Financial Decision Making: SKANSA PLC Performance Report 2018-2019

This report delves into financial decision-making, focusing on SKANSA PLC, a construction company planning European expansion. It critically evaluates the importance of accounting and finance functions, detailing their roles and duties within the organization, including systematic record-keeping, rational decision-making, legal compliance, profit/loss assessment, and financial performance evaluation through ratio analysis. The report also examines the duties and responsibilities of the accounting and finance department, such as budgeting, cash flow management, financial statement preparation, and internal reporting. Furthermore, the report analyzes SKANSA PLC's financial performance for 2018 and 2019 using ratio analysis to assess profitability, liquidity, solvency, and efficiency, providing insights for potential investors and recommending strategies for future improvement.

Financial Decision Making

TABLE OF CONTENTS
INTRODUCTION......................................................................................................................3
TASK 1......................................................................................................................................3
Critically evaluating the importance of Accounting and Finance functions along with the
duties & roles with regards to SKANSA PLC.......................................................................3
TASK 2......................................................................................................................................7
Commenting on the financial performance of Skansa Plc using ratio analysis tool..............7
CONCLUSION........................................................................................................................12
REFERENCES.........................................................................................................................13

INTRODUCTION
Financial decision making refers to the process which emphasizes on setting
competent monetary goals and framework. In the context of business organization, financial
decision making is highly significant for gaining competitive edge and desired level of
outcome or success. Hence, it is an accountability of manager to develop strategies which
maximizes shareholders wealth or profitability. In the current times, business unit employs
several accounting theories and models while making decision. The present report is based on
the case scenario of SKANSA Plc which deals or operates in construction sector. Now, for
fulfilling business aim and objectives company is planning to explore its operations in
Europe. In this, report will develop understanding about accounting functions. Further, it will
shed light on the roles and duties played by an accounting manager within SKANSA Plc.
Along with this, report also entails financial position and performance of concerned
organization for the period of 2018 & 2019 by employing ratio analysis technique.
TASK 1
Critically evaluating the importance of Accounting and Finance functions along with the
duties & roles with regards to SKANSA PLC
Accounting may be defined as a process which emphasizes on recording business
transactions or events systematically. In the context of SKANSA Plc, accounting and finance
is highly significant which helps in summarizing financial statements effectually. This in turn
assists stakeholders in decision making to the large extent. Importance of accounting and
finance functions can be evaluated in the following way:
Facilitates systematic record keeping
In business organization, A&F department plays a vital role in recording business
transactions on daily basis (Forcellati and et.al., 2021). By this, firm can track transactions
associated with business and thereby would become able to develop competent strategies for
the upcoming time period.
Ensures rationale decision making
A&F managers have accountability to provide stakeholders with appropriate financial
statements so that they can make appropriate decisions. Moreover, financial statements

contain information about net profit, loss and other details pertaining to business. By using
this information management team of SKANSA Plc can take better decisions about business.
Compliance with legal aspects
Now, for ensuring standardization companies are obliged to prepare annual report by
taking into account legal aspects (Key Functions of Your Accounting Department, 2021).
Accordingly, manager of SKANSA Plc need to keep in mind IFRS, IAS and other accounting
rules while preparing financial statements.
Assessment of profit and loss
Accounting manager is accountable to calculate and highlight profit or loss associated
with the specific accounting period. In this context, SKANSA Plc’s manager plays a crucial
role in keeping records pertaining to revenue and expenditure.
Evaluation of company’s financial performance
There are several stakeholders who interested in company’s financial position and
performance such as investors, employees, management, suppliers, creditors etc. Thus, A&F
departments provides stakeholders with input for performance evaluation (What are the
functions of accounting?, 2021). By undertaking financial statements concerned stakeholders
can do evaluation of companies performance from several perspectives such as profitability,
liquidity and solvency etc. In this way, by preparing final accounts A&F department assists
stakeholders in decision making to a great extent. Besides this, manager of A&F perform
ratio analysis with the motive to inform high management team about the extent to which
performance improved over the years. Manager clearly indicate areas where performance
level decreased along with the reasons. By using this information management can do
suitable modification sin the existing framework. On the critical note, ratio analysis is based
on past performance, whereas management concerned about future. Business conditions also
vary from one year to another. Meanwhile, at the time of performance evaluation SKANSA
Plc’s manager should keep in mind all the aspects associated with this model. Through this,
appropriate framework can be presented by the manager for decision making purpose.
Business assets protection
Managers who working within accounting & finance department also plays significant
role in protecting assets related to the business enterprise. In other words, accounting

