Financial Decision Making Report: Analysis of Skanska plc Financials

This report delves into the realm of financial decision-making, concentrating on the analysis of Skanska plc, a multinational construction company. It begins by highlighting the importance of accounting and finance functions within an organization, emphasizing their role in managing finances, generating funds, and ensuring sustainable economic performance. The report then transitions to a detailed examination of financial ratios, including Return on Capital Employed, Net Profit Margin, Current Ratio, Debtor Collection Period, and Creditor Payment Period. These ratios are used to assess Skanska plc's financial health and performance, revealing trends in efficiency, profitability, and liquidity. The analysis includes specific data from 2018 and 2019, offering insights into the company's financial standing and how it has evolved over time. The report offers a comprehensive overview of financial decision-making and its practical application in a real-world business context.

Financial decision making

Table of Contents
Introduction......................................................................................................................................3
Task 1...............................................................................................................................................3
Importance of accounting and Finance function and their duties................................................3
Task 2...............................................................................................................................................5
Ratios...........................................................................................................................................5
Performance of Skanska plc.......................................................................................................10
Conclusion.....................................................................................................................................10
References......................................................................................................................................11

Introduction
The following report focuses on financial decision making. Financial decision making focuses on
financial information which states about the overall performance of any business and
Organisation (Tejero and et.al 2019). Financial decision making provides detailed information
about the analysis of estimates and all the investment options which are available for the
business. Financial decision making helps the business to know the cash flow statement balance
sheet income statement and profit and loss accounts so that management can take appropriate
decisions in the favour of the company. In this report Skanska plc has been discussed which a
multinational construction company is. This company has obtained the position of fifth largest
construction and Development Company in the world. This company wants to expand further
and to increase the presence in all over the globe. This report provides detailed information about
the management of his organisation and also States about the importance of accounting and
Finance functions. This report provides detailed information about various ratios.
Task 1
Importance of accounting and Finance function and their duties
Finance is one of the most critical parts of any organisation. As it is the blood of the organisation
and if the organisation get failed to manage then the company can’t perform all the works and it
can’t attain the objective as well. Finance and accounting functions play a vital role in the
Skanska plc as well (Siminica and et.al 2017). Finance assess the management of the
organisation to decide whether they want to spend the money and whether they should not spend
and when is the right time to make expenses and not. One of the most important uses of Finance
in the organisation is in the generation of money. Because money is very important for the
smooth functioning of the business and this company wants to expand more than it is a necessary
that they must provide and use Finance appropriately so that organisation can properly manage
its working capital. With the help of Finance this company can know how much capital they need
to more so that they can further increased the investment in the company that complete do not
have to face difficulties in long run and also in the generation of profit. Another importance of
Finance in the organisation as it manages the cash flows which is very necessary to carry out day
to day activities of the organisation. With the help of proper management of cash inflows and
outflows Company can know how much funds they have so that they can use these funds in

providing good return to their shareholders. As having more points can be written as compared to
having less responsibility of financial management that they must use the fund appropriately so
that do not bother the company and with the help of these points public and higher experts and
those people who have good qualification and experience so that they can help the company to
expand more (Thomas and et.al 2020). Apart from this finance management is helpful in helping
the organisation in the sustainable economic downturn. As the growth cycle of the organisation
do not just get the growth and profit all the time and it has to face downturns and lows so when
the finance department of the organisation is ready to face any kind of downturn then only
organisation can survive in the market. So this is the another importance of finance and
accounting department of this company that they made the organisation ready to face any kind of
situation whether it is in their favour or not. Apart from this finance is also very necessary in the
company so that they can acquire new resources and Company can make all the promotional and
marketing activities appropriately. Company may have to face unconfirmed liabilities at any
time and if the company is not ready financially then it may put inverse impact on the brand
image and reputation of the company. Apart from this and other importance of Finance in the
company is that it generates funds from the investors in the form of equity share and preference
share. Apart from this to complete the financial needs of the company Finance Department can
raise fund from various borrowing and liberate gym equipments such as loan debentures and it
may go for overdrafts as well so that company can repay their obligations and liabilities on time.
Along with this finance department has to measure the weak areas of the organisation so that it
can safeguard organisation from the worst situation. Another importance of financial department
in the organisation is that it prevents the management of the company to take wrong decisions by
providing detailed information about income statement balance sheet and profit and loss account
of the company so that they can come to appropriate decisions and take only such decisions
which are favourable for the company. Proper management of Finance in the organisation will
give them economic growth and also it helps the management to create wealth for the company
and also grow the financial stability of the company. As the management of this company is to
expand the business so if the company is not financially stable than no bank and other investors
will think to lend the money to this company but in case if company cannot repay the previous
loans of the banks then no one will give more for the loan to the company (Illmeyer and et.al
2017). So finance department is helpful in managing all this. Apart from this Finance

