Financial Decision Making Report: SKANSKA PLC - Accounting & Finance

This report, focusing on financial decision-making, examines the roles of accounting and finance departments within SKANSKA PLC. Task 1 delves into the significance of accounting and finance, exploring their functions, including tax, financial management, and auditing within the accounting department, as well as reporting, investment, working capital, and financing roles within the finance department. The report also includes ratio calculations and interpretations to assess the company's financial stability. The analysis covers various aspects of financial decision-making to ensure a stable and effective financial structure. The report provides an overview of financial decision-making processes, emphasizes the importance of financial management, and uses ratio analysis to evaluate the financial health of SKANSKA PLC. The conclusion summarizes key findings and highlights the importance of financial analysis for effective decision-making.

FINANCIAL DECISION
MAKING
1
1. I have reviewed task 1 only. I notice have you have not done adequate reading
and research to address the task properly.
2. Your list of references do not appear to be those you have read
3. As noted in the comments in the text, you have not provided correct
explanations of the accounting and finance techniques. This due to what I have
stated in 1. above
4. Your work needs some improvement after some readings on your part

Contents
Contents.............................................................................................................................2
Introduction........................................................................................................................3
TASK 1...............................................................................................................................3
Accounting & Finance....................................................................................................3
Accounting & Finance Department................................................................................4
Accounting Department..................................................................................................4
Finance Department.......................................................................................................5
TASK 2...............................................................................................................................7
Ratio Calculation of SKANSKA PLC..............................................................................7
Interpretation of Ratios about SKANSKA PLC..............................................................8
Conclusion.......................................................................................................................10
References.......................................................................................................................11
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Introduction
All those decisions which are related with making or arranging finance for running
the internal, as well as eternal operation within an organization, is known as a financial
decision. The decision mainly focuses on reducing the risk related to financial options,
long-term financial stability, development in tough market situations, etc. which increase
the performance of the company in the specific time frame (Ahmed, Ramakrishnan, and
Noreen, 2017). The internal manager also makes smart decisions related to cost
reduction in different operations so that profitability can be maintained for longer-term.
To better understand the importance of financial decision-making SKANSKA Plc have
been selected and different aspect is discussed.
The report covers, the significance of accounts and finance, important functions,
and rules of financial managers that support stable growth and development even in
case of market instability. Different ratios are calculated that support determining the
financial stability of a company in a specific period.
TASK 1
Accounting & Finance
Finance and accounting are associated with several financial considerations that
must be emphasized in terms of generating an appropriate and effective structure for an
organization's overall growth, as well as the task of reviewing past performance to
achieve any anomalies for comparison purposes.
Accounting is described as the process of documenting and maintaining various
business transactions in financial accounting records in properly keeping track of each
activity. SKANSKA PLC is a large infrastructure enterprise that requires strengthening
its financial performance. As a result, the company requires an efficient and appropriate
finance and accounting department to operate in a way that reflects the organization's
long-term stability. Finance and accounting were two related categories that deal with
financial analysis to improve organizational performance and effectiveness over time.
As a result, these two factors are critical for assessing organizational success and
ensuring long-term viability.
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Accounting & Finance Department
Accounting, as well as the finance department, is an essential component of an
organization that handles all financial transactions on the part of customers. This group
is in charge of effectively managing financial information such that organizational
profitability can be produced promptly. It has a huge impact on an organization's overall
growth in any way. It has a responsibility to find sufficient funding sources because,
without them, an organization's ability to operate for such a long time would be limited.
This function is located at the heart of a company as well as it is observed to be critical
for long-term organizational development, improved profitability as well as sustainability.
It generates several financial statements that aid a company's overall success. The
financial manager is responsible for preparing accounting information statements, filing,
budgets, analysis reports, and other related tasks. It also keeps track of different
transactions in statements of funds to keep control of all its accurate and timely financial
details such that mistakes through its financial system can be avoided.
Accounting Department
The accounting department provides responsible for managing and reporting
financial information including the balance sheet, ledger reports, journal entries, as well
as record-keeping, among other things, in time to retain financial records that support
achieving optimum productivity for a firm's overall economic growth. Some of the
important functions are discussed below:
Tax function: It refers to a scheme in which businesses must pay taxes in the hope
to contribute their fair share to the overall growth of a society. It is a required function
that must be carried out by an organization over a set period. The finance department of
SKANSKA PLC must create an efficient tax structure to appropriately monitor its related
activities.
Financial management: This is a feature of the accounts payable wherein the
monetary existing system is handled appropriately so that productivity can be sustained
for a long time. It covers financial transactions as well as tracking them so that the
organization can achieve more productive results.
