Financial Decision Making Report: SKANSA PLC Analysis, 2018-2019

This report provides a comprehensive overview of financial decision-making within a business context. It begins by outlining the crucial roles and importance of the accounts and finance department, including bookkeeping, management accounting, tax functions, and adherence to legal requirements. The report then delves into the key functions of the finance department, such as investment, financing, dividend policies, and working capital management, along with setting credit terms and analyzing financial performance. A significant portion of the report is dedicated to the computation and analysis of financial ratios, including return on capital employed, net profit margin, current ratio, average receivable days, and average payable days, applied to SKANSA PLC for the years 2018 and 2019. The analysis evaluates the company's financial position and performance based on these ratios, highlighting trends and suggesting areas for improvement, such as increasing the return on capital employed and addressing the decrease in net profit margin. The report concludes with a summary of the key findings and their implications for the company's financial strategy.

Financial decision making

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Importance of roles of the accounts and finance department......................................................3
Importance of functions of the accounts and finance department...............................................4
TASK 2............................................................................................................................................6
Computation of ratio....................................................................................................................6
Evaluating and analysing the financial position and performance of the SKANSA PLC...........8
CONCLUSION................................................................................................................................9

INTRODUCTION
The financial decision is an important function of a business organization which involves
taking decisions in respect to the liabilities, procurement of fund and the issuance of the shares or
bonds. It takes into account all the relevant factors which will assist the organization in achieving
it desired goals and objectives. For the purpose of undertaking crucial financial decisions the
organization requires highly competitive personnel’s having experience in the required tasks to
be carried out efficiently. This report provides an insight into the various roles and importance of
the accounting and finance within an organization along with example. It also includes
computation of financial ratios in order to determine the financial position and performance of
the organization from the point of view of an investor.
TASK 1
The contribution of the finance department can positively affect the performance of the
organization will depend upon the involvement of the responsible personnel into this. Following
are the roles of the accounts and finance department.
Importance of roles of the accounts and finance department
Bookkeeping: The main role of accounts division is keeping the best possible record of
the apparent multitude of monetary transactions utilizing twofold section accounting and setting
up the last records which are appropriate for meeting the different administrative necessities. The
accounts division is answerable for keeping record of each budgetary exchanges (Nevries and
Payne, 2017). It is utilized by both interior and outer clients. For example, in SKANSA PLC, its
accounting team is viable in dealing with its exchange and setting up the report for the
equivalent. Yet, it requires total information on bookkeeping and the administrative necessities
that the organization is needed to follow.
Management accounting: It is concerned about breaking down the data to take choices
so as to help the everyday business activity. The data is utilized by just internal supervisory team.
In the management accounting, the function of records office is to gather all the pertinent
information from the diverse authoritative units and watching and examining the financial plan
and funding and distribution of assets. In SKANSA PLC, a separate administrator for
management accounting is recruited to complete these exercises. It appraises the cost pertaining
to the production, marketing and other organization's inner costs which helps in assessing the

budget all the more precisely. Then again, the management accountant needs to profoundly
qualified and ought to know about everything with the goal that association can set itself up.
Tax function: The most significant function of bookkeeper is to design the tax liabilities
of the association. It incorporates dealing with the assessment matters, return documenting,
making representation before the respective authorities and settling the duty obligation under
different laws (Ekpo, Etukafia and Udofot, 2017). For instance, the bookkeepers of SKANSA
PLC are knowledgeable with their obligation in regard to tax assessment and consistently
ensures that everything is appropriately reported. Be that as it may, it requires profoundly skilled
individual who is knowing about tax assessment and keeping up all records in any event, for
little things in composed is troublesome.
Obeying the legal requirement: Imposing great bookkeeping practices helps in taking
different focal points of it. It helps organization in conforming to the law and without having a
decent bookkeeping framework may prompted the infringement of number of laws. For instance,
not paying the perfect measure of assessment, delay in filling the return and so forth
Additionally, poor accounting may result into the business to disregard numerous minor
information that can altogether influence the business working, for example, office improvement
so as to conform to security guidelines (Kimanzi and Gamede, 2020). For example, the records
division of SKANSA PLC, needs to keep up appropriate bookkeeping records which results into
the correct administration of the business monetary assets and furthermore consenting other legal
norms. The money and records office is liable for keeping up the correct record of everyday
exercises and toward the year's end it is utilized in completing the review cycle. It likewise has
the duty regarding filling the payroll, specialist's pay and furthermore filling IT. However, in this
cycle the general working of the business is influenced and once in a while it might cause delay
in taking decisions.
Importance of functions of the accounts and finance department
Investment function: It is the most significant part of finance division which is identified
with capital planning. This capacity is extremely significant for adequately overseeing and
assigning the capital assets in the longer-term projects of the business which in result gets
greatest yield in future. This function helps the SKANSA PLC in successfully assessing the
possibility of the venture and the productivity related with it so that correct choice can be taken.

