basically describes the gross and net profit of the company
earns with every 100 Pound sales. The profitability of the company is analysed using the two
most important and basic ratios such as net profit margin and return on capital employed
(ROCE). As per the above calculation, it is interpreted that in the year 2018 the SKANSKA
company's net profit margin and return on capital employed is 12.50% and 20% respectively.
While on the other side, the net profit and ROCE of the company in the year 2019 is 11.25% and
17% respectively. This negative result indicates that the company is not able earn more profit as
compared to previous year (Amir and Ghitti, 2020). The reason and causes of such changes
might be low sales and poor pricing strategy of the company along with the poor customer
service.
As the profit of the company might get affected when the customers are not satisfied with
the service the company provide to them. The change in ratio also arises because the cost of
acquisition of finance is higher than the return of such funds in various investment projects. The
working capital of the company which is also known as capital employed are increasing along
with the increase in EBIT which cause such a negative change in ratios. Effect of this change
over the company is that the company will not able to earn more profit as well also not able to
attract funds from the investors (Vicente, 2019). It will badly affect the operational and financial
level and health of the company.
Liquidity analysis of SKANSKA Plc.: The liquidity position of the company can be determined
through its current ratio which is a ratio of company's current assets and current liabilities. This
ratio indicates the ability of a concern in meeting its short term obligations that is going to arise
within the duration of one year. The ideal ratio for the purpose of determining the ability of the

company in terms of liquidity is 2:1 and in some cases 1: 1 is also acceptable which ensures that
the business will be able to meet its obligations in the nearer future without any difficulties or
getting failed (Rashid, 2018). In the present case of SKANSKA Plc it has been identified from its
financial statement and current ratio that the company's liquidity has been majorly deteriorated in
2019 against what was its liquidity position in 2018.
In the previous year, the current ratio was 2.3 which is higher than the ideal requirement
and accordingly it can be said that the company has foregone potential short term earnings that
can be generated by investing extra liquid assets into profitable short term investment avenues.
Moving on to 2019, the current ratio of the company has become 0.93, which is much lower than
both ideal requirement and minimum acceptability. A lower than one current ratio indicates that
the company doesn't hold sufficient liquidity or current assets to meet its current liabilities and
accordingly, it can be said that the business will be going to face short term insolvency.
The cause of such a major reduction in the company's current ratio is due to the sudden
and major increase in the company's creditors or trade payables (Widyastuti, 2019.). There is
increase in both trade receivables and trade payable in the company's statement of financial
position which reflects that the company is not able to get payment from its debtors on time and
accordingly facing problems in making payment to its account receivables due to which its
current ratio has majorly affected.
Efficiency analysis of SKANSKA Plc.: From the various ratio calculated above, the average
receivables days indicates company's efficiency and on the basis of which it is possible to
analyse SKANSKA's efficiency in collecting its due from its debtors on time. The receivables
days has increased in the current year that is, 2019 from 34 days to 91 days (Markonah, Salim
and Franciska, 2020). This is a major increase in the days that the company take to collect its
dues from its account receivables. The reason for such an increase can be due to linient credit
policies of the company. Also, the effect of this ratio has been seen on the reduced liquidity of
the company where its current ratio has majorly fall in the current year.
Solvency Ratio:
This is a ratio which generally describe the ability of the company's cash flow to pay it's
long as well as short-term debts of the company. In the case of SKANSKA company, the average
payable period is used to analyse its solvency performance. The creditors payable period of the

company in the year 2018 is 39 days while in the year 2019 is 123 days. This unfavourable
change indicate that the company is not able to pay its creditors on time. The reason behind such
change might be poor credit policy of the SKANSKA company. The suppliers will not give the
raw material to company on credit until they will receive their payment on time. This change will
affect the company's credit worthiness which represent poor management of the company
towards the eye of stakeholders and local community (Thottoli, 2021). The company have to
improve it by adopting the appropriate strategy such as value based pricing strategy.
This is suggested that the performance of the Skansa Plc Company has been decreased in
the year 2019 as comparison to the financial year 2018. Decreased profitability, liquidity
situation, feasibility and all such position of company clearly demonstrated the fact that the
overall performance has been decline in the organization. In respect to the investor point of view
decline in the performance is a negative sign of investment in the business appertains of
organisation. When it comes to investment investor always look for the safer choice that contain
less risk and create a huge scope of maximising the financial resources and stability of the
business entity. As the overall, performance of the Skansa Plc Company is decreased this create
a negative environment in respect to the investment in the organisation. Investor is also looking
forward of an investment value of £1 million which is a huge value of the funds. The investor
either should not invest in the business operations of the Skansa Plc Company or to investment
of the funds available with the investors (Fajaria and Isnalita, 2018). This is also important to
keep all the money in different baskets so that in case of failure of one investment option the
other choices can provide a profitable revenue. This is suggested that investment either should
not invest in the Skansa Plc Company or to put only a 40% money in the business operations of
company and the rest of funds can be invested in other emerging or fastest growing companies.
Construction sector is a rapidly growing sector at a global level so there are always a high
possibility for the organisation to be grown associated with the construction sector. In case the
investor look forward to invest in the Skansa Plc Company there is a high possibilities that the
business entity might provide a reasonable return against the investment is made.
CONCLUSION
Financial management immensely based on the planning, allocation and ensuring the
maximum possible use of the financial resources associated with the company. The role and
responsibility associated with the financial management is such that it involve roles like

decision-making, investment related decisions, budget management, maximising wealth of
company and many other role or responsibilities. The investor should not invest in the Skansa
Plc Company as the organisation is facing a serious downfall in the business,. In case the
investor still look to invest in the business by taking risk than full value of the investment must
not be invested rather investor can look forward to other investing options or companies. This
would minimise the overall risk involve in the investment done in the business operations of the
Skansa Plc Company.
REFERENCES
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