Auditing functions: The audit role is the feature of detecting irregularities or
irregularities in money transfers and correcting them within a given time frame so that
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accurate transactions can be facilitated throughout the company for long-term
sustainability. SKANSKA PLC has placed a premium on activity productivity and the
production of a credible balance sheet and income statement to boost the profitability of
the company (Finkler, Smith, and Calabrese, 2018).
Transaction recording: This accounting process consists of recording of accounting
transactions for presenting it as evidence at the time of auditing. All the debit and credit
journal entries or any invoice generation between company and vendor are termed as
transactions. That is said to be critical to have an efficient structure for tracking an
organization's expenses such that an operation can be monitored properly (Meyer,
2017).
The main roles and duties of the accounting department are discussed below:
Bookkeeping: This method is normally use by accounting department to keep tracking
of financial transaction records by entering it into accounting software such as Tally
ERP. This is a tracking method, recognizing, and updating money transfers to stay
ahead of each expenditure in an efficient manner. This task is carried out by a business
manager or accountant who effectively maintains track of financial records. SKANSKA
PLC must create a proper bookkeeping framework in establishing accurate financial
records for the development of long growth.
Taxes: This relates to the administration of tax-related activities of an organization to
make appropriate income taxes. It is critical to pay any taxes accurately and timely to
maintain rapid and steady progress of the business after a longer length of time.
Collections: The accounting office is in charge of collecting receivables on schedule
throughout order to maintain an organization's liquidity over time. It's essential to keep
records of company accounts receivable so the company never runs out of cash for an
unknown or long amount of time (Luo, 2018).
Finance Department
This is a function of the company for financial operations such as procurement,
working capital, funding, and financial planning, and must operate properly to achieve
organizational goals by sound decision-making. Since this department aids
management in order final decisions, it necessitates the implementation of a financial
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framework that is acceptable. Since this department aids management can make final
decisions, it necessitates the implementation of an efficient financial management team.
Some important functions are as follows:
Reporting function: The basic duty of accounting department is to report higher level
management about any financial issues face by the company. Accounting department
also have responsibility to take rational decision which can give monetary benefit to the
business. This function entails the financial reporting by such a firm's accounting
department throughout order to assist higher power in decision-making processes using
structured financial information, allowing for more effective choices to be taken
throughout the time allotted. It is essential to improve financial reports at SKANSKA
PLC through important to foster healthy decision-making by management again for the
company in the long growth.
Investment role: Investment is part of company’s strategy, which consists of transfer of
resources by the company in lieu of certain returns. Usually investment decision is
taken by the company to solve financial problem such as increasing the revenue,
improving the efficiency of the firm, increasing the productivity and so on. In financial
term, a rational investment decision is based on two measures: time and total profit. The
finance agency's investment role is required for the success of investment-related
programs in terms of managing the best investment options available to an
organization. It is critical to determine the most suitable and successful investment
strategy for a company to improvements in life expectancy sustainability and ultimately
survive (Moreland, 2018). In this, life expectancy is related with expected time period
after which fixed assets or machinery need to be replaced by the business. On the other
hand sustainability is stability of cash inflow for the company.
Working capital: It is viewed as a measure of day-to-day business dealings that are
part of continuous operations. It is also knows as net assets, as it can be calculated by
removing all current liabilities from current assets. SKANSKA PLC is required to
develop a better financial performance structure because more strategic long-term
decisions can be made.
Financing role: Another purpose including its finance department is to control financing
considerations such that the organization can find existing sources of funds and use the
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most effective financing strategy to achieve the best outcomes for the organization's
performance.
The main duties and roles of the finance department are as follows:
 Forecasting and budgeting: Every business organization measures its
performance with certain milestone which is known as budgeting. Firm prepares
budget based on past information on accounting information, and decide
standard costing per unit on the bases of forecasting sales and production in
units. The finance department's many crucial tasks are always to prepare
adequate budgets and recognize flaws or other such activities that determine
cost inefficiency and declining margins in an organization. Budgeting benefits an
organization in a variety of ways, but it's a vital component that really should be
planned such that cost-effective strategies can be implemented and improved an
organization's sustainability could have been achieved. Planning and budgeting
practices are given the top priority at SKANSKA PLC because they are the
foundation for potential development and improvement demands in an
organization, as well as encouraging successful and productive techniques
(Roger, Otjes and van der Veer, 2017).
 Cash flow management: Every organization needs cash for meet its day to day
requirements. Thus, cash flow management is part of working capital
management where accounting department prepares policies related with
payables and receivables time duration. As a result, SKANSKA PLC's financial
operations must be carried out in such a way that revenues and expenses are
reflected appropriately.
 Payroll: Payroll is the essential role of HR functions, but finance department are
responsible for pre-decide the salary and rate per hour of each employee. Payroll
is nothing but list of all employees with salary amount to be paid or has been paid
by finance department (Nuriyev and Azizov, 2019).
