Financial Decision Making Report: Skansa Plc Case Study

This report provides a detailed analysis of financial decision-making, focusing on the case study of Skanska Plc, a construction company. It explores the importance of accounting and finance functions, including financial accounting, management accounting, tax functions, auditing, investing, financing, dividend, and working capital functions. The report examines the roles and duties of both accounting and finance departments within Skanska Plc, highlighting their interconnectedness and impact on the company's financial health and strategic decisions. Furthermore, the report delves into performance evaluation, providing insights into how organizations assess their financial standing. The report aims to evaluate different financial decision-making areas and the financial capability of the business entity.

FINANCIAL DECISION
MAKING

Table of Contents
INTRODUCTION...........................................................................................................................3
Task 1...............................................................................................................................................3
Importance of accounting and financial function........................................................................3
Task 2...............................................................................................................................................8
Performance evaluation of organisations.....................................................................................8
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Financial decision-making is denoted as taking decisions based on the financial position
of the business entity. This report is based on the case study of the Skansa Plc in respect to its
financial decision-making practices. The organisation is a construction company based in United
Kingdom. The company was established in the year 1984. The business entity is aiming to
expand its business in different parts of Europe for which it seeks a financial evaluation in regard
to its financial capability. This report will evaluate different financial decision-making areas.
Henceforth, report will emphasis over the importance of accounting and finance functions. Roles
and duties about financial function will also discuss in this project. Furthermore, ratio analysis
will be conducted to assess the financial position of business entity. On the basis of ratios
financial position of the business entity will reflect in this project.
Task 1
Importance of accounting and financial function
Accounting and finance are the two major and prominent functional direction associated
with the business entity. In the organisation structure of Skansa Plc both accounting and finance
departments are attached with each other as the roles and responsibilities of both the functional
areas are similar and also the finance team cope up with all accounting needs and requirements
of business entity. Importance of accounting and financial functions can be demonstrated in the
following points.
Duties and role of accounting department
Financial accounting function
Financial functions empower the business entity to project the financial records over a
monthly and yearly basis. Accounting department role is about to record the transactions in
accounting books and ledger. Preparation of accounting records is the major role and duty
accounting department play in the organisation (Larasati and et.al., 2017). This duty is the
primary role and responsibility attached with the accounting department at the Skansa Plc. They
further reflect the financial position of business entity. Financial records clearly demonstrate
about the profitability and growth of the organisation that also become a sole reason behind the
decisions company has taken.
Management accounting

Accounting functions allow the business entity to assess the overall performance of the
entity. Accounting records and financial statements comprises with income statement, balance
sheet and other related statements which support the entity to identify the overall performance of
the venture. Profitability is the prominent base behind measuring the success and performance of
the entity (Aga, 2019). Growth rate is another crucial indicator that used by the management at
the Skansa Plc to evaluate the overall performance of the business entity. Performance
evaluation play huge role as it allow the entity to measure the success of different strategic
choices implemented and also motivate the strategic direction by entertaining different changes
in decisions based on the financial outcomes entertained by the organisation. Accounting involve
preparation of financial records of business entity that can demonstrate the overall performance
of entity of the respective financial year. Financial practices involve annual audits, returns and
other such operations. All these are statutory compliances as in any situation Skansa Plc required
to fulfil the need and requirements of this legal requirements. Accounting and financial
operations empower the business entity to achieve the best level of statutory compliances.
Tax function
Accounting team play a huge role in tax reporting and also in processing the inventory of
the business entity. Both these functions are the primary role and responsibility associated with
the business entity. Tax reporting is about to report or project the estimated tax liability part of
the organisation. Tax reporting involves identifying profits of company and based on that to
generate the tax liability liable for the organisation. This further involve filling tax returns and
also to pay the liability. Inventory processing is another key functional duty part of the
accounting and financial departments. This involves ensuring the proper management of the
inventory. This involves based on the need and requirements of Skansa Plc inventory is ordered
and process further.
Auditing function
Auditing function is the major role associated with the accounting department of business
entity. Accounting functions enable business entity to improve external communication of
organisation. In the normal business operations Skansa Plc required to communicate with various
external stakeholders such as shareholders, investors, government and many others by reporting
the audit in front of them. These operations empower the organisation to reflect the overall

