Financial Decision Making Report: Evaluating Skanska PLC's Finances

This report delves into the significance of financial decision-making, emphasizing the crucial role of accounting and finance within businesses, using Skanska PLC as a case study. The report begins by outlining the importance of these disciplines, highlighting their impact on business operations and strategic planning. The main body then transitions into a detailed analysis of Skanska PLC's financial performance. This includes calculating and interpreting key financial ratios, such as the Return on Capital Employed (ROCE) and net profit margin, for the years 2018 and 2019. The analysis provides insights into the company's efficiency, profitability, and overall financial health. The report also considers the company's performance from the investor's perspective, discussing how financial data influences investment decisions and stakeholder communications. The report concludes by summarizing the key findings and implications of the financial analysis. This report provides a comprehensive overview of financial analysis and decision-making in the context of a major construction company.

FINANCIAL DECISION
MAKING

TABLE OF CONTENTS
Introduction......................................................................................................................................3
Main body........................................................................................................................................3
Importance of accounting and finance.........................................................................................3
TASK 2............................................................................................................................................6
Ratios...........................................................................................................................................6
Performance of Skanska plc ......................................................................................................11
REFERENCES..............................................................................................................................12

Introduction
Financial decision-making is important nowadays. The managers of the company should
have idea that how financial information are navigated while making decisions (Consigli, Kuhn
and Brandimarte, 2017). to understand finances is tough but very important as it is the financial
report only which help the business to raise funds for the projects. Shanska plc is the global and
big construction company. Along with the construction of new buildings, company also takes
renovation work. This report will discuss important of accounting and finance and calculate
ratios for the company from financial statements. Further it will also discuss performance of the
company from the investor view.
Main body
Importance of accounting and finance
Accounting and finance means recording and evaluating the activities of the business.
Company should understand that from where the income is coming and going as it will enhance
better decision-making and also helps company from failure. Accounting and finance department
is very important in every organization. Without this department no organization can work
smoothly. Shanska plc is the big company and have strong accounting department. Accounting is
vital as it helps to run the business. it helps in checking incomes and expenses. it gives financial
information of the company to the government, investors, management etc. accounting is also
helpful in the decision-making process. Accounting have many financial statements which shows
different things like income statement give idea about profit and loss. Balance sheet shows the
financial position of the company and cash flow shows that how much cash is spend and
generated in the particular time. The success of Shanska plc is that its financial records are well
maintained. Accounting and finance helps in analysing performance of the company. as it tells
the owner that what is happening inside the business and for any loophole owner can find
solution for it. it helps to keep the record of expenses, debt and facilitate comparison of current
data with the old accounting data and also allocating the budget. Ensures the statutory
compliance, as rules and regulations will be everywhere but with better accounting system will
ensure the statutory compliance of the company.
There are various accounting function which make sure that liabilities which include
taxes, VAT and various finds are properly addressed. Future projections and budget can be also
made from it. finance play vital role in this as budget can form or finish the business. the
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effective team of Shanska plc is efficient to handle all the financial work. in order to make the
business profitable businesses are based on the previous financial data. The financial data is very
important thing. as business files the financial statement and accounting helps in that. it also
helpful for direct and indirect tax filing uses. It is said that accounting and finance is the key of
the business and to understand number are very important for the business. Accounting and
finance are the pillars to the business and helpful in navigating the business. Company should
know that where the money is going and coming as through this they will have control over the
business (Hirshleifer, Jian and Zhang, 2018).
Shanska plc have the potential to manage its income and expenses and that is why they
have chances of growth. Accountant has the duty to manage all the accounts systematically
which be used for future purpose and also for running the business. Accounting also helps in
making strategies which helps the business to survive for long term and also give strength to the
business to face the unexpected financial down. Ledger of the company can be helpful for the
accountant to track the expenditure and income of the business. When business have proper
record of the finances of the business than they can manage their future and cash flow efficiently.
finance helps to avoid the legal problems if arises any. When company have proper records of
finances than it helps to follow business laws properly. Company should not overlook any minor
detail because that can bring major issues in the tax management.
This is the duty of financial managers to understand that which expenses should be
subtracted and when and how taxes of the business has to be pay. Company can go in the
auditing due to the poor financial recording and company can even face any legal issues. Legal
issues can destroy the image of the company (Accounting and Finance: Why Is It Important to
Your Business?., 2020). as discussed above also budget is the important thing and every business
should have made budgets. When making the budget accountant should consider goals,
expenses, unexpected adjustments etc. if Shanska plc want to be ahead than they have to manage
their business properly and regularly check their initial plan and make adjustments where
possible. Effective accounting shows strong management of the company and gives business the
stable foundation and also helpful to become successful. it helps in evaluating the performance.
as company can see their financial position by checking their previous and current records
related to the assets and liabilities. Owner can use the information to see the performance of the
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company. The financial records help to see the past mistakes and also learn from it and take
effective decisions.