Conclusion
At the end of this task, it is concluded that Finance is the analysis of financial
instruments and the accounting records can aid companies in determining effective
decisions for the firm's results of this case. It is responsible for managing all accounting
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transactions and preparation of financial statements, receipts, income statements, as
well as budgets, among other things. An accounting council's major practice, and also
the classification of fixed assets, is shown to be documenting purchases mostly with the
support of receipts to keep track of a secondary product of certain capital. It holds a
prominent position in the organizational framework because debt management is
regarded as critical to the organization's ultimate viability
TASK 2
Ratio Calculation of SKANSKA PLC
The concepts of making a proper analysis of the financial performance of the company
in the context of profitability, efficiency, cash liquidity as well as performance leverage
for a respective period. Ratio analysis is considering to be the best performance
evaluating tool that supports a company to control business operation in an effective
manner resulting in the highest profit margin. With proper analysis of financial
information, internal managers can determine the lacking in terms of profit-making,
efficiency, capacity, accounts payable and receivable and various turnover of the
company (Yuan and Hou, 2019). Thus, this analysis support making a decent decision
to increase the overall financial strength and profit-making of the company within a
particular year. In the context of selected company Skanska Plc. Internal managers are
looking to determine financial stability by making use of different ratio analyses for the
years 2018 and 2019. In the table below, various crucial ratios such as net profit,
current ratio, average receivable days, and average payable days aids in making a
crucial decision regarding increasing financial strength. This will also help company
management to make out the areas that need proper consideration so that profit margin
can be increased.
Ratios Formula used 2018 2019
ROCE
Operating profit/Total assets-current
liabilities *100 15.69%
11.54
%
Net profit margin Net profit/Sales*100 12.50%
11.25
%
Current Ratio Current assets/current liabilities 2.35 0.93
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Average
receivable days Receivables/Sales *365 68.44 days
73
days
Average Payable
days Payables/Purchases * 365 77 days
160
days
Interpretation of Ratios about SKANSKA PLC
Return on capital employed: It is among the most efficient and relevant financial
instruments for identifying organizational infrastructure productivity to maximize benefit
within a given time frame. It's critical to make the most use of capital structure such that,
if necessary, efficiency can be improved by changes in company practices, ensuring
long-term economic viability. As previously said, the higher the yield on resources
invested, the better the company's financial structure. The corporation's weak
sustainability structure is reflected in the better yield. Throughout the current scenario,
SKANSKA PLC has 11.5 percent of its capital working in 2019, while it had 15.7 percent
in 2018. The firm has a declining trend throughout capital earning potential, that needs
improving in addition to increasing its activities even further in North America, according
to a two-year average.
Net profit margin:It measures the amount of revenue earned by a company after all
associated costs have been deducted, like debt, taxes, as well as distributions. It is also
the simplest source of profits that is wholly controlled by such an organization and is
used to ensure long-term business viability. It is established that perhaps a low
NP margin indicates an organization's financial system is insufficient, while a high return
indicates optimal profitability. This ratio assists a shareholder in determining the most
profitable investment blend for the upcoming months. In the current scenario,
SKANSKA PLC produced a 12.5 percent profit margin through 2018, but just 11.25
percent net profit throughout 2019, indicating that the company's earnings are
diminishing. As a result, it is important to improve its earning potential to maintain long-
term business viability.
Current Ratio: This is a form of liquidity ratio that indicates the combination of a
business's current assets as well as current liabilities in determining the operating cash
flow position to reimburse its simple terms obligations within the prescribed period. It is
among the most significant ratios that have been used by many organizations on a wide
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scale. It has been decided that even a liquidity amount of less than one represents
smaller earning power and excessive liabilities throughout the corporation, and
therefore is unsuitable for long-term development. As a result, to handle its corporate
affairs more effectively and efficiently, it is critical to maintaining an optimal balance of
financial statements. In light of the current condition, this one has been determined that
SKANSKA PLC does have a proportion of 2.4 throughout 2018 as well as 0.93 through
2019. When comparing these two results, it is clear that perhaps the firm's capital
structure has deteriorated over time, and that some improvements in the strategies
employed and also an increase in capital assets and a decrease in current liabilities, are
required to maintain a long-term equilibrium in between two components of an
organization (Huang, Yang, and Tu, 2020).
Average receivable days: This is a calculation that is used to determine how many
days or how long it takes to obtain a company's accounts receivable throughout the
given time frame. It is among the most powerful tools for determining an organization's
ability to raise funds to keep profitability over time so that company processes can run
smoothly and reach the desired targets. In the specified scenario, SKANSKA PLC
reported 68-day payment terms in 2018 and 73-day accounts receivables in 2019. Also
as result, the corporation must control its collection time, which has risen in the last year
and is lowering the organization's productivity and liquidity. To facilitate sustainable
market operations, to encourage stable market operations, and achieve related
sustainability mostly in long term, an organization must provide an optimal collection
time. The asset turnover ratio compares the valuation of a company's properties to the
valuation of its profitability of the firm. The financial leverage ratio is a measure of how
well a business uses its total assets to generate income. The asset turnover ratio
indicates how effective a business is. A poor asset turnover level, on the other hand,
means that a business is inefficient. A poor inventory turnover level, on the other side,
means that a business is inefficiently exploiting its assets to achieve revenue (Lieberthal
and Lampton, 2018).
