Financial Performance Analysis of SKANSA PLC: A Case Study Report

This report presents a comprehensive financial analysis of SKANSA PLC, a UK-based construction company established in 1984, focusing on its potential expansion across Europe. The report examines the company's financial stability and performance, utilizing financial ratios from 2018 and 2019 to assess their impact on future decisions. It delves into the roles of the accounting and finance departments, including financial and management accounting, tax functions, auditing, investment, financing, dividend policies, and working capital management. Key financial ratios such as ROCE, Net Profit Margin, Current Ratio, Debtors collection period, and Average Collection Period are calculated and analyzed to evaluate the company's profitability, efficiency, and liquidity. The analysis also includes a SWOT analysis highlighting the company's strengths, weaknesses, opportunities, and threats, providing a holistic view of SKANSA PLC's financial standing and strategic considerations for future growth.

FINANCIAL DECISION
MAKING

Executive Summary
This project report is based case study of SKANSA PLC that is working from 1984 in
UK and want to make expansion. In this, study factor that have impact directly its financial
function and operation activities and measure has show. Financial ratio for period of 2018 and
2019 were evaluated and their impact for future has been presented.

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1. Accounting Department:.........................................................................................................1
2. Finance Department:...............................................................................................................3
TASK 2............................................................................................................................................5
Part a: Calculation of the 5 ratios using the correct formulas:....................................................5
Part b: Analysis of the ratios.......................................................................................................6
1 ROCE.......................................................................................................................................6
2 Net profit Margin( NPR)..........................................................................................................7
3 Current ratio- ...........................................................................................................................8
4 Debtors collection period-........................................................................................................8
5 Average Collection Period-......................................................................................................9
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
SKANSA PLC is UK based organization that is in constriction field from 1984, company is
willing to expand business activities across Europe foe that they want to assess their financial
stability. Quoted firm also want to measure financial performance to make decision about
exaptation. In this company there are more than 33,500 employees working since May 2020 and
the annual turnover for 2019 is 1,72,846.
SWOT Analysis
Strength Weakness
 Good research and development
process.
 Strong supplier base and
reputation for green constriction.
 Low operation margin.
 Failure to cop-up with
developing market.
 Occasional cash flows
Opportunities Threats
 More to explore in this market
with European countries.
 Higher competition.
 Legislative change in UK
market
TASK 1
1. Accounting Department:
Financial Accounting- It is process in which all the transaction of business activities is
recorded, summarized, and reported in financial statements (Amadi and Ejiogu, 2021).
SKANSA PLC is also liable to represent all transaction moreover, to find financial position and
for fulfilment of lawful obligation. In financial accounting company need to prepare some
statements like Profit and loss statements, Balance sheet, Cash flow statements etc.
Financial accounting is important for all organization however in reference to SKANSA
PLC which is planning for expansion it is more useful for-
Requirement of law- Company has to represent all record to investor for that they have
to need accounts audited, so they need financial statement.
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Represent financial position to investor- SKANSA PLC, which has planned for
spreading its business for that they need fund and to attract more investors financial statements
is a big tool.
Future decision-making- All decision and goal setting for future are indirectly related
financial accounting because all decision are taken on the basis of past performance of company.
Increase credibility- If company is in need to finance as loan from bank and financial
institution than financial account become face for credit ability. SKANSA PLC need finance at
some stage to make better efficiency in operation.
Management Accounting- From this accounting process management always look to
forecast valuable information that may help to decision-making process. It is a process in which
financial statements are further evaluated to find information for future projects. SKANSA PLC
is also looking for future plan of expansion that need management accounting to forecast future
activities and their result on overall performance of company (Mahmoudian and et.al., 2021).
Management accounting include cost sheet, marginal costing, ratio analysis, fund flow and cash
flow, adsorption costing etc. Benefits to SKANSA PLC are -
 Simplifies Financial Statements- SKANSA PLC is looking to became
multinational company for that it is need for to summarize information which is
useful for future aspect. However, decision can be taken on the basis of financial
statements can be made, but they need more knowledge and skill.
 Cost Transparency- Management accounting provide all details about cost part
of production company who are, in construction business are need to give more
focused on cost and profit margin combination. It will lead to increase working
efficiency and transparency because of active management on cost part.
 Decision-making- It provides information in a format that allows company to
predict future goals near certainty and management are also in position to make
better control all activities.
 Preparation of budgets- There are many types of budget that company can
prepare to get cost-effectiveness. Budget like cash budget may guide company to
arrange cash requirement for future to avoid debt increment.
Tax Function- this is a very important function of accounting department which always
deals with tax liabilities of an organization. Tax functions are corporate tax that is accrued in
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previous year, refund of excessive tax paid, liabilities of advance tax, and dividend tax etc.
