Financial Decision Making Report: SKANSKA PLC Financial Analysis

This report provides a comprehensive analysis of financial decision-making, focusing on the accounting and finance functions within a company, specifically using SKANSKA PLC as a case study. The report details the roles of the accounting department, including financial accounting, management accounting, tax functions, and auditing. It also explores the finance department's responsibilities, such as investment, financing, dividend, and working capital functions. Furthermore, the report includes a financial ratio analysis, calculating and interpreting key metrics like Return on Capital Employed (ROCE), net profit margin, current ratio, and trade receivable and creditor collection periods. The conclusion emphasizes the crucial role of these departments in a company's financial health and compliance. This assignment is a valuable resource for students seeking to understand financial management and analysis.

FINNACIAL DECISION
MAKING

EXECUTIVE SUMMARY
Financial decision with respect to company and the investor are one of the major decision
that is concerned with the goals of the company and the investors too. This means that the
investor will make its investment in any company on the basis of the financial performance.
Likewise, with the help of financial statements and financial position, companies can make
analysis of the efficiency of their business operations. This report will discuss about the concept
of accounting and financing department along with their various functions. An analysis of
financial ratio and considering them base and taking of investment decision is also included in
this report.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................4
TASK-1 ACCOUNTING AND FINANCE FUNCTION...............................................................4
Accounting department................................................................................................................4
Finance department......................................................................................................................6
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9
TASK-2 CALCULATION OF RATIO.........................................................................................10
Ratio calculation........................................................................................................................10
CONCLUSION & RECOMMENDATION..................................................................................14
REFERENCES................................................................................................................................1

INTRODUCTION
SKANSA PLC is one of the largest construction company of the world. It was started in
1984. It is associated with the construction project and construction work in UK and other
countries. It operates its business operation in UK along with Sweden, Finland, Norway, Poland,
Denmark, Romania and many other countries. The number of employees are 30,944. The annual
revenue is around $7.2B in quarter 4 of 2020 (SKANSKA, 2021). It is counted at a rank of 1st
among the top 10 biggest competitor which shows its high and strong market presence.
SWOT analysis:
Strength:
Strong relation with supplier, R&D focus, great reputation across the world are all
counted as strength of SKANSA PLC.
Weakness:
Non capturing and establishment among developing market, low operating margin.
Opportunities:
High growth in construction sector among UK and USA, favourable business
environment, raising urbanization.
Threat:
Intense competition, high uncertainty among the market due to outbreak of covid pandemic
and Brexit between UK and EU.
TASK-1 ACCOUNTING AND FINANCE FUNCTION
Accounting department
It is one of the major department of any company including SKANSA PLC. As per the
function of this department, transactions are maintained and recorded. Along with recording of
transaction it is being classified and present in the form of financial statement so that the
company can evaluate its financial performance that how financially strong they are. It also
enables the companies to evaluate that whether they are performing in a desired direction or not.
Likewise, with the help of financial statement Investors can also analyse that whether They have
to take or make investment in the company or not. This means financial statement will also
enable the investor to take investment decision (Mella and Gazzola, 2019). Thus, it would not be

wrong to say that financial statement and accounting function of department plays an important
role within the company. It further consists of several function like:
Financial accounting:
It is one of the major accounting function that is concerned with the accounts department.
As per this function the transactions are recorded, summarized and reported in the form of
financial statements. In short it can be said that financial accounting involves preparation of
financial statement (Siekelova and et.al., 2017). This function enable the companies including
SKANSA PLC to analyse their financial performance that how efficiently the company is
moving towards it’s goal. As per this function various financial statement including balance
sheet, profit and loss accounts are prepared. Through this function SKANSKA PLC can analyse
its financial health or financial condition. This function enables it to have a snapshot of its
financial performance. This is to be noted that if the financial performance in the form of
financial statement are positive then company can easily attract investors and raise the funds.
Management accounting:
It is also an important function and elements of accounting. However, this is important
because it plays an important role in managerial decision making. This accounting is generally
related with internal recording and analysing of transaction. This means that it is concerned with
internal recording, analysing and interpretation of information (Rikhardsson and Yigitbasioglu,
2018). Cash flow analysis, product costing and valuation, budgeting, forecasting and many more
are counted under its important parts. Through this accounting managers can take decision with
regard to company that in in which direction it has to move in order to have better
accomplishment of its objective. In case of SKANSA PLC management accounting enables the
managers to take short and long terms decision. Through this function the efficient of company is
being raised.
Tax function:
Tax refers to the obligation of the companies towards the government. It is mandatory
that am every company including SKANSKA PLC that they should comply with the provisions
of tax and it’s liabilities. This function also cover under the accounting department which
enables the commies to have a mandatory payment of tax on due date. Since, accounting
department is wholly considered with the accounting and financial transaction so performance of
this function is also founder under accounting department. Being a mandatory compliance with