performance and effectiveness of decision-making done to deliver business objectives with
involvement of the audit records. External communication especially with the investor these
functions play crucial role as they always require the brief implication of the audited financial
records of company. Audit is the only way to project the actual outcomes against the
performance of entity (KIMANI, 2020). When it comes to taking loan company required its
audited financial record to ensure the income base of business entity. Government also rely on
over the audited statements and also the shareholders ensure the authenticity of the financial
records with support of the audited records of accounting statements. Auditing functions enable
business entity to improve external communication of organisation. In the normal business
operations Skansa Plc required to communicate with various external stakeholders such as
shareholders, investors, government and many others. These operations empower the
organisation to reflect the overall performance and effectiveness of decision-making done to
deliver business objectives. External communication especially with the investor these functions
play crucial role. Communication is the only way to project the outcomes against the
performance of entity. When it comes to taking loan company required its accounting and
financial record to ensure the income base of business entity. Government also rely on over the
audited statements and also the shareholders ensure the authenticity of the financial records with
support of the audited records of accounting statements.
Duties and role of financial Department
Financial department channelize and guided the following roles and duties in against to
the different functions directions. Finance department is among the prominent functional
department associated with the Skansa Plc as it allow the company to manage all different
financial responsibilities associated with the business entity. This become very essential that the
company hold a strong control over the utilisation of the financial efficiency as the financial
resources are limited in number that become more challenging for the company to utilise all
financial resources in the best way possible.
Investing function
Financial function involves investing in different proposal option available in front of the
business entity. Investing is an important and crucial area of practice where based on the need
and requirements of the organisation company chose the right investment option to maximises

the capital wealth of company. This consumes all expenditures business entity incurred in the
respective of undertaking the specific proposal or investment option. Future projects are also
coordinated with support of financial functions like capital budgeting that allows the Skansa Plc
to choose a respective proposal based on certain techniques like payback period, net present
value method and other such practices (Faccia and Mosco, 2019). Financial practices empower
the entity to entertain these practices so that best level of growth opportunities could have been
meet for the overall growth and success of organisation.
Financing function
Advising project funding is another crucial role and responsibility which finance
department need to meet. This involves advising the board of director of the Skansa Plc about the
funding plan. Company plan various proposals that can boost the growth of company this
involves infrastructure development related proposals; growth related proposals include business
expansion plan and other such plans. Finance team assess the proposal of the organisation and
based on that it provide its opinion where it clearly states that how much funds company should
investment, what are the potential returns it will generate against the investment made and other
such opinions. Current Skansa Plc is aiming to expand its business in some part of European
Union where the finance department guide the company in new areas or location company
should aim of business expansion and further the level of capital it should invest to gain the best
level of outcomes against the expansion plan (Musah, 2017). Further the finance professional
guide the business entity to convey the level of risk involve in the business expansion plan.
financial professionals also guide the company over different capital budgeting proposal. When
company improve its technology or advance its infrastructure it contains multiple project
options. Financial professionals guide company over each and every investment proposal
available for the company.
Dividend function
Dividend function is another crucial role that finance department at the Skansa Plc will
play. Under this on the basis of the expectation of investor company need to identify what should
be the possible dividend or return company can pay to its investors and shareholders. Dividend
function involve based on the overall profitability of the entity identify the most prominent return
over the investment of shareholders company should pay. This also involve making reserve so
that even if the entity do not consider effective profit in business it will also ended up paying