Having knowledge of the current financial position, company can identify growth
opportunities and can achieve what they had planned to achieve. Financial information should be
communicated and it is very important to communicate it. when company want to take loan than
at that time clear finances are important (Barth, Papageorge and Thom, 2017). As financial
institutions will be providing loans to the company which have good financial position. No bank
will grant loan to the company who does not have stable financial position in the market. It also
helps in attracting investors. Company which have high reputation attracts more investor because
investors also thinks that if they will invest in the company than they will be getting good return
to the future (Lieber and Skimmyhorn, 2018). if the financial management of the company is
good than financial statements can be given to the external stakeholders.
As external stakeholders after seeing the report will decide that whether to proceed with
the company or not. Along with external stakeholders, financial reports also help business to
communicate the necessary information with the internal stakeholders. For the employee's
information is important. As employees will be getting salary and compensation, so they are very
interested in the financial position of the company. With this report owners can also
communicate with their stakeholders regarding the strength and weakness of the company.
Shanska plc have good counting management and this helps in making good strategy for the
business. After the budget have been developed and data is evaluated than it will become easy to
understand that how strategy have to be developed so that objectives of the business can be
achieved. Financial reports helps in making financial decisions which can be related to
employees or the supply management (Siegrist and et.al., 2020).
Accounting has many roles like it allocate cost to the business and prepare the financial
records. Along with financial accounting, managerial accounting is also important to the
business. as it evaluate the information which is collected from the financial accounting. Reports
for the business are prepared from it. important decisions are made by the management by seeing
this report. Managerial accounting is the approach which helps enterprise to gain maximum
efficiency by going through the financial accounting. Cost accounting is the type of managerial
accounting which focus on detail of the costs so that cost control can be effective. In the
decision-making process managerial accounting plays vital role.
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Accounting and finance function in the SKANSKA PLC plays their important roles and
duties while from which that could help the business for keeping their performance better.
Furthermore, that could also help them for having the better future aspects and that might be also
important for having the goals and objective to be complete. The organization required to keep
the financial performance strong while that help the business for knowing about the various
things which might be seemed to be important rather than having the loss related to their
products and services in the organization.
Accounting and finance also plays their important role in the SKANSKA PLC for having
the better decision while through which that could be seemed to be easier in having the better
future aspects. While through which organization might be not get effective over and situation
and that could take the proper decision in their business. This might be also helpful for them in
having the better future aspects in company and also make sure about those financial support in
which they can easily support the business strategy. In decision-making for the SKANSKA PLC
financial problem might be created while through which the organization required to face the
high situation and that could not be much easier for taking the powerful decision at their hard
time.
TASK 2
Ratios
Return on capital employed
Particular For the year ended 31st Dec 2018
Profit prior to interest, Tax and dividends 600
Total Assets 4470
Current liabilities 2325
ROCE = Earnings prior to interest tax (EBIT)/Capital Employed Capital employed = Total asset
– current liabilities
= 600/2425
= 27.97
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Particular For the year ended 31st Dec 2019
Profit prior to interest, Tax and dividends 675
Total Assets 8070
Current Liabilities 2850
ROCE
=675/5220
12.93
Return on capital employed
For the calculation of return on capital employed which is one of the financial ratio. This
ratio helps in the measurements of efficiency and profitability of the company. This ratio shows
how effective the company is while the usage of its capital and enhancement of profit (Sharma,
P., 2018). This is the most used and profitable ratio for the company which is used by many
investors for recognizing the company and its performance in order to make the decision for
investing in the company or not. From the above statements in has been identified that in 2018
the return on capital employed was 27.97 and 12.93 is the ratio for 2019. The motivation for the
investors from the use of this ratio is for ensuring that the investment which they are making is
going in the right company and their chances of yielding greater returns are high. Therefore, with
the help of this ratio how the different factors which can impact the profitability of the company
are understood. With high return on their investment (Brockway and et.al., 2019). From this
evaluation it has been concluded that ROCE for the 2018 was higher than compared to 2019.
Net profit margin
For the year ended 31st Dec 2018
Particulars Amount
Cost 3900
Revenue 4800
Profit 900
Margin 18.75
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Margin is the ratio of profit to revenue.
For the year ended 31st Dec 2019
Particulars Amount
Cost 5250
Revenue 6000
Profit 750
Margin 14.29
Net profit margin
Net profit margin ratio is the calculation of profit margin which is used for measuring the
profit of a company. This profit is calculated from the total revenue. With the help of deducting
expenses of the company from the total revenue of the company net profit margin is calculated.
