Financial Decision Making: Detailed Analysis of SKANSA PLC Performance

This report provides a detailed analysis of financial decision-making within a business context, focusing on the roles of accounting and finance departments. It begins with an introduction to financial decision-making processes and their importance, followed by an examination of the accounting and finance departments, their responsibilities, and their significance within an organization. The main body of the report includes a case study of SKANSA PLC, a construction corporation, analyzing its financial performance through ratio analysis, including Return on Capital Employed (ROCE), net profit margin, current ratio, debtors collection period, and creditors collection period. The report compares SKANSA's performance over two years, highlighting key financial metrics and providing insights into its financial health. The report concludes with a summary of the findings and their implications for effective financial decision-making.

Financial Decision Making

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
TASK 1............................................................................................................................................3
Accounting and Finance Department:.........................................................................................3
Importance of Accounting and Finance Department:..................................................................4
Role of Accounts Department.....................................................................................................4
Role of Finance Department:.......................................................................................................5
TASK 2............................................................................................................................................7
a. Calculation of of ratios for the company.................................................................................7
b. Comments on actual performance of company SKANSA and position for two years:..........9
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Financial decision-making within business context may be explained as the processes/set of
activities attributable to devising financial decisions for an entity by considering annual reports,
interim financial reports and business's other financial reports. It is extremely important for all
business to ensure that their accounting-personnel are concentrating on productive business
decisions because it will enable the fulfilment of all longer-term and shorter-term organizational
goals. The principal aim of this project is to strengthen the comprehension of the essential
aspects that all enterprises need to consider for formulate efficient financial decisions (Black,
2019). The current study is centred on the SKANSA PLC i.e. construction corporation
incorporated in 1984. Company is UK based and operating its business in multiple nations. This
report discusses multiple points regarding value of the accounting and finance tasks,
responsibilities and obligations within corporation.
MAIN BODY
TASK 1
Accounting and Finance Department:
Accounting Department: An accounting department is particular division/unit
within firm/business enterprise that is accountable for tracking and monitoring cash ins or
out flows of organisation. The accounting division is accountable for a vast variety
of accounting as well as tasks within the enterprise. This department not only responsible for
recording and reporting of financial reports but also formulate processes and policies for
controlling flow of funds within entity as well as safeguards financial resources. It is component
of administration of organization liable for filing the annual statements, managing the corporate
accounts, collecting bills, billing buyers, payrolls, expense monitoring, financial reporting, and
much more. The top of accounting department also carries the designation of controller (Kim,
Gutter and Spangler, 2017).
Finance Department: A finance Department/unit in an entity is characterised as component
of an entity which is accountable for obtaining funding for the enterprise, administering funds
inside the organisation and scheduling the spending of funding on different asset classes. It is
component of an entity which facilitates the effective financial reporting and fiscal surveillance
requisite to finance all operational processes. The input of finance department/unit of every

enterprise including how these inputs have a significant influence on corporate results would rely
heavily on considerations like the level to which owner/manager is engaged with the corporation.
Importance of Accounting and Finance Department:
Accounting Department: The everyday bookkeeping and preparing of financial records is
the responsibility of accounting staff. To take higher decisions regarding financial strategy,
one first need to determine where the business is based. Everyday record keeping involves
billing and salaries, and production of financial reporting involves synthesising and finalising
these details in budget statements, annual fiscal statements and cash-flows accounts at routine
periods, normally annually. Accounting department/unit is liable for tracking and
reporting company's cash flow activities. This unit has a range of core functions and duties,
including trade receivables, current liabilities, accounting, financial statements and the
management of financial standards (Elbayoumi, Awadallah and Basuony, 2019).
Finance Department: This is amongst the most critical of all company operations. Finance
department performs a pivotal function in the organisation. Correspondingly, finance department
of the company must provide all other divisions (operations) with the requisite funds to carrying
out their operations. The finance division is accountable for maintaining this routine so that the
business does not really run-out of funds to cover its bills, nor does it cost too high for finance
costs. Financial departments can also use existing records and analyses to forecast the
corporation's progress and future developments. Finance Team designs growth projections and
plans, handles and minimises costs, aims for opportunities to raise resources, oversees budgets
and funding options, and links with stakeholders. A sensible finance team has complete image of
the corporation 's activities and understands how each feature and task impacts the corporation 's
overall financial situation.
Role of Accounts Department
o Financial accounting: Financial accounting is primary feature/role of accounting
department which includes the task of monitoring, summing up and publishing a range of
transactions arising from company activities over a length of term. Such transactions are outlined
in the preparing of financial reports/accounts, along with balance sheet, profit/loss statement
and cash-flows statement, which document the organization's business 's financial results
for given duration. Financial accounting functions should provide financial reports in a way that
enables the interpretation of corporate results (Klačmer Čalopa, 2017). Company owner, can

