Financial Decision Making Report: Skansa PLC Analysis and Ratios

This report delves into the critical aspects of financial decision-making within organizations, examining the roles and responsibilities of both accounting and finance departments. It highlights the importance of accounting functions, such as payroll, accounts payable and receivable management, and financial statement preparation, emphasizing their role in providing monetary transparency and supporting managerial decisions. The report then explores the finance department's functions, including bookkeeping, cash flow management, budgeting, investment management, and financial reporting, underscoring their significance in fund management, investment decisions, and overall strategic planning. A case study of Skansa PLC is used to illustrate these concepts, with a detailed analysis of the company's financial performance through the use of financial ratios, specifically focusing on the Return on Capital Employed (ROCE) ratio to assess profitability and efficiency. The report provides insights into how financial analysis tools are used to evaluate business performance and make informed decisions, with financial data and analysis presented for 2018 and 2019.

Business
Decision
making

EXECUTIVE SUMMARY
This report is about financial decision-making in an organisation that leads to how
managers makes strategic decisions for its daily activities. Every firm has two departments,
Accounting department records accounts payables and receivables, income and expenses,
inventory, fixed assets and other financial tools. The finance department is responsible for
managing cash flow that ensures a firm that it has enough funds to meet the day to day activities
within the organisation. Firm uses ratio analysis in order to know its financial performance and
financial position.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................4
TASK 1............................................................................................................................................4
Importance of accounting and financial functions, duties and roles within the organisation:.....4
TASK 2 ...........................................................................................................................................8
Financial analysis of Skansa PLC with significant ratios:..........................................................8
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Financial decision-making refers to process of decisions related to liabilities, bonds and
issuance of equity. The financial decisions involves that how and where the money can raised
from the firms money, such as share capital and retained earning. It is about how, when and from
where a company can acquire fund. Better financial decisions helps business to expand its
business and make profitability. These decisions are taken by CFO and finance manager of the
company. It includes, fund raising, investment decisions and merger and acquisition related
decisions (Bouzguenda, 2018). These decisions are important because it helps organisations for
long term growth, concerned with long term assets. Decision making helps to utilisation of
resources available to business for accomplish its objectives. The firm which is selected for this
report is Skansa PLC. It is construction based company, founded in 1984, headquarter situated in
UK. This report covers topics such as accounting and financial management their functions,
duties and roles. Apart from this it also covers topic such as financial ratio analysis and their
importance.
TASK 1
Importance of accounting and financial functions, duties and roles within the organisation:
Overview of the firm: The company Skansa PLC is a construction based public limited
company. The firm was founded in 1984, situated in UK. This uses accounting and financial
functions for its decision-making such as financing, investing and managing finance.
Accounting department: Accounting is all about measurement, processing and
communication of financial information related to business and corporations. Accounting can be
divided into various parts such as financial accounting, tax accounting, auditing and costs
accounting. This department serves services such as financial support in an organisation. By
developing accounting department, a firm can ensure its transparency in transactions related to
finance, providing specialisation and support to managers. Accounting department helps in
overall organisations functions to provide them monetary transparency to run activities. It helps
in making financial statements such as cash flow, income statements and balance sheet. To
running business, it needed to data, records, analysis, reports and proper information related to
its income, liability and assets (Chambers, Echenique and Saito, 2016). Accounting information
is important for management team in order to better decision-making. This helps employees to

understand the budget and prevent from misuse of assets and increase the entire organisations
effectiveness and efficiency (Chmelíková, 2016). Management functions such as planning,
organising, managing, motivating and budgeting all depends on accounting system of business.
Accounting involves profitability analysis, capital investment and provide efficiency to
management in order to controlling activities for decision-making.
Functions and duties of accounting department: Some functions and duties of
accounting department are mentioned below:
 Payroll: It is related to payment on time, accounting managers are responsible for make
overall organisation payments timely. In context to Skansa plc, managers are responsible
for ensure that all employees are paid timely and tax is assessed and payments are occur
timely.
 Accounts payable and accounts receivables: It is responsibility of accounting
department to maintain relations with suppliers and customers so that payment gets paid
timely. In context to Skansa plc, accounts payable should be assure that least amount of
money has to go for payment. The duty of account department is that track receivables
and creating them so payment should be receive timely.
 Reporting and financial statements: The main reason for collecting and recording data
is to make financial statements that helps business to know its financial position such as
income, liabilities and assets (Eroğlu, 2020). These statements are needed to show
external parties such as banks, government and investors for decision-making.
Roles of accounting department in SKANSKA PLC:
 Financial accounting: Financial accounting is the process of recording, summarizing
and reporting business transactions with the help of financial statements. Financial
statements includes cash flow, income statements and balance sheet. The main role of
accounts department is gather information and than produce reports so that it will use it
show external parties for decision-making.
 Management of inventory: Accounting department plays vital role in inventory
management because no other department is equipped to manage inventory in the
business (Florendo and Estelami, 2019). It is important to manage inventory for
managing sales and purchase in the organisation.