Department manages the organisational efficiency with the help of proper allocation and
providing teachers to the management. Apart from this financial accounting department of this
organisation help the management in acquiring new funds from various sources so that complete
do not have to run short of funds and various sources.
Management of Skanska plc
Skanska plc follows the proper hierarchy of the management. So that organisation must have
properly managed the working of other employees. This organisation has executive management
make various policies and Strategies for the further development of the organisation and the
executive management there is a team called senior management who is responsible for
communicating with the employees and make them aware about the various plans and policies
prepared by executive management team (Alkaabi and et.al 2019). Senior management team is
liable for bridging the gap between the employees and the executive management. The main
objective is to make solutions of any issues which is being faced by the employees while
working in the organisation and if the issue as back and it is not in the hands of senior
management team to bring solution then further they proceed the problem to the executive team
so that they can provide satisfaction result and outcome to the Employees. This is the hierarchy
which is being followed by this organisation so that taken smoothly conduct all the work and
lead the organisation towards the profit and attend all the objectives and goals which is being set
by the higher management.
Task 2
Ratios
Ratios play a great role in the organisation. As ratios help the company to analyse the return on
different investment which the company made in the past. Apart from this, ratios are important
for the perspective of investors as well because investors want to invest their money in only those
companies which provides them higher return and capital appreciation.
Return on capital employed
This ratio is calculated with the help if earnings before interest and tax. Further EBIT get divided
by capital employed. Capital Employed is known as the difference between total Assets and
current liability (Setyawati and et.al 2017). Which company is using this ratio to know the
detailed information about the efficiency and profitability of the organisation and how much
company will generate return in the near future. In 2018 company was having capital employed

ratio was 27. 9% on the other hand in 2019 ratio get decreases to 12.9%. It means the efficiency
and profitability of the company is continuously decreasing.
Return on capital employed
Particular For 31 Dec. 2018
Profit before interest, Tax and
dividends
600
Total Assets 4470
Current liabilities 2325
ROCE = Earnings before interest and tax (EBIT)/ Capital Employed
Capital employed = Total asset – current liabilities
600/2425
=27.97
Particular For the year 2019
Profit before interest, Tax and
dividends
675
Total Assets 8070
Current liabilities 2850
ROCE = Earnings before interest and tax (EBIT)/ Capital Employed
=675/5220
12.93
Net profit margin
As the name suggests this ratio provides detailed information about the profit of the company
with the help of total revenue (Jackson and et.al 2019). This ratio also provides information about
the production cost and other expenses of the company because these expenses have been paid by
the revenue and surplus of the company. Net profit margin ratio of this company for the year
2018 was a 10.7% apart from this in 2019 it has been decreased and become 14.2%. It shows that

company is not performing well therefore the profitability of the company is continuously
decreasing.
For 2018
Particular Amount
Cost 3900
Revenue 4800
Profit 900
Margin 18.75
For 2019
Particular Amount
Cost 5250
Revenue 6000
Profit 750
Margin 14.29%
Current ratio
Current ratio as the name suggest is ratio provides information about the current assets and
current liabilities of the. The main motive of using current ratio is that it provides information
about the capabilities and potential of the company to repay all the current liabilities with the
help of current assets. So that company do not have to go for various short term and long term
loans. In 2018 this company had 0.65% a current ratio while in the year 2019 date has increased
as and becomes 0.72 % this is the only good sign that companies using their assets properly.
Current ratio for 2018
Formula = current assets/ current liabilities
Current Assets is 1515
Current liabilities = 2325
1515/2325