apply financial accounting functions of accounting department to build ratio analytics and use
these ratios to do a more thorough review of the different facets of your business. With this
functions business may calculate the cash condition of your company or evaluate their earnings
or revenue ratio and equate it with their previous results or performance of their rivals. Financial
accounting allows them to formulate their potential course of operation or policy and to assess
the progress of this approach using financial reports from another time.
o Management accounting: Management accounting and related processes are also another
important task for accounting department that includes planning and presenting timely finance
and analytical reports to corporate owners such that they could undertake daily as well as
shorter-term managerial decisions. Accounting management inputs into costs and availability of
supply are important considerations in buying decisions. Information from management
accounting functions empowers decision-making at either an organisational and a tactical stage.
o Tax function: These functions of accounting department comprises ensuring timely
payments of taxes and duties to avoid any penalties. These functions also involve calculation of
taxes (including direct and indirect taxes), filing of tax returns, assessment of advance tax and
other key tax related functions. The duties of taxation are manifestation of their essentially; they
are way of reflecting the features of taxation. The duties of taxes reflect the social intent of the
allocation and allocation of income on basis of value. Each work performed by tax instruments is
a representation of internal attribute, predictor or characteristic, or of that economic class (James,
2019).
o Auditing function: The audit role of business's accounting department consists of
unbiased and impartial consulting procedures intended to bring value to company and enhance
the activity of the organisation. It offers a comprehensive and structured framework to
risks management evaluation and assessment, performance monitoring and regulatory
compliance. Auditing operations are typically based on three main fields, not all of which are
restricted to, internal monitoring over financial statements, time worth of capital, and
enforcement evaluation.
Role of Finance Department:
o Investment function: In ordinary terms, the investment functions within an entity of the
finance department involve the acquisition of shares, options, bonds and assets that already trade
on the capital exchange. Yet that's not true investment, precisely since it is a redistribution of

current properties. This is also considered capital investment, and does not impact net
expenditure. Investment roles also involve the procurement of new plants and machinery,
development of public projects such as bridges, bridges, buildings etc., total foreign direct
investment, inventory levels and stocks, investments in new businesses (Eberhardt, de Bruin and
Strough, 2019).
o Financing function: The financial function of entity's finance department could clearly be
seen as the job of supplying the finances required by the company on favorable terms, taking into
account the goals of the business. This implies that the funding role is associated exclusively
with the purchase (or sourcing) of shorter-term and longer-term resources. The financial role can
clearly be seen as the job of supplying the funds required by an organization on reasonable
terms, taking into account the goals of the business. This suggests that the funding role is
connected exclusively with the purchase (or sourcing) of shorter-term and longer-term finances.
o Dividend function: A finance department which determines how much of profits received
by the business should be allocated among investors (dividends) including how much can be
preserved for potential contingency plans (internal funds) are regarded as dividend functions.
Dividend applies to the portion of the earnings that is paid to the owners. The
decisions on dividend should be made in the light of the ultimate goal of optimising shareholder
capital. The preferences of shareholders are often taken into consideration when agreeing on a
dividend. Within event that the shareholder wants to obtain a dividend, company will continue to
declare same. In this case, the size of the dividend relies on the extent of aspirations of the
owners. such all the tasks are carried out by finance department (Kaur and Lodhia, 2019).
o Working capital function: Working capital corresponds to funds used to fund all shorter-
term costs of a corporation, comprising stock, shorter-term loan payments, and daily expenses—
called running expenditures. Working capital functions important role of finance department as
this is used to ensure that a company runs efficiently and meets all its financial/debt obligations
in coming period. Finance department track their trade receivables to decide whether they're
scheduled to collect payment from their clients. On other hand, businesses often track their
accounts payables/creditor to assess the days about which transactions are owed to vendors.
If accounts payables are overdue earlier than money due from accounts receivables, the business
will suffer a deficit in the working capital.