SKANSA PLC are also needed to make arrangement for these and have to deals with full of
accuracy to avoid dispute from tax part (Bournakis and Mallick, 2021). Organization that want
to succeed for long term and having expansion plan for future then they need to be more focused
on taxation. SKANSA PLC
Plan and goal are well decided for that a proper taxation planning to be made however, some-
time company avoid tax part lead to big dispute further in need to proceed legally that is time
consuming and wastage of money.
Auditing Function- Audit is an examination of financial record that need to be published
or present in annual report. SKANSA PLC is a construction company that is come under
manufacturing and require to audit all financial statements with cost record as well. It is an
important function moreover, it will justify the accuracy and of financial statements and
accountant. Company need to appoint an auditor, who will make inspection of financial report
and make data more useful and reliable for investor and members of taxation function. It will
help in increasing investors and profitability of company, also lead to make stability in financial
performance due to check every time. Auditing function helps in various ways-
 Compliance- Audit is done to meet statuary requirement that are imposed by
governing body. It provides full satisfaction to shareholders and owner about the
truthfulness of financial data.
 System improvement- It rechecks all the record that allows company to make
change according to mistake made are continuously. This will lead to improve
better accounting system and effective control over financial function.
 Better Planing and Budgeting- Audit define the accuracy of data and activities
this will lead to make better planning and Budgeting. Moreover, company get
accurate financial data that make effective forecasting to determine future budget
and planning.
2. Finance Department:
Investment Function- This is part of finance department, in these all the activities
relating to investment are taking care-off. In refers to relationship between investment and return
on that. SKANSA PLC has future plan for expansion so that they need to improve its
profitability and revenue (Muñoz-Guillermo, 2021). It will help to make better policies for
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future and stability in revenues. SKANSA PLC need to appoint investment manager who is
capable making active as well as passive investment. Company may need money for expansion
and also return to achieve profitability and sustainability. Organization should maintain balance
between investment and liquidity to rectified future mismatch in requirement all money and
effective investment policies.
There are some point that need to be address at the time of making investment strategies for
SKANSA PLC-
 Rate of return that is need for organization and preventive rate also risk factor that is
company is adopting for extra return.
 Liquidity requirement is a big challenge that need to be address due to this company may
in position to increase debt.
 Future plans if company is planning to acquire new machinery, plant or land they will
need money for that so investment should be made accordingly.
 Uncertainty in environment some-time market is not good for investment due to
uncertainty in political and legal factor.
Financing Function- It is part of financial management to decide about the requirement
of fund for efficient functioning of business. It is directly relating to forecasting future finance
need for company to meet these in proactive manner. In financing activity manager not only
liable to provide finance only, he need to provide it with cost effective manner. For manner need
to make some effort to find what kind of finance will be good for organization.
SKANSA PLC need to make a department to get finance effectively and faster however,
in some cases' loss of opportunities may be arrived due to less finance. Company need to avoid
losing opportunity cost to generate maximum profitability. A good finance department always
provide finance at the time company require it most. It leads to provide cash at the needed and
avoid losing opportunities this will help to improve cash cycle and cash flow management. It is
important to compare between various source of finance because some-times finance is available
at lower cost to reduce interest rate.
Dividend Function- Companies are allowed providing dividend, that means they can
assign some part of profit to their shareholders. SKANSA PLC which allocating dividend every
year, it is big task for company to do (Ain and et.al., 2021). Moreover, it is always with different
rate and figure due change in profit. In this function manger need to decide about whether to
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allot dividend or not, if yes what will be the rate for that and time for it. These are some
important question that the department need to solve, company has to attractive more investors
to get financing for future project. It is job of this department make combination of dividend and
retain earning in a manner to fulfil cash need for small activities and to make investor happy.
SKANSA PLC need to know about importance divined policy to make faith in investors mind
and to increase market value.
Working Capital Function- company is being more focused on day to day activities and
having manufacturing base need to give importance to working capital management (Wahab and
Khan, 2021). SKANSA PLC is constriction company that have to make better working cycle to
avoid mismanagement in production function further they need maintain equality in current
liabilities and assets. For all of this they should look into working capital management (Li, Fang,
and Baykal-Gürsoy, 2021). Some important part of working capital are inventory, purchase of
material and machinery, bills receivable and payable etc.
Some basic importance of working capital-
This allows company with higher liquidity position and make better utilization of funds.
 Help in rectifying mismanagement between debtor’s collection period and creditors
payment period.
 Better management of liquidity is achieved that provide to reduce debt that company will
have to take in condition of payment due.
 Optimum use of resource and fund can be made possible, with this company may use
fund that are excessive for liquidity due to mismanagement.
TASK 2
Part a: Calculation of the 5 ratios using the correct formulas:
Ratios analysis is the management tool that are used for understanding financial
statements of the company so that performance of organization can be improved.
