Financial Decision-Making: Analysis of Skanska PLC's Performance

This report provides a comprehensive analysis of financial decision-making, focusing on the case of Skanska PLC, a UK-based construction and engineering corporation. The report begins by exploring the importance, duties, and roles of accounting and finance functions within a company, emphasizing their significance in strategic decision-making, especially as Skanska plans its expansion into European markets. It then delves into a detailed examination of financial ratios, including Return on Capital Employed (ROCE), net profit margin, and the current ratio, analyzing their trends from 2018 to 2019. The analysis highlights the implications of these ratios on the company's financial health and performance. The report concludes by summarizing the key findings and their impact on Skanska's financial strategy and overall business operations.

Financial Decision-Making

Table of Contents
Table of Contents.............................................................................................................................2
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Importance of Accounting and Finance functions, duties and roles:...........................................3
TASK 2............................................................................................................................................7
Ratio computation and analysis:..................................................................................................7
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................11

INTRODUCTION
Financial decision-making is a mechanism by which the administration of a company is
enabled to make various kinds of actions swiftly and appropriately. This allows us to ensure that
organizations are equipped to understand how they could evaluate and view financial statistical
data, figures and facts such that multiple sorts of shorter-term, medium-term and longer-term
decisions could be made. Financial decision-making is procedure of assessing the pluses and
minuses of decision when it applies to the use of capital (Klačmer Čalopa, 2017). Effective
financial decision-making is crucial prerequisite for performance in investing. This study is
focused on the Skanska PLC, a UK based Construction and Engineering Corporation
headquartered in Hertfordshire, UK. The business plans to spread to European nations within the
coming 10 years as well as to increase their market share. This study would concentrate in depth
on assessing the value of accounting as well as finance tasks. In addition, a detailed study of the
various ratios would be carried out as aspect of the project.
TASK 1
Importance of Accounting and Finance functions, duties and roles:
A specialized group of professionals who oversee a firm's financial activities is known
as accounting division. Although not every staff member will be certified public accountant, staff
members will usually be trained in accounting systems and practices. By establishing an
accounting division, a corporation could assist to ensure complete disclosure in its monetary
transactions while offering specialized, streamlined assistance to other departments and
executives. Accounting team will help ensure continued health of company. Accounting division
of a company offers finance and monetary assistance to the company. Trade payable, and trade-
receivable, stock, wages, capital assets and other such fiscal aspects are all held in this division.
In this division, accountants look through each division's reports to assess the corporation 's
fiscal status and any adjustments that are expected to manage the entity efficiently (Ziolo,
Filipiak, Bąk and Cheba, 2019).
Accounting division is base of enterprise finance department. This is in charge of all
accounting, accounts payables, and receivables, as well as the planning of business's balance
sheets, banking data, cash-flow analyses, and day-to-day bookkeeping and supervising. This also
monitors and oversees all business's internal audits and safeguards, as well as taxation and
3

disclosure. It ensures that the company complies with all legislation as well as is in effective
financial position.
Both departments are a vital division in every enterprise. As a result, it is expected of
organisations to utilize it persistently and properly in order to properly assess their financial
status As Skanska corporation plans to extend into European nations over the next ten years, its
executives must analyse the various positions of both divisions in order to undertake productive
decisions (Esch, Schulze and Wald, 2019). In the context of SKANSA PLC, following is
evaluation of importance, duties and roles of the Accounting and Finance-division, as follows:
Bookkeeping: This is finance and accounting department's most fundamental function. This
entails the documentation, review, and understanding of a corporation 's financial activities on a
daily basis. This will entail keeping track of all spending (investments, transactions, and so forth)
as well as completed merchandise transactions. This position is mostly filled by bookkeeper in
an enterprise, but as the organization develops and evolves, it can be substituted by more
skilled staff.
Treasury management: The accounting and financing division develops specific treasury
management strategy on all personnel who work with currency or cash equivalents. Stuff about
the amount of risk that the company will take on at any given time are part of treasury planning.
Finance/accounting manager is generally in charge of treasury activities, while finance officer
or chief financial officers is in charge of financial accounting (Rasheed and Siddiqui, 2019).
Controlling and Managing the Inventory: The accounts and finance division is also often in
responsibility of monitoring and administering the company's stocks and supplies. Other than
finance unit, no other team is well prepared to deal with stockholdings. The stocks must be
recorded and managed using a variety of statistical procedures. To supervise and preserve the
inventory levels that describe finance department's competitive edge, special methods are being
used. SKANSKA corporation's accounting and finances department has to be competent of
properly handling and controlling inventory operations. Stock planning can assist SKANSKA
PLC in determining whether it is necessary to restock whether inventories are running short. This
would also aid in ensuring correct leading period of materials when they are needed.
Managing company’s cash flow: The financial and accounts department is responsible for
managing all cash-flows through as well as out of organization and ensuring that sufficient funds
are available to fulfill the corporation's daily operations desires. This division also includes the
4