 Tax function: Accounts department is responsible for tax planning and adjustment of
compliance so that firm can save its expenses and generate more profits. In context to
Skansa PLC, As a construction company it has to record about its taxes because it can
effect firms profitability. Tax function involves payment and receives of tax. The
accounting department of business handles its tax matters.
 Auditing function: In this audit role, it is about to measure and analyse reports of the
company. It helps in comparison with past information and making financial decisions
(Kraus and Feuerriegel, 2017). Auditors ensures firm that financial statements of the
company are accurate and truthful. Accounts managers helps in determine the accuracy
of financial statements which is prepared by the company.
Financial accounting: Finance department involves services such as banking, financial
institution and insurance. It is the process of managing fund, acquiring fund and investing them
into business activities. This department ensures firm in order to manage funds for its day to day
activities. It helps firm to decision-making related to fund allocation and merger and acquisition.
In context to Skansa PLC, finance managers of it plays vital role to incorporate firms activities.
Firms managers managing its financial information, how and where fund has to use and invest. It
is concerned with planning, organising, managing, controlling and decision-making within the
firms activities. It provides management with information which is necessary to taking strategic
decisions such as investment decisions which provides payback period of purchasing capital and
dividend decisions (Loerwald and Stemmann, 2016). It lies in its ability to ensure that cash is
available for business activities and business is managing its money effectively in order to meet
its obligations. It helps in measuring performance, formulating answers of risk management and
return on investment as finance is both art and science that provides effective decision-making.
Functions and duties of finance department: There are various functions and duties
that a finance department has to play mentioned below:
 Bookkeeping: It is vital role of finance department to maintain books related to its
transactions. For example, if business purchase machinery in the year, it is important to
keep it in records. As an construction business, managers should record all transactions
for management of money. It provides data for financial statements that helps firm to
know about its financial position.

 Cash flow management: firms finance team is responsible to manage its funds for
operating business, as it required for fund in its day to day activities. It is the process of
tracking that how the money comes into and going out of the business and shows cash in
hand within the organisations (Masri, Pérez-Gladish and Zopounidis, 2018).
 Budgeting and forecasting: Budgeting is the process of pre estimation of expenses and
income for the company. Finance department plays vital role in preparing budget before
providing money to different departments to manage their activity cost. As budget is
estimation it provides assessment between actual performance and expected performance.
 Management of firms investments: finance department provides service to manage its
investment by evaluating various alternatives. Managers of the company choose best
investment option from various with the help of investment techniques such as payback
period, net present value, internal rate of return method etc.
 Financial reporting and analysing: Finance department is responsible for preparing
financial statements through this they analyse business performance with the help of ratio
analysis. Ratio analysis helps firm to know about its liquidity, solvency and profitability.
Roles of finance department in SKANSA PLC:
 Investment function: Finance department plays vital role in investment decisions of the
company. It is the relationship between investment and interest rate. The main objective
of investment and financing decisions is to maximize the shareholders values (Motylska-
Kuzma, 2017). Investment decisions is about how the company can allocate its resources
in better way to increase its profitability. Firm uses various investment techniques such
as payback period, net present value, internal rate of return method etc. it uses these
techniques to know select better investment option in order to achieve maximum values.
 financing function: It is a part of financial management that is an activity refers to
planning and organising financial resources. Managers of the company ensures acquiring
and utilisation of funds within the organisation. It involves investment decisions,
financial decisions, dividend decisions etc. Finance managers are the better in
determining how funds can be raised and use in business in order to expand business
activities. It is responsible for providing fund in other departments.
 Dividend function: Finance department is responsible to set dividend policies which
company has to pay its shareholders on their funds. Dividend is the profit share which