0.65
Current ratio 2019
Current assets = 2070
Current liabilities = 2850
2070/2850
0.72
Debtor collection period
Debtor collection period provides the detailed information about the time taken by the clients to
provide various credit sales and their payment to the company. This ratio is being calculated by
dividing account receivables from the credit sales and multiplied by the number of days. This
ratio is important for the perspective of company. In the year 2018 this ratio was 68.4 days and
on the other hand in 2019 these ratio becomes73 days’ debtors are taking more time to repair to
the company. It is not a favourable situation for the company as debtors collection period is
necessary because when data is will not pay the company then it will become difficult for
company to manage day to day operations.
Debtor Collection period
For the year 2018
Particular Amount
Net credit sales 4800
Average net receivables 900
Total amount of days in period 365
Average collection period is = No. of days * average net receivables/ net credit sales
= 68.4 days
For the year 2019
Particular Amount
Net credit sales 6000
Average net receivables 1200

Total amount of days in period 365
365*1200/6000
= 73 days
Creditor’s payment period
This ratio states that how much time will be taken by the company to convert its current
liabilities to payoff and to remain the outstanding (Kumar, 2017). This ratio also plays a vital
role as creditor’s payment period states that how long company is taking benefit of its creditors
and using the money for the development of the company. In the year 2018 the creditor’s
collection period was 53 days and in the year 2019 it has increased to 146 days it means
company is using the fund for long and making delay in paying off to the creditors.
Formula = (trade payables/ cost of sales)*365 days
For 2018
Particular Amount
Payable trades 570
Cost of sales 3900
Total amount of days in period 365
=570/3900*365
53.34
For 2019
Particular Amount
Payable trades 2100
Cost of sales 5250
Total amount of days in period 365
=2100/5250*365
146

Performance of Skanska plc
As the overall performance of the company is not up to the mark. Hence this is one of the biggest
companies in the world even though it is not able to manage the capital and also unable to repay
to their creditors. In the comparison of 2018 and 2019 it has been clearly seen that the overall
performance of company in the year 2019 is decreasing as compared to 2018. Return on capital
employed was also decreased in the year 2019 apart from this the net profit ratio of the company
is also getting decreased. Apart from this the creditors payment period of this company is also
getting increased it Means Company do not have fund to repay their creditors. Overall all the
ratios of this company are not providing sufficient results in the favour of the company is can be
happened due to the pandemic. Pandemic has a rises in the country and due to that business has
to be mentioned for months and still the economy is going from the covid therefore this
organisation is also suffering and running short of profitability.
Conclusion
After analysing the entire report it can be concluded that this report focuses on financial decision
making. This report provides detailed information about importance of finance and accounting
apart from this management of the company is also mentioned in this report. Apart from this
various ratios such as return in capital employed, net profit margin, current ratio, debtors
collection period and creditors collection period is also discussed on this report.

References
Books and journal
Alkaabi, H. and Nobanee, H., 2019. A study on financial management in promoting sustainable
business practices & development. Available at SSRN 3472415.
Illmeyer and et.al 2017. The impact of financial management on innovation. Entrepreneurship
and Sustainability Issues. 5(1). pp.58-71.
Jackson and et.al 2019. The role of neighborhoods in household food insufficiency: Considering
interactions between physical disorder, low social capital, violence, and perceptions of
danger. Social Science & Medicine.221.pp.58-67.
Kumar, P., 2017. Impact of earning per share and price earnings ratio on market price of share: a
study on auto sector in India. International Journal of Research-
Granthaalayah.5(2).pp.113-118.
Setyawati, I. and Suroso, S., 2017. Does the Sharia Personal Financial Management Require?
Study of Sharia Financial Literacy Among Lecturers. International Journal of
Economics and Financial Issues. 7(4).
Siminica and et.al 2017. Financial management as component of tactical management. Polish
Journal of Management Studies, 15.
Tejero and et.al 2019. Financial Literacy in Relation to Financial Management. University of
Bohol Multidisciplinary Research Journal, 9, pp.125-131.
Thomas and et.al 2020. Factors that influence the financial literacy among engineering
students. Procedia Computer Science.172.pp.480-487.