corporation's credits and collections practices, which guarantee that retailers and suppliers are
charged timely and accurately, as well as that the organization is paid accurately and
within reasonable time (Vitale and Cull, 2018).
Managing Company’s Investments: The finances and accounts department is also responsible
for handling the corporation 's current holdings in addition to reviewing and choosing new
acquisitions. Apart from capital assets, finance department must be concentrated towards current
assets. Because it has larger effect on corporation's liquidity instead of its fixed
assets, corporation's working capital must be handled effectively in order to optimize profits
compared to the sum of funding tied up.
Financial Reporting and analysis: The function of fiscal reporting and evaluation is to convert
raw accounts entries into relevant, accessible, and equivalent financial statements. The finances
and accounts department leads to corporate progress by consistently monitoring and publishing
crucial statistics that are essential to the corporation 's performance This will almost certainly
provide a list of all funding sources, investments, and reserves allocated for potential usage (with
exception of all those allocated and planned for the current cycle), as well as any non-financial
data. And they're normally presented to administrators in a reasonable and understandable
manner.
Help managers in taking key strategic decisions: The finances and accounts department offers
information to corporate managers to help them make financial choices including which sectors
or ventures to enter, payback dates for major capital acquisitions, assessing how much of the
corporation 's profits should be paid as dividends and how much should be reinvested in the firm,
assessing the right funding combination that will yield the corporation the most benefit, and so
forth (Venter, Gordon and Street, 2018).
Budgeting Processes: Budgeting is key important aspects of any corporation. This must be
achieved quickly since the sustainability of the company is entirely dependent on how
well budgets are designed. Since they possess the entire list of figures within the company, the
accounts and finance division is also responsible for budgeting. Just the financial department has
the ability to analyze statistics to assess the company's actual situation. Budgets enable
stakeholders to envision future, so the agency must be productive enough to function in that
direction. Budgeting is necessary for all companies, large and small and SKANSKA PLC, as a
known large company, requires a disproportionate amount of financial planning to face the
5

industry's difficulties. SKANSKA Corporation must assess what goals can be developed in light
of existing market assessments as well as the status of competing companies. No reliable
prediction is feasible without adequate budgeting strategies.
Advising and sourcing of longer-term financing: The finances and accounting department's
function is to advise businesses on the right funding mix that will yield the most benefit and to
assist them in obtaining longer-term financing at lowest cost in order to maintain a sufficient
scale of liquidity (Eberhardt, de Bruin and Strough, 2019).
Managing Taxes: Taxes are a component of operating a corporation and finance division is in
charge of dealing with them. This involves forming constructive business ties with government
through remitting PAYE to the appropriate authority and ensures that tax issues are implemented
in compliance with existing policies.
Managing Risks: Company's financial and accounts department is also in charge of the risk
management. They are in charge of identifying, analyzing, prioritizing, and mitigating the
corporation's risks. External improvements are predicted by the financial division for new
product that isn't going too well. They reflect global developments such as the economy's
contraction, currency volatility, and so on. They make the most of their ability to mitigate the
effects and keep an eye on the situation for improvements. Risk assessment also assists in the
maximization of project prospects by forecasting and becoming aware of industry developments
and acquisition opportunities.
Capital Budgeting: This is the practice of observing and finding projects and prospects in the
economy that are worth participating in. Land, acquisitions mergers, and the buying of fixed
asset are also exampling of its implementations. The entire concept of the capital budgeting
for business revolves around the primary goal of rising profitability. They want to increase
earnings in order to keep the corporation's capital increasing.
SKANSKA corporation's accounts and finance division would offer a slew of upsides
to corporation. By offering the best image of fiscal stability, the division would be inclined to
convince clients. In addition, the company would be able to establish an appropriate alignment
among risks and profit maximization. Financial managerial concept often helps the company to
make decisions in a structured and well-organized way. SKANSKA Corporation will also
achieve a strategic edge because it will be able to adapt quickly to all financial-related problems.
6