dividend to its shareholders. Dividend is also identified as the expectation of the shareholder or
the investor who has invested in the business in order to maximises the overall value of the
capital it hold. This becomes essential for the company to provide the good and healthy return
over the investment share holder has made in the business operations of company. This is
essential to meet up the expectation of the shareholder than only company will be able to
convince the investors to invest in the business operations of the organisation. The role of the
department and professionals is to analysis what part of the profit they should allocate to the
shareholder and what proportion of the profit should be contained in respect to future so that in
case of business contain loses still the company will be capable to mitigate the expectations of
the shareholders in the business operations of the Skansa Plc. Dividend function is a very
prominent functional direction associated with the company.
Working capital function
Working capital is the prominent role that financial department play in company.
Working capital is the prediction of the estimated finances company will require in order to
mitigate the day to day operational expenses (Mohd and et.al., 2020). Financial professionals
analysis the information related to current asset and then compare it with the current liability
expectedly company will incurred in process to identify the potential working capital business
will require. In the Skansa Plc Finance team collect information about projected current asset and
current liabilities related to the business. Company is currently planning to expand its business in
different areas of European Union which will further involve more requirement of the working
capital. Working capital involve day to day operations of the organisation which become
necessary to identify clearly how much liquidity or capital resources business will need to ensure
the smooth operations of the business entity. Working capital is among the key requirement
associated with the business entity. This allows the management to sustain an effective flow of
the operation and the functional responsibilities of the business entity. This is the amount of
capital that motivate the business organisation to sustain a good flow of the operations as this
require to manage daily operations and functions of the Skansa Plc. This is the basic difference
between the current asset maintained by the company and the current liability associated with the
business entity. This is essential that the organisation contain a good flow of all its functional
areas by managing the proper working capital require to mitigate all kinds of daily operational

responsibility associated with the business entity. This is the level of capital that business entity
needed to maintain in order to achieve best operational flow in the organisation.
The above mentioned role and responsibilities are associated with the accounting and
financial organisations. These are the prominent duties and responsibilities part of accounting
and financial team. Apart from these there is other functional responsibility also associated with
the accounting and financial professionals like developing strategy and many others. All the roles
and responsibilities mentioned above are the prominent areas of operational and functional
responsibilities associated with the business entity. In order to mitigate all the responsibilities
and business objectives of the company in the best way possible this is essential for the
organisation to ensure proper control over all the different roles and responsibilities mentioned
related to the financial and accounting team.
Task 2
Performance evaluation of organisations
Ratio is the statistical representation of the performance of business entity. Ratio supports
the business entity to monitor the performance of entity in respective market. Performance
evaluation is the process where based on certain ratios overall performance of business entity is
monitored and measured. This involves ratios such as return on capital employed, net profit
margins, current ratio, average receivable days and average payable days.
Return on capital employed:
This is the return company earn over its capital employed maintained. The formula of the
same is Earning before interest and tax / Capital employed (Total asset – current liability) * 100.
This indicates about the how much the return company could entertain against the capital
employed maintained by the entity.
2019
1650 / 5850 (8070 – 2220) * 100
= 28.21%
2018
1350 / 3830 (4470 – 645) * 100
= 35.25%
2019 could not address the same effective return over the capital employed as the year
2018. This clearly indicates that entity has performed less effectively in comparison to the year

2018. The key reason may be the business could not address its pace. The way to improve is
possible focus over improving the sales of company. Return on capital employed clearly
demonstrate that Skansa Plc could entertain low return on its total capital employed in the year
2019 as compare to the year 2018 in which it achieved 35.25% whereas the return of the latest
financial year is 28.21%. This is a significant decrease in the return of capital employed. Year
2019 suffer from COVID situation that is also a possible reason behind the low return to the end
of the year.
Net profit margin:
This is the net profit company entertain against its sale. It indicates the net profit margin
company entertained against making a sale.
Net profit / sales * 100
2019
675 / 6000 * 100
= 11.25%
2018
600 / 4800 * 100
= 12.5%
The net profit margin is less than the year 2018. This indicates that the organisation has
obtained a less net profit margin as compare to the year 2018. The possible reason behind is the
over spending in against to the previous financial year. This can be improved by controlling the
unreasonable expenditure of company. Net profit margin of company is 11.25% which is also not
competitive when it comes to comparing with the previous financial year in which the business
entity could address the profitability at the rate of 12.5%. Low net profit margin clearly
demonstrates the low performance of the business entity in the latest financial year (Muteti,
Namusonge and Nzomo, 2018). Profitability is the clear demonstration of performance of
business entity and lower profit margin state that company could not perform as effective as it
could in the last financial year.
Current ratio:

Current ratio is the comparative proportion of the current asset in compare to the current
liability.
Current asset / current liability
2019
2070 / 2220
= .932
2018
1515 / 645
= 2.35
The ratio clearly states that company hold a better balance between its current assets and
current liabilities in the year 2018 than the year 2019. Current ratio maintained by the Skansa
Plc is .932 of the year 2019 on the other hand the ratio for the year 2018 was 2.35. This
demonstrates that company could not maintain the balance between its current asset and current
nature liabilities. IN order to improve the overall performance of business entity it becomes
essential that the business entity ensure the proper balance between the current assets and current
liabilities of the organisation. Current ratio must be well managed as it directly impacts over the
liquidity position of the organisation. .932 is a bad situation that reflects that currently company
is holding or dealing more in its current nature liabilities than the current assets of the
organisation.
Average receivable days:
This dente the days require to the organisation for collecting the receivable.
Debtor / sales * 365
2019
1200 / 6000 * 365
= 73 Days
2018
900 / 4800 * 365
= 68.44 Days

The above calculation clearly state that 2019 require more number of days to collect the
debtor than the year 2018. The possible reason behind is the lack of liquidity available in the
market. This can be improved with support of better management of the receivables. Average
receivable days for the year 2019 are 73 days whereas the year 2018 the days was 68.44 this
demonstrates that company started taking more time to recover its debtor than the year 2018.
Debtor collection period must be minimum as it improve the liquidity position of the business
entity. More collection period damage the liquidity position of business entity.
Average payable days:
This ratio is about to time require to pay all the creditors.
Trade payable / cost of sale * 365
2019
2100 / 4350 * 365
= 176.21 Days
2018
570 / 3450 * 365
= 60.304 Days
The average payable days are more in the year 2019 than the year 2018. This clearly
indicates that the organisation has taken more time. The possible reason behind is the lack of
availability of the liquidity in business. This can be improved with better management of the
liquidity in business. Creditor payment period of company is registered as 176.21 days when as
the days in period financial year was 60.304 days that reflect that in the year 2019 company's
liquidity was so damaged that it was not able to repay or clear its due. This is a negative sign of
the business entity. Creditor payment period must be minimum for the company and if it is more
than this indicator that company is not capable enough to repay or clear it’s due. This is not a
good sign related to the performance of business entity.
The above mentioned ratios clearly demonstrate that company is not capable
enough to perform in the year 2019 as dominating as it could achieve in the previous financial
year. Currently Skansa Plc is planning to expand its business operations. The current
performance demonstrates that it could perform less effective in comparison to the previous
financial year. Business expansion is always a brave decision as it contains huge risk value along

with the potential to entertain growth in respective market. The performance assessment of
business entity demonstrate that low performance of the organisation can be a possible reason
due to the COVID pandemic that could suffer the businesses to perform healthy (Omnamasivaya
and Prasad, 2017). The pandemic could impose complete lock down that could shut the business
operations and also minimises the supply which could witness by the Skansa Plc in form of low
profit margins.
CONCLUSION
Accounting and finance operations are crucial for the business entity as they allow the
organisation control, plan and implement the financial resources in more effective way to
entertain better growth possibility. There are roles like budgeting, resource allocation, and
statutory requirements such as preparation of financial accounts and audit the accounting records
of the organisation. Skansa Plc performed less in the year 2019 as compare to the financial year
2018 and the possible reason behind the low performance of organisation was the COVID
pandemic that could stop the flow of operations.