respect to every company would enable the SKANSA PLC to comply with law along with
performance of its business operation.
Auditing function:
This is also a main function of accounts department. As per this function the accounting
records and financial statements are being audited and checked. This function is related with
checking and evaluation of the financial statement and position of the company (Raiborn and
et.al., 2017). Through this function SKANSA PLC can enable their loopholes in terms where
they have to work more. Since it involves checking of financial statement so with the help of this
function, in addition of analysing the financial statement or position SKANSA PLC can also
make future strategies on the basis of that they can move forwards on order to rectify their issue.
Under this function a compliance with the required laws and regulations are also being
considered. Along with that the risk identification if any is also covers under this function.
Finance department
It is also an important department of every company including SKANSA PLC. As finance
enable the actual implementation of plans and performance of company’s function in terms of
availing finance or money within every department of the company (Flower and Ebbers, 2018).
Also finance department involves three major decisions in the form of investment, financing and
dividend. Thus, enable the company to make adequate arrangement of finance, along with
making an investment and distribution of profit. The performance of this department may consist
of:
Investment function:
It is one of the major and important decision and function concerning with finance
department. As no business can run ideally without exploration and investment is one of those
type. This means that as per this function, the finance department enable the company to have an
investment. Since there are many option concerning with investment so, by evaluating the
various alternative and selecting and choosing the most appropriate option with low risk is all
concerned with this function (Tajuddin and Endang, 2017). As making an investment and raising
good source of earning is very essential for every business including SKANSA PLC so by
performance of this function, the finance department can make decision with regard to

investment. This will again link and assist the company to move in the direction of its goal of
raising revenue in the long run.
Financing function:
This is also an important function of finance department. This is because along with
recognition of the requirement of funds within the company, it is equally important that the funds
will be raised too. This means that as per this function the finance department would raise and
attract the funds from the various and best source (Yulia, 2017). As arrangement of funds along
with maintenance of risk is an important task and by performance of this function, finance
department try to make and establish an equal balance between debt and equity. Thus, raising
and arrangement of funds with an evaluation of low risk is counted as a function of finance
department of SKANSA PLC.
Dividend function:
Dividend refers to the share of profit that is being distributed among the shareholders of
the company. It is like reward which is being allotted to shareholder for making their investment
and purchasing share in the company. It is that part of the profit that is being left out at the end
after the deduction of taxes and expenses (Triani and Tarmidi, 2019). Since, the utilization of
residual profit is an important decision that whether it will be kept from further investment or
distributed among shareholders. Thus, by making an evaluation of the financial condition and
situation, the finance department will perform this function. Likewise, in case of SKANSA PLC
also this function is associated with finance department which will take this decision.
Working capital function:
Working capital refers to the amount of money that is being used to pay short term debts and
meet the regular expenses. As this is related with the utilization of funds for the performance of
regular functions so determination of adequate fund in such a manner that the situation of
shortage never arise is again cover under the function of finance department (Chauhan, 2019).
Under SKANSA PLC the decision related with the determination of working capital requirement
is solely concerned with finance department. Ensuring adequate availability of funds to meeting
regular business operation is very important so it would not be wrong to consider and say that
this is also a major function associated with the finance department of the SKANSA PLC.

CONCLUSION
From the above report it is concluded that the finance and accounting departments and their
function plays an important role in every company including SKANSA PLC. This means that the
finance and accounting are one of the important departments with respect to SKANSA PLC in
case of performance of business operation along with its expansion decision. It is also
understood from the report that existence of these department in the company would enable it
have compliance of the laws along with performance of business operation because these
departments make the actual implementation and assisting the company towards its goal.

REFERENCES
Chauhan, G.S., 2019. Are working capital decisions truly short-term in nature?. Journal of
Business Research. 99. pp.238-253.
Flower, J. and Ebbers, G., 2018. Global financial reporting. Macmillan International Higher
Education.
Mella, P. and Gazzola, P., 2019. Accounting and Economic Calculation Logic to Determine
Corporate Results. BORDERS WITHOUT BORDERS:: Systemic frameworks and their
applications.
Raiborn, and et.al., 2017. The internal audit function: A prerequisite for Good
Governance. Journal of Corporate Accounting & Finance. 28(2). pp.10-21.
Rikhardsson, P. and Yigitbasioglu, O., 2018. Business intelligence & analytics in management
accounting research: Status and future focus. International Journal of Accounting
Information Systems. 29. pp.37-58.
Siekelova, and et.al., 2017. Receivables management: the importance of financial indicators in
assessing the creditworthiness. Polish Journal of Management Studies. 15.
Tajuddin, R. and Endang, K., 2017. The Effect of Investment Decision Financing Decision
Dividend Payment Policy and Company Size. Journal of Administrative and Business
Studies. 3(2). pp.105-113.
Triani, N. and Tarmidi, D., 2019. Firm value: impact of investment decisions, funding decisions
and dividend policies. International Journal of Academic Research in Accounting,
Finance and Management Sciences. 9(2). pp.158-163.
Yulia, E.F.N.I., 2017. The mediating effect of investment decisions and financing decisions on
the effect of corporate risk and dividend policy against corporate value. Journal of
Advanced Research in Law and Economics (JARLE). 8(23). pp.40-51.
Online reference
SKANSKA., 2021. [Online]. Available through < https://www.owler.com/company/skanska>