This ration helps in understanding how the company efficiently controls it costs and all other
expenses from the total generated revenue (Tubastuvi and Pratama, 2020). This ratio helps the
investors to have an overview on the company in before making any sort of investments by
ensuring about the profit of the company with the help of profit margin ratio. This ratio helps in
indicating the performance of the profitability in the company. From the above statements is has
been evaluated that in the year of 2018 the net profit margin of the company was 18.75 and
17.9% ration in 2019. From this it can be said that the company is running in loss therefore it
will be rarely easy for the investors to make their choices into investment (Mahardini and Juwita,
2018).
Current ratio for the year 2018
Current Assets is 1515
Current liabilities = 2325
Formula = current assets/ current liabilities
1515/2325
0.65
Current ratio for the year ended 2019
Current assets = 2070
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Current liabilities = 2850
2070/2850
0.72
Current ratio
This ratio is also known as the liquidity ratio that helps in the measurement of the ability
of a company for repayment of short term obligations and debts within a year. For the investors
this ratio is also very useful as it states what the company can do for increasing the current ratio
in their balance sheet such that they can satisfy from the current debts, obligations and other
payable (Firdaus, 2020). This ratio of the company which is in the line of this industry can be
easily accepted and beneficial for the investors. Current ratio of the company when is lower that
the average of that particular industry this shows that there is high risk for the bankruptcy of the
company and the investors should not be investing in the company. Current ratio is the liquidity
of the company which ensures the current assets and the liabilities of the company it also
provides better outcomes and results to the investors of the company. For this company the
current ratio for 2018 is 0.65 and 0.72 in 2019 this shows that the company is not successful in
using the current assets properly (Thoyib and et.al., 2018).
Average Receivable days/ Debtors collection period
For the year 2018
Particulars 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
= 365*900/4800
= 68.4 days
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Average collection period
The time which is been taken by the businesses to receive the payments owned by the
clients in the form of accounts receivable is called every collection later period (Yang and
Huang, 2020). The calculations of patients is done by dividing the accounts receivable by total
credit cell and multiply by the number of days. For the companies this ratio is important, as they
can rely on receivables as it is their cash flow. An average collection period if handled correctly
results in smooth day-to-day operations in the business. The company’s average collection
period of 2018 was 68.4 days, but increased to 73 days in the year 2019 (De Bruecker and
et.al.,2018). Earlier the company used to convert their credit sales into cash increasingly but now
the company has slowed down and now the investors decide whether they want to invest or not,
hence can check the data period ratio of the company.
For the year 2019
Particulars Amount
Net credit sales 6000
Average net receivables 1200
Total amount of days in period 365
365*1200/6000
= 73 days
Average payable days /Creditors collection period
Formula = (trade payables/ cost of sales) * 365 days
For 2018
Particular Amount
Payable trade 570
Cost of sales 3900
Total amount of days in period 365
=570/3900*365
3.34
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For 2019
Particular Amount
Payable trades 2100
Cost of sales 5250
Total amount of days in period 365
=2100/5250*365
146
Creditors payment period
The time which is taken by the company and the current liabilities remain outstanding is called
creditors payment period. The average time taken by the company to set their obligation and
debts. This ratio provides the detailed information that the company is taking advantage from the
credit or not, this information is crucial for the company as it is one of the most important tools
which provides information of the liquidity of a company’s position.
Performance of Skanska plc
In comparison, of this company in the year 2018 and 2019 it is concluded that the
company was doing well in the year 2018. The return on capital employed is higher in 2018 to
2019. Company could not generate high returns on the capital employed in 2019. This pandemic
impacted the profitability of the company. The net profit margin ratio of the company is also
higher in 2018, and started to decline in 2019. The lock-down and the restrictions imposed by the
government could be some reasons. Overall the company was doing good and the investors were
satisfied in 2018 but in 2019 the company started facing losses.
Conclusion
From the above report it can be concluded that the financial decision-making helps the company
to determine the importance of financial decisions. The importance of accounting and finance for
the company is mentioned in the above report and shows how the company can enhance the
profitability with proper financial planning. The management of the company plays a crucial role
of the companies and how the managers help the companies to form strategies and plans. The
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report provides detailed information of various ratios such as return on capital employed, net
profit margin, current ratio debtor collection period and creditor collection period. These ratios
show the investors to make their investments.
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Online
Accounting and Finance: Why Is It Important to Your Business?., 2020. [Online]. Available
through: < https://www.freshbooks.com/hub/accounting/why-is-accounting-and-finance-
important>
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