Financial Decision Making Report: Analysis of SKANSKA PLC (BM414)

This report provides a comprehensive financial analysis of SKANSKA PLC, a UK-based construction company, focusing on financial decision-making processes. The introduction offers a brief overview of the company's history and business operations. Task 1 delves into the importance and roles of accounting and finance departments, examining financial and management accounting, tax and auditing functions, and investment, financing, dividend, and working capital functions within SKANSKA PLC. Task 2 involves a detailed ratio analysis of SKANSKA PLC's financial performance, calculating and interpreting key ratios such as Return on Capital Employed (ROCE), Net Profit Margin, Current Ratio, Debtors Collection Period, and Creditors Collection Period. The analysis compares financial data from 2018 and 2019 to assess the company's performance, liquidity, and profitability. The report provides insights into the company's financial health, highlighting areas of strength and weakness and offering recommendations for improvement. The analysis includes the formula, the interpretation, and the comparison of the ratios.

Financial
Decision
Making

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Importance for Accounting & financial functions:......................................................................3
TASK 2............................................................................................................................................6
Ratio analysis for SKANSKA PLC:............................................................................................6
CONCLUSION................................................................................................................................9

INTRODUCTION
Finance is the main element for any business as it helps for funds management for
running its activities. Finance is about arranging funds & managing it for company's financial
performance. In every business finance helps various departments for giving funds which
includes production, marketing, sales etc. In context to business managers takes decisions for
financial management. They using various accounting methods for knowing company's financial
position. Company's generate financial statements for knowing its decision making these
financial statements includes cash flow statement, balance sheet, income statement etc. These
financial statements helps businesses for investment decision making. Company using ratios
analysis for their decision making. Ratio analysis helps company's for knowing liquidity,
turnover, profitability etc. The company which is includes for this report is SKANSKA PLC.
SKANSA PLC is a Construction Company based in UK. SKANSA PLC started back in 1984.
The company is planning to expand its operations to other countries in Europe in the next ten
(10) years. This report includes topics which are e importance of Accounting and Finance
functions, duties and roles within SKANSA PLC. Apart from this it includes ratio analysis for
SKANSKA PLC (Forbes, 2021).
TASK 1
Importance for Accounting & financial functions:
Businesses for running its company for better performance they needs for generating
department which considers works for managing various financial resources for businesses. For
this purpose management department for SKANSKA PLC, generating accounting & finance
department which helps for managing business performance for businesses which helps for better
performance which helps for higher profitability for businesses. Accounting department works
for managing business activities it managing various accounting information for generating
financial statements which helps managers for decision making. It collects business data which
helps for managing its resources which helps for better performance which helps for higher
profitability or businesses (Klačmer Čalopa, 2017). Finance department helps for managing
financial data how much funds company has manage for running its activities. It helps for
knowing which investment option will gives higher benefits for business. For this finance
department using various capital budgeting methods which includes profitability index, payback

period, ARR, IRR, net cash flow method. These methods helps for knowing which investment
project will gives higher profitability for businesses (Litterscheidt and Streich, 2020).
Role for accounting department: Accounting department has various functions for
running business activities.
Financial accounting: Accounting department helps for providing data for financial
accounting. It works for collecting & managing journal & ledger for which account manager able
for further formulate their financial accounts & statement. These helps for measuring capital
budgeting techniques. In context to SKANSKA PLC, financial managers using journal, ledger
for knowing how company using its resources how much funds company needs for running its
activities. It helps for generating business strategy which helps for gaining competitive
advantages for using its resources.
Management accounting: It is about necessary business approach which helps for better
management for business values. Management accounting is approach for which various
techniques implementing for knowing business performance costs fro running business activities
as well as evaluating business performance for generating higher profits for running its activities
which helps for better performance which helps for higher profitability for businesses. In context
to SKANSKA PLC, the company's accounting department helps for managing accounting for
businesses.
Tax function: It is about most necessary element for business which helps for managing
data for accounting department. It is necessary fro accounting department as they calculate right
amount for tax for fulfilling company's tax liabilities. There are various tax which apply for
businesses & gives benefits for paying tax debts. In context to SKANSK PLC, accounting
department focus for calculating tax value for fulfilling corporate social responsibility &
managing its goodwill & helps for managing funds for investors which helps for expanding
businesses which helps for better performance which helps for higher profitability for businesses.
Auditing function: Audit function is about for which company hires external auditor for
knowing business performance by accounting data. Accounting department has vital role for
auditing process. They generating accounting data which helps auditor for knowing profits. In
context to SKANSKA PLC, company using audit function for which accounting department
business managing accounting information which helps for auditors for their works which helps