TASK-2 CALCULATION OF RATIO
Ratio calculation
Ratio Formula 31/Dec/2018 31/Dec/2019
Return On Capital
Employed (ROCE)
Operating
profit/Capital
employed*100
=750/3825*100
=19.61%
=975/5850*100
=16.67%
Net profit margin Net profit/Sales
revenue *100
=600/4800*100
=12.5%
=675/6000*100
=11.25%
Current ratio Current assets/Current
liabilities
=1515/645
=2.35
=2070/2220
=0.93
Debtor collection
period
Trade
receivable/Credit
Sales*365
=900/4800*365
=68.44 days
=1200/6000*365
=73 days
Creditor collection
period
Trade payable/Credit
purchase*365
=570/2700*365
=77 days
=2100/4800*365
=160 days
Operating profit:
=Gross profit-operating expenses
For 2018:
=1350-600
=£750
For 2019:
=1650-675
=£975
Capital employed:
=Total assets- current liabilities
For 2018:
=4470-645

=3825
For 2019:
=8070-2220
= 5850
Financial ratio:
These are the ratio which shows the financial performance of the company. It includes
the calculation of all those ratios through which the financial capability and performance of the
company would being analysed.
These are counted as important ratios because through this company can make self-
evaluation that whether they are performing good or not (Anupama and Kesava Rao, 2020).
Likewise, the concerned stakeholders including employees, investors, owners and various other
may also enable to analyse the company’s performance through these ratios.
Although calculation of ratios are important but making of future decision solely on the
basis of these ratio is not good. This means that as these ratio is an indicator of current financial
performance of the company but it would wrong to said that the performance would be same in
future. This means that it can be improved with the company’s efforts too.
Return on capital employed (ROCE):
It is one of the important financial ration concerning with profitability. It is the ratio of
profit and return with capital employed. This means that it is the ratio which shows that what
would be the profitability of the company with regard to capital employed. It means how much
return and profit is being generated with the efficiency of capital. This ratio is an indicator of the
company’s efficiency that how efficiently the company is using its capital which is again
analysed with respect to profit.
It is an important ratio because through this ratio company can analyse its own
performance level. It is also an indicator of company’s efficiency so through this ratio they can
determine their efficiency (Sekścińska and Markiewicz, 2020). This ratio also enables the
company to have an analysis of actual profitability with regard to capital.
While comparing the ratio of 2018 and 2019 of SKANSA PLC, it is analysed that the
ratio decline from 19.61% to 16.67%. This declining ratio indicate that company’s efficiency

with regard to utilizing the capital is reducing. This is also an indicator that the company is not
performing or implementing its efforts with the use of capital.
The main cause of declining ROCE is the company’s low sales and high cost. It is also
declined because of the investment of company in such bonds and stocks that bear high risk.
Lack of efficiency, poor performance is also counted under its reason.
However, it can be improved by making adequate decision with regard to investment.
Focussing high on raising sales along with reduction of operating cost. It can also be raised if the
SKANSA PLC will dispose its unnecessary and not useful assets. Raising the level of business
operation of the SKANSA PLC may also be a good move to improve this ratio.
Net profit margin:
This ratio is an indicator of the company’s profit with respect to sales and revenue. This
means that through this ratio the net profit in comparison of sale is being analysed.
This is an important ratio because through this ratio companies can enable that how much
net profit they have earned through the revenue which is received from sale of products and
services. This ratio indicates that how efficient the company is in terms of working and
performance (Husain and Sunardi, 2020). This means that through this ratio company can
analyse their actual performance in terms of their move towards their goal of earning profits.
In case of making comparison between 2018 and 2019 with regard to net profit margin
ration of SKANSA PLC it can be analysed that it is in declining stage or it decline from 12.5%
to 11.25%. this shows that the company is not running in the position of earning profit. Or it
would not be wrong to said that the company’s earning of profit is decreasing.
The major cause of declining net profit margin is the company’s poor pricing strategy
with regard to products. It can also be caused because of poor cost structure of the company.
This means that if the company will not make its adequate pricing policies or incur high
operating cost then the profit of the company would definitely be affected and decline.
It can be improved through raising of revenue by the SKANSA PLC. And the only way
to raise the revenue by SKANSA PLC may include raising of sales. Thus, it can be improved
either through raising of the percentage of sale or through increasing the prices of the existing
products.