company pay to shareholders at the time of returning their funds, it is earning for
investors. Dividend Is paying on the shares as a profitability to shareholders in order to
issue bonus shares (Oehler, Hor and Wedlich, 2018).
 Working capital function: Working capital refers to difference of current assets and
current liabilities. Working capital is the money which is used in to cover short term
expenses of the company. It is used in day to day expenses, short term debt and purchase
inventory. Financial department allows firms to manage its working capital in order to its
current liabilities from its assets. To manage working capital in business helps it
expansion in investment portfolio, increasing profitability, ensure the availability of
sufficient resources, improve overall efficiency, maintain good relations with suppliers
and provide insight into the true financial statements (Park and Cho, 2019).
TASK 2
Financial analysis of Skansa PLC with significant ratios:
Financial analysis is all about evaluating business, projects, budgets and other financial
transactions to determine their performance. Financial analysis company do with ratio analysis
that involves liquidity, solvency and profitability. Firm uses ratio analysis to compare line items
of financial statements. In context to Skansa PLC, it is a management tool that helps firms to
improve understanding of financial results and helps to know its financial position. It is used to
determine economic trends and build long term plans for organisations activities and helps
business to identify the investments (Ross, D. B. and Coambs, 2018). Return on capital employed:
Return on capital employed, it is a financial ratio that can be used in assessing firms
profitability and return on capital. It is about how a company able to generate profits from its
capital. Is is important because it allows investors to compare various companies. In context to
Skansa plc, it uses when the managers of company analysis financial profitability performance. It
is an element that use to know firms efficiency because it helps to measure profits after factoring
resources in firms activity in order to achieve profitability.
Return on capital
employed
Particulars 2018 2019

Net profit 600 675
Capital employed 3825 5850
Result 15.69 11.54
As per the above data, it shows return on capital employed for the year 2018 and 2019. it
shows firms efficiency to generate profits through its capital. In year 2018 it shows 15.69% that
was decreased by 11.54% in year 2019. According to it, it shows decrease in returns percentage
in 2018 that leads to less efficiency of business to manage its resources (Spreng, Karlawish and
Marson, 2016). Firm has decreased its profits in year 2019 that is not enough because higher the
profits means favourable to the company in order to increase capital efficiency. Net profit margin: Firms uses ratio analysis in order to about firms profitability. Net
profit ratio is comes under profitability ratios that shows net profit in percentage. It shows
net profits to revenues for a company. The meaning which it contains that percentage of
net profit upon its sales. It generally expressed in percentage and decimals also. In
context to Skansa plc, company uses this ratio to know its net income over its overall
sales that helps it to know actual performance of the business. Firms compare their
current year margins from past year margins to know whether is decline or growth.
Net profit margin
Particulars 2018 2019
Net profit 600 675
Sales 4800 6000
Result 12.5 11.25
As per the above data it shows net profit ratios of the Skansa PLC for the year 2018 and
2019. net profit ratio shows relation between net profits and sales (Walter, 2016). In business net
profit is affected by its expenses and efficiency to manage its resources. Higher the net profit
ratio means its favourable to the company as it gains higher profits. As it shows firms net profit
margin in year 2018 it was 12.5% and in 2019 it was decreased by 11.25% . Generally, profit
exceeds of 10% is considered as excellent and company has gain 11.25% that is not bad but it is
less than its past performance. Current ratio: Current ratio comes under the liquidity ratios that helps firms to know
about its liquidity. It refers that how much company is able to pay its liabilities. The ratio
defines relationship between current liabilities and current assets that shows short term