TASK 2
a. Calculation of of ratios for the company
Return on capital employed: This proportion is employed for the intention of assessing
the effectiveness of the company to utilize business capital. ROCE refers for Returns on Capital
Employed, this is financial ratio that measures the viability and productivity of capital employed
by the organization. A greater ROCE would mean a more efficient utilization of equity; ROCE
would be greater than cost of capital. Since this is not the case, company is less profitable and
insufficiently creating shareholder capital (Loerwald and Stemmann, 2016). The calculations for
SKANSA of ROCE are as follows:
Particulars 2018 2019
Net operating profit 600 675
Capital employed 3825 5850
ROCE = Operating Profit / (Total
Assets -Current liabilities) * 100 15.69 11.54
Net profit margin: This ratio-percentage is considered for the intention of
evaluating the entity's capacity to produce profits against revenues. Net profit margins
shall be determined by dividing sum of profits by net revenue. Multiply this by 100 to
turn result into a statistic. All measurements for ratio of SKANSA company are as follows:
Particulars 2018 2019
Net profit 600 675
Sales 4800 6000
Net-profit Margin = Net Profits /
Sales * 100 12.5 11.25
Current ratio: It is usually employed to establish actual liquidity of the company
such that it can be determined if shorter-term commitments will be fulfilled within
particular year or otherwise (Oehler, Horn and Wedlich, 2018). Following are calculations of
ratio of respective company, as follows:
Particulars 2018 2019

Current assets 1515 2070
Current liabilities 645 2220
Current Ratio =
Current Assets /
Current Liabilities 2.35 0.93
Average Receivable days/ Debtors collection period: It is primarily linked to the
calculation of the days(no.) on which the remaining sums of the customers will be retrieved.
The figures of this ratio for SKANSA company are as follows:
Particulars 2018 2019
Account receivables 900 1200
Annual total sale 4800 6000
Debtors collection
period = Receivables /
Sales 68.44 73
Average Payable days/ Creditors collection period: This ratio-percentage is
primarily used to assess the length of time when the company would be expected to pay
to creditors/payables the entire amount due. The equations for the decision of SKANSA
company are follows:
Particulars 2018 2019
Account payables 570 2100
Cost of goods sales 3900 5250
Creditor Payment Period =
Payables / Purchases (cost of goods
sold) 53.35 146
Working notes:
Calculation of capital employed
Particulars 2018 2019