fro better performance which helps for higher profitability for businesses (Milovanska-
Farrington and Farrington, 2021).
Role for finance department: The finance department establish for managing funds for
business for running its activities which helps for higher profitability for businesses.
Investment function: Finance department helps for every business it has necessary role.
They generates decisions for investment. There are various alternatives for projects from these
company has for select one alternative, capital budgeting techniques helps for knowing where it
has invest which project gives higher profitability. In context to SKANSKA PLC, managers
using various methods which includes capital budgeting, rate for return, ratio analysis for basis
generating investment decisions.
Financing function: Finance department establishes for managing financial resources for
businesses. They are using cash flows, balance sheet, income statements for knowing businesses
performance. In context to SKANSKA PLC, financial statements views for decision making for
generating businesses policies for knowing which portfolio is beneficial for their businesses
which helps for better performance which helps for higher profitability for businesses.
Dividend function: It is about necessary business decisions which helps for management
department. Dividend is element for profits which distributed for shareholders for businesses. In
context to SKANSKA PLC, dividend gives for shareholders for deciding their rate for dividend.
Higher dividend businesses pays will gives higher funds for businesses. Dividend attracts
shareholders for investing for businesses. It shows company's symbol for growth & management
department for decisions for dividend. Finance department has necessary role for decisions
regarding dividend.
Working capital function: Finance department has responsibility for working capital
function for businesses. It is about management for working capital manager which has ability
for paying debts & previews for cash flow statements. Financial department measures working
capital & deciding relation for current liability & current assets. Working capital helps for
knowing company's performance how much ability it has for paying its debts for businesses
(Njegovanović, 2020).

TASK 2
Ratio analysis for SKANSKA PLC:
Ratio analysis helps for comparing company's performance. It is about knowing
company's liquidity, turnover & profitability which helps for managing its financial performance.
Businesses uses ratio analysis so that they can know their performance which helps them for
decision making. In context to SKANSKA PLC., the company using this analysis method which
helps it for better performance which helps for higher profitability for businesses. There are
various ratios which includes liquidity ratios, turnover ratios, profitability ratios etc.
Liquidity ratios: It is about those ratios which shows how much liquidity company has
with it for paying its debts. It includes current ratio, liquid ratio etc. In context to SKANSKA
PLC, the company using these ratios for managing cash for business for running its activities.
Turnover ratios: Turnover ratio is about which shows how much company earns for its
activities. It includes inventory turnover ratio, creditors turnover ratio, creditors turnover ratio
etc.
Profitability ratios: It is about which helps company for knowing how much profits
company earns for its sales. It includes return on capital employed ratio, gross profit ratio, net
profit ratio etc.
Ratio Formula 2018 2019
Return on capital
employed
Operating profit/Total
assets-current*100
liabilities
750/3825*100=
19.60%
975/5850*100=
16.67%
Net profit margin Net profit/sales*100 600/4800*100= 12.5% 675/6000*100=
11.25%
Current ratio Current assets/current
liabilities
1515/645= 2.35 times 2070/2220= 0.93 times
Debtors collection
period
Receivables/sales*365 900/4800*365= 68
days
1200/6000*365= 73
days
Creditors payment Payables/ 570/2700*365= 77.05 2100/4800*365= 159

period purchase*365 times days
Return on capital employed ratio: It is about which businesses using for
knowing how much it earns for investing money. For example, if business investing for
machinery its capital for it how much profits gives it. It shows relation for capital &
earnings for businesses. Higher capital ratio shows higher profits company earns for its
investments. In context to SKANSKA PLC, it shows how much profit company earns for
its capital in terms for percentage. As per the above data it shows company has 19.69%
for 2018 & 16.67% for 2019. it shows company has better performance in 2018 which
helps company for getting higher returns. In context to SKANSKA PLC, their value of
return capital employed was measure at 19.60 % and in 2019 it was valued at 16.67 %, which
define that organization not able to use their capital in effective manner the main reason of
decrement in this ratio is high rate of cash outflow and not using management of capital asst
policy.
Net profit ratio: It is about which shows relation for sales & net profits. Net profit ratio
helps company for knowing how much profit company earns for its sales. The ideal net profit
ratio is 10%. Higher net profit means better performance company. It is calculated by net profits
divides sales for businesses. In context to SKANSKA PLC, business using net profit ratio for
knowing how much profits company earns for it. As per data 2018 & 2019 it shows in 2018 it
earns 12.5% & 2019 it earns 11.25%. The business earns higher for 2019 which is better but it
reduces its profits for 2019. it needs for managing its performance. To overcome this problem
and increase percentage of net margin ratio in 2019, management department use effective
pricing strategy which attract customer to take contract from this organization. Which will useful
in raise profitability rate of organization. Company should manage its pricing strategy, resources,
sales which helps for better performance which helps for higher profitability for businesses
(Rasheed and Siddiqui, 2019).
Current ratio: It is about which shows relation for current liabilities & current assets.
Current ratio. It shows how much money company has for paying its debts. The ideal current
ratio is 2:1. it is known as working capital ratio as it includes current liabilities 7 current assets.
The higher ratio shows higher liquidity for company for paying its debts. In context to