requirement of funds. It tells investors how a company can maximize its current assets so
that it can decrease its liabilities. Mainly small business owners should focus on this in
order to pay daily wages or liabilities. It is considers as working capital ratio because it
also refers by current liabilities and current assets (Warmath, Piehlmaier and Robb,
2019).
Current ratio
Particulars 2018 2019
Current assets 1515 2070
Current liabilities 645 2220
Result 2.35 0.93
As per the above data it shows Skansa plc current ratios for the year 2018 and 2019.
current ratios of the business can be affected by its current assets because it shows relations
between current liability and current assets. Current ratio tells business its liquidity to pay its
short term debts, ideal current ratio has 2:1 that shows 2 assets over 1 liability. In year 2019 firm
has 0.93:1 that shows company is not able to pay its short term liabilities but in year 2018, it was
2.35:1 that is ideal for business and shows firms ability to pay its liabilities. Average receivable days / Debtors collection period:
A debtors collection period refers to period that company takes to collect payments from
its debtors. The minimum time company takes to collect its debts, it shows more efficiency of
company to deal with its customers. In other words, minimum collection time is shows
increasing efficiency. In context to Skansa PLC, this ratio is useful in business because a higher
level of account receivables can be major liability. It affects working capital of the company
because debtors are the part of current assets and that is element of working capital.
Average receivable
days
Particulars 2018 2019
Account receivables 900 1200
Annual total sale 4800 6000
Result 68.44 days 73 days
As per the above data it shows firms debtors collection period for the year 2018 and
2019. debtors collection period refers to period in which firm has collected its payments by

customers. It is calculated by dividing the average debtors by total net credit sales and multiply
by 365 days in the year. According to this data in 2018 it shows 68.44 days that was increased in
2019 by 73 days, it shows less efficiency in 2019. In 2019 company exceeds its collections
period that shows its less efficiency to maintain debtors and its collection policies and cash for its
regular activities. Average payable days / Creditors collection period:
Creditors collection period refers to period in which company pays its debts to suppliers
and creditors. It shows firms obligation to pay off its short term liabilities to creditors and
suppliers (Zopounidis, Doumpos and Niklis, 2018). It shows the average number of days
necessary to convert trade payables into cash. If creditors collection period increasing by normal
trading that means the business is not paying to suppliers as efficiently that should happen. In
context to Skansa plc, it shows firms efficiency to pay its debts to creditors and suppliers that
shows how much company has liquidity.
Average payable days
Particulars 2018 2019
Account payables 570 2100
Cost of goods sales 3900 5250
Result 53.35 days 146 days
As per the above data it shows creditors collection period of Skansa plc for the year 2018
and 2019. creditors collection period in the company shows firms efficiency to pay its liabilities
to creditors and suppliers. Firms creditors collection period that shows in year 2018 it has 53.35
days and that was increased by 146 days in 2019. This can be reason for firm has manages its
debts and cash flows in effective manner and firm has plenty of cash to pay its short term
liabilities
CONCLUSION
From the above report it has been concluded that financial decision-making is the process
of taking decisions related to fund management, investment, bonds, liabilities and equity.
Decision making helps to utilisation of resources available to business for accomplish its
objectives. In financial decision-making firms has accounting and financial departments.
Accounting department, It helps in making financial statements such as cash flow, income
statements and balance sheet. Financial department refers to managing fund, acquiring fund and

investing them into business activities. Accounting department and finance department both has
various functions, duties and roles. Firms uses ratio analysis to know about the firms liquidity,
solvency and profitability that helps it know about its financial position.

REFERENCES
Books and journals:
Bouzguenda, K., 2018. Emotional intelligence and financial decision making: Are we talking
about a paradigmatic shift or a change in practices?. Research in International Business
and Finance. 44. pp.273-284.
Chambers, C. P., Echenique, F. and Saito, K., 2016. Testing theories of financial decision
making. Proceedings of the National Academy of Sciences. 113(15). pp.4003-4008.
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from the Czech Republic. International Journal of Economics and Management
Engineering. 11(1). pp.49-52.
Eroğlu, Ş., 2020. Are Movers More Egalitarian than Stayers? An Intergenerational Perspective
on Intra-Household Financial Decision-Making. International Migration Review. 54(1).
pp.120-146.
Florendo, J. and Estelami, H., 2019. The role of cognitive style, gullibility, and demographics on
the use of social media for financial decision making. Journal of Financial Services
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Ross III, D. B. and Coambs, E., 2018. The impact of psychological trauma on finance: narrative
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Spreng, R. N., Karlawish, J. and Marson, D. C., 2016. Cognitive, social, and neural determinants
of diminished decision-making and financial exploitation risk in aging and dementia: A
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Warmath, D., Piehlmaier, D. and Robb, C., 2019. The impact of shared financial decision
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