Particula
rs
Formula Calculations of 2018 Rati
os
Calculations
of 2019
Ratios
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ROCE Operating
profit/Total assets-
current liabilities
*100
= 750/ (4470-
2145)*100
=750/2325*100
32.2
5%
975/ (8070-
5220)*100
=975/2850*1
00
34.21%
Net
profit
margin
Net
profit/Sales*100
= 600/4800*100 12.5
0%
675/6000*10
0
11.25%
Current
Ratio
Current
assets/current
liabilities
= 1515/645 2.34
time
s
=2070/2220 0.93
Times
Average
receivab
le days
Receivables/Sales
*365
900/4800*365 68.4
3
1200/6000*3
65
73
Average
Payable
days
Payables/Purchases
* 365
=570/2700*365 77.0
5
=
2100/4800*3
65
159.68
Part b: Analysis of the ratios
1 ROCE
a. Return on capital employed is the ratio which helps the company to assess generating capacity
of profitability and capital efficiency (Hogan, 2021). It helps the system to evaluate how
company can create profit from its capital.
b. ROCE indicates that how Skansa Ltd. is making income from its capital. It can be seen from
the calculation institution is able to make good amount of earnings from invested with capital
which is a positive sign. In addition to this, such indication encourages capitalist to buy shares of
the firm and earn financial gain in form of returns.
c. Skansa Ltd.'s ROCE ratio of the year 2018 and 2019 is 32.25% and 34.21% respectively. The
ratio has been increased from previous year which is showing more enhanced efficiency in using
capital for creating profits.
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d. The ratio has gone in upward trend because organization has utilized its fund for day to day
operations in better manner which has resulted in optimistic way.
e. There are many ways in which Skansa Ltd. can improve the ratio by selling its outdated
machine, paying off its debts, etc.
2 Net profit Margin( NPR)
a. It is a financial ratio used to calculate profit from its revenue. It is measurement of profit in
relative to its sales.
b. The ideal net profit ratio is considered to be 10% for any sector (Yanto, Christy and
Cakranegara, 2021). Skansa Ltd. is earning great from its sales that in turn represents good
performance of company in comparison to the ideal ratio.
c. The NPR of the year 2018 and 2019 is 12.5% and 11. 25% severally. The downward
direction can be seen through graph in the company's ability to generating profits from its
revenue. It is analysed that ratio has decreased approx 1.25% which can alter the interest of
investors for investing their fund in organization.
d. The reason for which the decrease trend is seen in company's performance is due to operations
expenses of firm has inflated (McCosker, 2021). Additionally, Skansa Ltd. have adopted
ineffective cost structure and pricing strategy.
e. The methods that can be adopted by business includes purchases in large quantity in turn
reduce cost, making effective pricing structure, optimizing relationship with suppliers.
3 Current ratio-
This ratio is used to find short term liquidity position company, it shows relationship
between current assets and current liabilities (Yanto, Christy and Cakranegara, 2021). It reflects
that how much part of current liabilities can be paid with its current assets.
a. SKANSA PLC's current ratio is decline by more than one time that means company which is
not good indication for firm of manufacturing industry. The idle ratio is above 2 times.
b. Reduction in current ratio leads to increase in debt/loan.
4 Debtors collection period-
a. It is period that allows debtors to make payment of good sales, higher period lead will require
more cash fund for payment.
b. Ratio for SKANSA PLC is not very much fluctuated from last year, just a difference of 5 days
in accrue. Collection period is good because company is getting money in 2 month and 10 days.
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c. A good average receivable period will be receiving money in less than 3 months and also
dependent on creditors period.
d. Company may think to decrease it to less than two months, so they can make enjoy more
liquidity. And need not take any kind of loan for payment they can make payment from debtor’s
amount.
5 Average Collection Period-
a. It shows average no days taken by company to make payment to its creditors, larger the period
more liquidity for organization (Hunter and Shannon, 2020). This period is become double from
last year it was 77 days in 2018 and 177 days in 2019.
b. It will explore liquidity of company because are making payment once in five months, that
make firm to make use for cash in investment activities.
c. It is good for some case because payment has to make in only two times in year. However, it
creates dissatisfaction in the mind of supplier that is not good sing for future projects.
CONCLUSION
From this project is can be concluded that all accounting function are interrelated and to
make better and effective functioning collaboration is need. The impact of these department in
references to SKANSA PLC are good. It allowed company to find valuable information to make
decision-making process. Company have to focused on its operation function and need to
improve its investment activities. Ratio analysis of SKANSA PLC are also being discussed and
interpretation of them is highlighted, about what company need to change in its operation. This
will help company to future expansion with easy of business.
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Mahmoudian, and et.al., 2021. Inter-and intra-organizational stakeholder arrangements in
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On Financial Distress With Moderated Share Prices In Retail Companies Listed In
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