Average Payable days: It is described as the period during which an organization must
reimburse its investors in a certain method which time frame. It is necessary to know the
payable cycle so that the organization can complete its activities effectively and
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efficiently. These were recommended that perhaps the payable time be measured and
analyzed appropriately so that suitable approaches can be used to ensure that an
organization has a sufficient sum of resources to perform more commercial operations
correctly. Longer payable periods are thought to be constructive, although smaller
payable periods are thought to be negative. In terms of managing such a mission, the
organization must accommodate multiple current liabilities such that the activities can
continue uninterrupted. In the current situation, SKANSKA PLC had a 77-day ability to
fulfill in 2018 and a 160-day payable duration in 2019 that is considered appropriate. As
a result, it is determined that the firm has sufficient capital through time to effectively
handle its corporate activities. Even though the corporation has an extended payable
duration, it is suspected that late payments will damage the company's reputation and
credibility throughout the industry, potentially jeopardizing its long-term viability
(Blanchett, 2019).
Benchmark
 To determine the financial status of the company in the last two periods.
 To recognize whether the company is performing well or not as per the industry's
ideal performance.
 To make sure the company is gaining a competitive advantage in the present
business situation of not.
Limitation
 External variables such as a global recession are not included in the ratio review.
 Ratio analysis somehow doesn't account again for the human aspect of a
company;
 Only other businesses with the same scale and form can be compared using
ratio analysis.
Conclusion
In the last of the report, it is concluded that different finance options help the
company in making a correct decision that supports to grow business operation and
profitability for upcoming future. In an organization department of accounting and
finance are very much beneficial as they make a decision regarding controlling and
spending of money in proper manner results in high profit and reduce the chances of
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losses. An accountant needs to have special skills and knowledge so that financial
records can be maintained properly as per the standard to make decisions. The proper
ratio analysis helps in evaluating the financial performance of a company through
different financial statements. In Skanska plc, the department of accounting and finance
properly analyze the financial report for the respective year and determine the reason
for the increase or decrease in performance. They also make sure that in case of losses
either stop the operation or modify with the current scenarios which can make them
increase profit.
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References
Books and Journals
Ahmed, Z., Ramakrishnan, S. and Noreen, U., 2017. Financial Literacy as Competitive
Advantage for Individual Investors’ Decision Making. Advanced Science
Letters, 23(9), pp.8988-8993.
Blanchett, D.M., 2019. Financially sound households use financial planners, not
transactional advisers. Journal of Financial Planning, 32(4), pp.30-40.
Ferreira, S.J. and Dickason, Z., 2018. The effect of gender and ethnicity on financial risk
tolerance in South African. Gender and Behaviour, 16(1), pp.10851-10862.
Finkler, S.A., Smith, D.L. and Calabrese, T.D., 2018. Financial management for public,
health, and not-for-profit organizations. CQ Press.
Huang, J., Yang, W. and Tu, Y., 2020. Financing mode decision in a supply chain with
financial constraint. International Journal of Production Economics, 220,
p.107441.
Lieberthal, K.G. and Lampton, D.M. eds., 2018. Bureaucracy, politics, and decision
making in post-Mao China (Vol. 14). University of California Press.
Luo, T., 2018. Research on the decision-making of complex venture capital based on
the financial big data platform. Complexity, 2018.
Meyer, M., 2017. Is financial literacy a determinant of health?. The Patient-Patient-
Centered Outcomes Research, 10(4), pp.381-387.
Moreland, K.A., 2018. Seeking financial advice and other desirable financial
behaviors. Journal of Financial Counseling and Planning, 29(2), pp.198-207.
Nuriyev, N. and Azizov, A., 2019. Mental Accounting: The Impact Of Human Psychology
On Financial Decisions. Economic and Social Development: Book of
Proceedings, pp.1043-1050.
Roger, L., Otjes, S. and van der Veer, H., 2017. The financial crisis and the European
Parliament: An analysis of the Two-Pack legislation. European Union
Politics, 18(4), pp.560-580.
Yuan, Z. and Hou, Y., 2019, June. Research on Intelligent Decision-Making Method of
Enterprise Financial Crisis Early Warning. In Journal of Physics: Conference
Series (Vol. 1213, No. 2, p. 022026). IOP Publishing.
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