The division's overall practices will operate smoothly with one of most significant reasons being
the flow of funds to properly finance division's expenditures.
TASK 2
Ratio computation and analysis:
Interpretation of above computed ratios:
ROCE
The findings of the aforementioned measurement of corporation SKANSKA's ROCE for periods
year-2018 and year-2019 show a falling pattern, with the return on capital in 2018 reached
to 34.96% and in year-2019 reached to 18.67%. When analysing efficiency by ratio of ROCE,
the optimal tendency for stakeholders is for results to be stronger or consistent. The inefficient
usage of resources in the sector may be one of the potential factors or explanations for the
7

deteriorating pattern of ROCE. Over the year, business's net profit rose. Despite this, capital
employed level have increased proportionally, resulting in a decline in organization SKANSKA's
total ROCE. The detrimental effects of organization SKANSKA's decreasing ROCE
development may be significant. The decreasing tendency of ratio of ROCE limits market
interest because it creates a negative perception regarding resource use, which is perceived
ineffective. A shortage of equity appetite would also result in lack of funding sources, limiting
the corporation's ability to obtain fiscal support (Petersen, Kushwaha and Kumar, 2015).
Net-profit Margin:
Based on above ratio results, this has been analyzed that net profit margin ratio in
period 2018 is 12.5 percent, while the proportion in period 2019 is 11.25 percent. This suggests a
downwards pattern that is detrimental to the corporation. A loss of leverage over operational
costs may be the main cause of this downward trend. Despite the fact that profits are up
dramatically and operating profit is up as well. Nonetheless, the rise in operating costs is greater
than the rise in revenue and gross profit-level. A significant rise in revenue is useless if the
company is unable to manage the costs. The firm's wealth will be affected by the falling net
profit margins. Profit sums are converted to deferred earnings, that raises the company's net
capital. However, if sales are disrupted, it will have a detrimental impact on capital, further
jeopardizing the company's benefit maximization goal. The target of benefit maximization would
not be accomplished.
Current Ratio:
As per the calculation being made for the current ratio, the results produced are 2.35 in
2018 whereas in 2019 the ratio was 0.932 which is again indicating a declining trend of the
financial position. The current assets are increasing on a great scale, but the liability is increasing
with a greater speed which is affecting the overall performance of the business very negatively.
Even if the current assets are converted into cash, the amount generated will not be sufficient to
pay the liabilities. Because as payable sum grows, certain increases in liquidity ratio would force
the company to face potential cash flows difficulties. They are owed money by the corporation,
but it is unable to reimburse them. At times, meeting covenant places the business's right to
survive as per going concern assumption in doubt.
Debtors collection period
8