SKANSKA PLC, the company using current ratio for knowing how much cash company has for
it for paying its debts. As per data it shows for 2018 it 2.35 & for 2019 it 0.98. It shows company
has better manages its current assets for 2019 which helps it for running its activities. Company
should views for its current assets for this it has to manage its sales. The main reason for
reducing in the current ratio is that management department of SKANSKA PLC, not able to
manage their business performance for effectual manner hence they face issue respect with
managing business liquid place of the organisation. Management department of SKANSKA
PLC' require to change their management of current assets policies and by controlling and
cutting cost of unwanted activities they increase their cash inflow activities which help in
maintain current ratio of organization.
Debtors collection period: It is about how company collects its payments from
customers. It shows the period which company collects its money which is for giving items for
credit. It shows relation for average receivable & sales. It is known as debtors turnover ratio. The
less days customers takes for payment it is beneficial for business as it receives current assets for
it. In context to SKANSKA PLC, it using it for knowing how much time company takes for
collecting payments for its customers. As per data it shows 68 days for 2018 & 73 days for 2019.
it shows for 2018 business has better performance for collecting its debts. It is essential to
manage debtor collection time period as on the basis of that organization able to successfully
manage their cash inflow activities these are help in attaining goals as well as on the basis of that
organization able to formulate effective business policies an manage their goodwill with the
business organisation.
Creditors collection period: It is about how much period company takes for its
creditors. It shows relation for average creditors & purchases. The higher the collection period
benefits for the business. It is known as creditors turnover ratio. It is about when company
purchases goods for credit & how much time it takes for paying its debts for creditors. In context
to SKANSKA PLC, it helps company for knowing how much time it takes for paying its debts
for purchases. As per data it shows for 2018 it has 77.05
& for 2019 it has 159 days for paying its payments. It shows company has better liquidity for
2019 for its payments has more days & it has cash for running its activities (Yue, Gizem
Korkmaz and Zhou, 2020). Long credit period shows which organisation faces issue respect
with payment for their liability. It will helps for ascertain and knowing whether business

organisation endure from financial problem or not. The main reason for growth in the time is
that, due to reducing in the selling rate as well as decrease cash inflow activities, these are
directly impacts on the organizations ability to pay debt ability. They are not able to collect funds
from customers thus they don't have sufficient balances to pay their debt liability.
CONCLUSION
From the above report it has been concluded that finance is element for businesses which
includes arranging funds & managing it for company's activities. Finance helps company for
running its financial activities. managers using various statements for financial decision making
for managing funds. Financial statements includes cash flows, balance sheet, income statements
etc. managers has various functions for accounting & financial decision making. these financial
statements helps businesses for investment decision making. Company using ratios analysis for
their decision making. Ratio analysis helps company's for knowing liquidity, turnover,
profitability which helps for better performance which helps for higher profitability for
businesses.

REFERENCES
Books & journals:
Forbes, M., 2021. Late-life cognitive activity: implications for healthcare and financial decision-
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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.
Litterscheidt, R. and Streich, D.J., 2020. Financial education and digital asset management:
What's in the black box?. Journal of Behavioral and Experimental Economics. 87.
p.101573.
Milovanska-Farrington, S. and Farrington, S., 2021. Discipline, risk, and the endogeneity
between financial decisionmaking and health. Journal of Economics and Finance, pp.1-
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Njegovanović, A., 2020. Financial Decision Making in The Framework of
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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.
Yue, P., Gizem Korkmaz, A. and Zhou, H., 2020. Household financial decision making amidst
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