Be that as it may, conversely, it utilizes discounting rate which is decided by the association
which may end up being incorrect prompting unjust venture choice.
Financing function: This function includes the capacity of getting the assets for the
business. It covers the different sources through which fund can be procured that can be utilized
by the associations to meet their capital prerequisites (BERR and D’ANTONIO, 2016). The
account division of SKANSA PLC is exceptionally talented in dealing with the capital structure
of the organization by successfully having the mix of obligation and equity. In any case, the
recognizing the which source of money is suitable for the organization is exceptionally important
from the long term point of view.
Dividend function: In this, the account office decides how much and how often and in
what structure the organization should pay or restore money to its proprietors. A parity is settled
on amount held and the sum delivered for dividend (Nicoletti, 2018). The money group of
SKANSA PLC is liable for taking choice to keep up the ideal profit payout proportion. While
settling on choice it is imperative to consider the enthusiasm and interest level of the investors
which may be influenced because of less or non-installment of profit.
Working capital function: This part of account office is significant in keeping up the
liquidity of the business. The organizations' liquidity, productivity and risk is related with the
interest in current resources and divestment in current liabilities. SKANSA PLC is exceptionally
viable in keeping up the its working money to meet the transient needs of the business
(Daszyńska-Żygadło and et.al., 2020). In any case, so as to do this, it is needed to be dissected
opportunity to time and arrange off the resources which are not, at this point accessible. For
example, in order to meet with the daily business requirements, it is imperative for the finance
department to effectively manage the funds of the organization in order to ensure proper
functioning of the business operations and in avoiding the situation of lack of resources.
Setting the terms of credit: The associations where the products and services are sold
through different mediators like wholesalers, retailers and other, at that point in that
circumstance, the associations are needed to offer credit so as to sell its items. In such
circumstances, the finance department determines what credit terms ought to be offered, for
example, 60 day terms, 90 day term or any other terms and aides in evading the bad debts
(Pitluck, Mattioli and Souleles, 2018). It can likewise decide the moderate paying clients and
may prescribe to cut at least one client. For example, in SKANSA PLC, the accounts and finance

divisions are successful in setting and assessing the credit terms. It has presented a different
record for overseeing credit. Yet, it can likewise have a negative outcome over the business if the
client neglects to pay the sum on schedule or get bankrupt which can represent an enormous
misfortune to the business regardless of whether appropriate investigation is done on the grounds
that future is uncertain.
Analyzing the financial performance of the business: With the accessibility of the
financial reports for the previous year’s then it will be helpful in analysing the performance of
the business. It will help in assessing the presentation of the business in regard to its past
exhibition and furthermore helps in assessing its account. By the taking a look at the budgetary
records, it will help the business in recognizing the different things like inflow and surge of cash,
its presentation in long and short term, current situation of the ventures embraced. The records
and account work in SKANSA PLC is well organized and composed which help in completing
the presentation investigation of the business more successfully by looking into the
organization's current liabilities, for example, advances, credit from sellers and so on It is
valuable when business is searching for development through credit (Kaverzina and Cherutova,
2019). The budget summaries will be valuable in deciding the reach out of obligation previously
taken. Likewise, it will help the company in assessing its resources and stock. It incorporates
dissecting whether there is excessively or less stock for meeting the future sales needs of the
item. Evaluating the fiscal report of the business additionally helps in deciding the development
pattern of the business and whether it is meeting the projections. The significant disadvantage of
fiscal summary investigation is that it utilizes diverse bookkeeping techniques which changes the
unwavering quality of the bookkeeping figures and furthermore the managerial ability cannot be
determined.
TASK 2
Computation of ratio
(i) Return on capital employed
Particulars Formula 2019 2018 Change
EBIT 300 150
Capital employed 5850 3825
Return on capital employed EBIT / Capital 5.13% 3.92% 30.77%

Employed
(ii) Net profit margin
Particulars Formula 2019 2018 Change
Net profit 675 600
Net sales 6000 4800
Net profit margin NP / Net Sales 11.25% 12.50% -10.00%
(iii) Current ratio
Particulars Formula 2019 2018 Change
Current assets 2070 1515
Current liabilities 2220 645
Current ratio
Current assets /
Current liabilities 0.93 2.35 -60.30%
(iv) Average Receivable days/ Debtor’s collection period
Particulars Formula 2019 2018 Change
Net sales 6000 4800
Accounts receivables 1200 900
Average Receivable days
365/ (Net credit
sales/accounts
receivables) 73.00 68.44 6.67%
(v) Average Payable days/ Creditors collection period
Particulars Formula 2019 2018 Change
Net sales 6000 4800