Based on above computations of ratio this has been analysed that, the total
receivables days for period 2018 is approx. 68.44 days, while the result for period 2019 is
approx. 73 days. The improvement of the length is unfavorable since it indicates that the money
due from debtors would therefore take longer for the company to obtain. In period 2018, the total
collection period is lower, suggesting that the sum of collecting is accomplished in a smaller
period of time According to the figures for 2019, the number of days has risen, resulting in a
pause in payment receipt. The primary explanation for this rise is that debtors are either unable
or unable to pay due amount. The implication of such a rising amount of days raises the
likelihood of default on the trade debtor's part, resulting in a rise in bad debts cost on income
statement. Total profitability would suffer as a consequence of these outcomes, because this will
be adversely affected. With growing payment defaults, the chance of no redemption rises, and
such account receivables are more likely to default (Yue, Gizem Korkmaz and Zhou, 2020).
Creditors collection period:
Based on the aforementioned compurgation in table, average payable duration is
approx. 43 days during period 2018 as well as 128-days during period 2019 of company. Both
numbers show a significant gap. The longer the pay-outs term, the greater the harm. The key
explanation for the spike in payables days is that the firm doesn't have enough cash to reimburse
its suppliers. This illustrates that the corporation is struggling to pay its suppliers because it's not
making sufficient sales.
The impact of the rise for several days will be unfavourable, because as business would
experience additional cash flows problems as a result of insufficient sales, and the enterprise will
find this impossible to meet its expenditures and obligations at same time. Another result of the
longer average payment time may be a loss of supplier credibility. In the view of manufacturers,
a firm's value or reputation can be questioned. To ensure that their cash is not lost, the vendors
will be unable to deliver any additional products. Any company's foundation is its suppliers, and
disrupting their terms will have a detrimental effect on entire business processes (Cook and
Sadeghein, 2018).
CONCLUSION
From above study this has been ascertained that Accounts and financing are essential
facets of every company's administration. Profits and cash are what businesses strive for
at ending of the day and even if money is mismanaged, the company as a whole is mismanaged.
9

The movement of money could be managed and measured by effectively managing the
accounting and financial of the company's expenditure and profits, thus leading the business
direction. To formulate effective financial plan that supports company's goals, efficient finance
management or supervisor must consider and comprehend every part of each business aims.
10

REFERENCES
Books and Journals:
Klačmer Čalopa, M., 2017. Business owner and manager’s attitudes towards financial decision-
making and strategic planning: Evidence from Croatian SMEs. Management: journal of
contemporary management issues, 22(1), pp.103-116.
Ziolo, M., Filipiak, B.Z., Bąk, I. and Cheba, K., 2019. How to design more sustainable financial
systems: the roles of environmental, social, and governance factors in the decision-
making process. Sustainability, 11(20), p.5604.
Esch, M., Schulze, M. and Wald, A., 2019. The dynamics of financial information and non-
financial environmental, social and governance information in the strategic decision-
making process. Journal of Strategy and Management.
Rasheed, R. and Siddiqui, S.H., 2019. Attitude for inclusive finance: influence of owner-
managers’ and firms’ characteristics on SMEs financial decision making. Journal of
Economic and Administrative Sciences.
Vitale, C. and Cull, M., 2018. Modelling the influence of CEO values and leadership styles on
financial decision making. The Journal of New Business Ideas & Trends, 16(1), pp.16-
30.
Venter, E.R., Gordon, E.A. and Street, D.L., 2018. The role of accounting and the accountancy
profession in economic development: A research agenda. Journal of International
Financial Management & Accounting, 29(2), pp.195-218.
Eberhardt, W., de Bruin, W.B. and Strough, J., 2019. Age differences in financial decision
making: The benefits of more experience and less negative emotions. Journal of
behavioral decision making, 32(1), pp.79-93.
Petersen, J.A., Kushwaha, T. and Kumar, V., 2015. Marketing communication strategies and
consumer financial decision making: The role of national culture. Journal of
Marketing, 79(1), pp.44-63.
Yue, P., Gizem Korkmaz, A. and Zhou, H., 2020. Household financial decision making amidst
the COVID-19 pandemic. Emerging Markets Finance and Trade, 56(10), pp.2363-
2377.
Cook, L.A. and Sadeghein, R., 2018. Effects of perceived scarcity on financial decision
making. Journal of Public Policy & Marketing, 37(1), pp.68-87.
11