Total assets 4470 8070
Less: Current liabilities 645 2220
Capital employed 3825 5850
b. Comments on actual performance of company SKANSA and position for two years:
By evaluating the multiple proportions/ratios of company SKANSA, it was observed
that company's output was strong in 2018 relative to period 2019. The proportions reveal
that return on capital invested in period 2018 amounted to 15.69% as well as was lowered to
11.54 for next year. It indicates that the firm is losing its strategic edge because the decline in
ROCE indicates that company is not in position for compete with its rivals. In the other
side, organisation's net profit ratios were 12.5 for period 2018 and reduced to 11.25 in
period 2019. It notes that the capacity of the corporation to produce net income from the
corporation 's revenues. This has influenced overall performance of the company. In addition, it
also reveals that entity is not in position to produce the same income that it earned in
period 2019. When attempting to evaluate the company's liquidity of current ratio, it may be
employed to evaluate whether or not enterprise has adequate capital to achieve longer-term
market objectives (Park and Cho, 2019). Analysing current ratio, this was observed that
company's current ratio were quite high in period 2018 relative to period 2019. For both periods
it was 2.35 and 0.93 respectively, that contributed in a diminished capacity to fulfil short-term
commitments. As a result, SKANSA PLC would not be sufficient to cover all shorter-term
obligations for period of one year owing to a substantial fall in company's current ratio. The
average trade-receivable days represents the time span during which the corporation will be
prepared to collect all of its credits by clients. This was around 68.44 and 73 respectively for
period 2018 and 2019. It is enhanced for 2019 which will lead in a delayed receipt of funds
through customers and as result, there'll be a shortage of funding for shorter-term activities. If
consumers make delayed payments, they would have a detrimental impact on the efficiency of
the corporation.
On another hand, the total days payables for period 2018 are 53.35 while 146 for period 2019.
The days after which the sum to be billed to the trade-creditors is raised, which indicates that the
corporation makes delayed payments to trade-creditors when it accepts delayed payments from

its customers. Due to the improvement in this proportion, the company will face problems in the
future, as creditors will fail to extend credits to the organisation in the long term.
Potential explanations, factors and results of ratio variations:
• The ROCE of corporation is lowered due to an expansion in overall capital engaged for the
period 2019. This is the primary source and trigger of the decline. Its key consequence on the
firm would be to reduce its capacity to re earnings in the corporation.
• Net profit margins of company SKANSA is lowered due to higher revenues and profits. The
rise in earnings was very poor relative to the increase in revenue which resulting in a decline in
the corporation's net profit ratio level. The biggest impact on the organization was a decline in
earnings for year 2019. As result, the corporation would not be sufficient to fulfil any of its
commitments because of a drop in revenues.
• The decrease in company's current ratio is quite higher and the key explanation for this is a
spike in the total current liabilities, that amounted to 645 in year-2018 and rose to year-2220.
Current assets have also raised, but value of the rise was lower relative to current obligations. As
a consequence of this decline in company's current ratio, company was impaired by the decline
in its willingness to fulfil all shorter-term obligations (Sapkauskiene and Orlovskij, 2017).
• The average trade-receivable days of corporation SKANKA PLC was lowered for 2018 as well
as the key explanation for this reduction is higher gross net revenue and elevated receivables.
This would have an effect on the corporation's existing assets as customers render late payments
to company, which would result in a loss of funds for business operations.
• The total trade-payable days of company are enhanced, which ensures that the corporation
makes overdue payments for all credits it gets. The key explanation for this is the rise in costs of
goods sold as-well-as increase in payables for the year. As a consequence, the brand reputation
could have an effect which would also lead to creditors' reluctance to extend credits to the
organization.
From the aforementioned discussion, this can be interpreted that overall performance
of given company SKANSA PLC was strong in year-2018 and that the company is experiencing
challenges due to improvements in ratios in year-2019. When most of ratios-assessed are
reduced, there is a detrimental effect on the efficiency of the enterprise. In addition, the company
is also faced with the problem of diminished financing for operating operations as its viability
and liquidity drop. As a result of this cut, the company is not in a position to carry out the

activities adequately. The financial situation of the corporation is quite bad in 2019 relative to
2018, since there are significant variations in the organization's ratios due to various reasons.
That include higher sales expenses, Trade payable, profits, current assets etc.
CONCLUSION
It has been inferred from the aforementioned project study that the financial decision-
making is core factor that must be concentrated on by every organizations as it promotes the
implementation of both long-term and shorter-term projects. Both accountings and finance tasks,
responsibilities and responsibilities are quite relevant to all companies, since they can contribute
in the successful implementation of all operating activities. When preparing to evaluate the
financial condition of the firm, it would be quite essential for organisations to utilize the study of
the proportion. The various measures that may be used to assess the financial condition of the
firm include the return on capital-engaged or invested, the net profits margin, the current ratio,
the total receivables collection and the payable duration.

REFERENCES
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