Accounts payable 2100 570
Average Payable days
365/ (net sales/ total
assets) 127.75 43.34 194.74%
Evaluating and analysing the financial position and performance of the SKANSA PLC
(i) Return on capital employed
The ROCE of the company has shown an increase in trend which means that the
company is effectively making use of its capital employed in generating earnings. This shows
how efficiently the company is utilizing its capital employed along with the long-term financial
strategies (Mubashir and Bin Tariq, 2017). The higher ratio is considered favourable for the
business from the investment point of the view. SKANSA PLC is having a greater return on
capital employed of 5.13% in 2019 in comparison to 3.92% of 2018 which shows a positive
change in the percentage by 30.77%. But the company requires to implement new plan or
strategy in order increase it more as it is still low even though it has increased from its previous
year figure. This increase in ROCE is because of increase in EBIT which occurred due to
appropriate utilization of the capital employed by it into the business.
(ii) Net profit margin
The NP margin of the company has decreased in a one year which indicates that the
company is not able to generate enough sales or the profit is reduced because of rise in the
operating expenses affecting the net profit of the company. The NP margin of SKANSA PLC is
the year 2019 is 11.25% which reduced from 12.50% which means a percentage change of -
10.00%. this unfavourable for the company (Achim, Borlea and Găban, 2016). Therefore, the
organization is required to implement action plan for improving the current situation. Other
reason that might result into lower ratio is the inefficient management, increase in costs and the
weaker price strategy implementing by the organization. The lower profit margin depicts that the
organization is generating greater expenses in comparison to its sales which increases the need
for the management to implement strategies for reducing the unnecessary and irrelevant
expenses.
(iii) Current ratio
In case of SKANSA PLC, the current ratio has reduced to 0.93 times as it was 2.35 times
in the year 2018 which shows a negative change of -60.30%. this means that either the company

requires to increase its current assets or reduce its current obligations in order to improve its
liquidity position (Carreras-Simó and Coenders, 2019). Otherwise, it would become difficult to
meet the day to day expenses of the organization and even it might require to take additional
funds for meeting its requirements. This is a warning sign and if proper action are not undertaken
it might result into the position of cash crunch. Thus, the company requires to invest more in its
current assets like cash and cash equivalents, debtors while working on reducing its current
liabilities as well.
(iv) Average Receivable days/ Debtor’s collection period
It can be said that the average collection period has shown an increase in trend which as it
has increased from 68.44 days to 73 days which is 6.67% rise which is a point of concern for the
organization. It is favourable to have a shorter period as the long period states that the company
is not able to collect the due amount from its debtors (Nadar and Wadhwa, 2019). The main
cause for this increase in days is ineffective and loose credit policy which incorporates providing
more credit to its customers with an attempt to create sales. Along with that, economic slowdown
can also be the reason affecting the cash inflow of its debtors resulting into delay in making
payments. Therefore, the company requires to revise its policy and implement effective
collection team.
(v) Average Payable days/ Creditors collection period
In case of SKANSA PLC, the avg. payment period has increased to 127.75 days which is
an increase of 194.74% from its previous year. this is favourable for company as it can hold
more cash which can be used in carrying out its activities smoothly (Sestanj-Peric, Kozjak and
Kovsca, 2019). But also, taking long for making payment should be avoided as it might make the
suppliers unhappy resulting into affecting their relationship and suppler might not offer
favourable terms in future dealings. It might also indicate that the company is not having fund to
pay its suppliers.
Therefore, the overall financial position and performance of SKANSA PLC is moderate
and therefore, from the investor’s perspective, investment can be made to it.
CONCLUSION
It can be summed up from the above that the records and account plays a significant part in
an organization. Both are fundamental for the business on account of taking decisions managing
the business. The accounts and finance division helps in assessing the budgetary exhibition of the

business, record keeping, planning business investment and so on. It helps in taking better
choices in regard to venture, consenting to legal necessities which are needed to be satisfied,
getting ready spending plan for future development and so forth Additionally, the ratio analysis
of the SKANSA PLC is done which has helped in breaking down the budgetary presentation and
position of the business regarding liquidity position, solvency and efficiency. In light of the
understanding of the same it can be said that the current situation of the SKANSA PLC is
moderate and can be accepted for the purpose of investment.

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