department make focus identifying aspects whether business assets are used in an authorized
manner or not. Through such assessment manager of SKANSA plc exerts control on
undesirable activities.
Duties and responsibilities
There are several roles and responsibilities which A&F department plays for ensuring
smooth functioning of business operations. Hence, with regards to SKANSA Plc duties and
responsibilities of accounting department are enumerated below:
Budgeting: Accounting manager have accountability to draft suitable budget for the
upcoming time period by making estimation of both income & expenditure. Budgeting also
includes aspects pertaining to purchase & selling of assets, other income sources etc. By
taking approval regarding budget from higher management team manager of SKANSA Plc
can circulate within concerned department. This in turn provides deeper insight to other units
about the level to which money should be spent in different activities (Costa and et.al., 2020).
Besides this, manager is accountable for finding deviations with the motive to evaluate
departmental performance. As, by taking into account forecasted budget manager of
SKANSA plc do comparison of actual performance in against to the predetermined aspects.
Meanwhile, by finding deviations and related causes A&F department suggest remedial
measures which SKANSA Plc should undertake for performance improvement. However, it
is to be critically evaluated that if manager failed to set suitable targets or standards then
results into higher deviations. In this situation, employee motivation and overall decision
making affected adversely. For avoiding such negative aspects manager focuses on
undertaking modern budgeting methods while doing financial planning.
Managing company’s cash flows: In SKANSA Plc, it is the duty of manager to
ensure that enough funds available within business for running operations uninterruptedly.
Review of credit and collection policy is also the main duty of SKANSA Plc which in turn
aligned with company’s performance. Hence, manager is responsible for ensuring that all the
vendors or creditors paid correctly as per the details included in vouchers (Horsman, 2021).
Along with this, A&F also monitors whether company received suitable payment from
debtors within specific time period.
Drafting financial statements: Further, within SKANSA plc manager has duty
pertaining to preparing financial statements at the end of an accounting year. This department
makes focus on doing adjusting entries with the motive to comply with standard framework

such as IFRS, IAS etc. Along with this, they also need to release such accounts for satisfying
the information need of stakeholders. On the critical note, in the absence of having
knowledge about rules contained in IFRS and IAS manager faces difficulty in preparing
reports. Now a days, business units lay focus on preparing accounts in standardized format
which can be compared with other companies as well. Thus, manager has responsibility to
prepare statements by keeping in mind all the related frameworks.
Billings and collections: A&F manager has duty in relation to assemble information
about shipping and orders placed by the customers. Besides this, for making optimum
utilisation of funds manager is required to track receivables as well. On the basis of this,
manager need to monitor debtors which in turn indicates amount owed from customer’s side
(Accounting department responsibilities, 2021). Through doing evaluation of these aspects
manager can ascertain strategies and policy need to be employed for collecting payment
within the suitable time frame.
Internal reporting: In business unit, reporting provides high management department
with appropriate input for decision making. Moreover, in SKANSA Plc, cost accounting
department offers competent input about profitability pertaining to several areas such as
product line, customer service, sales etc. Due to having fluctuations in macro and micro
environment performance of business unit changes continuously (Weimei, 2021). In this case,
through updated reporting system management team of SKANSA Plc can take suitable
measures for the enhancement of financial performance.
Developing payroll: Finance department is responsible for collecting working
information of employees by coordinating with HR department. Manager has duty to assess
or calculate tax and other deductions associated with employee’s salary (Accounting
department, 2021). In addition to this, manager of A&F also resolves employee’s issues
pertaining to making net payment through the means of cheque, card, cash etc.
Recording and managing payables: Maintenance of healthy relationship with
vendors is another main duty and responsibility of A&F manager within SKANSA Plc.
Manager needs to focus on identifying and exploiting opportunities in relation to getting
additional discounts and offers by making additional payments. Further, for ensuring
effectual working capital management manager of SKANSA plc should focus on ensuring
that payments are settled after specific time period without any additional charges.

Tax ascertainment: Assessment and handling of tax issues is one of main duty of
A&F department. As per the rules and regulation business has to pay tax to the government
authority on income generated during the period. Hence, at the end of accounting year
manager has duty to calculate tax appropriately by taking into account standard policy or
framework. In this way, accounting department and related personnel resolve all the
organizational issues associated with tax matters.
Provides assistance in making strategic decisions: Through A&F department
management team of SKANSA Plc can generate necessary information for decision making.
For example: Construction company, i.e. SKANSA Plc, emphasizes on purchasing
machinery, land etc for business purpose. In this context, A&F manager provides
management with suitable information for decision making by applying capital budgeting
tools & techniques. Moreover, payback period, net present value, average and internal rate of
return entails the extent to which specific project will prove to be beneficial for the firm.
Hence, by using these techniques manager aid in decision making and thereby contributes in
organizational success. Besides this, A&F personnel assist management team in making
suitable decision about dividend declaration & distribution, fund allocation etc. To make
optimum usage of funds manager also assists management team in setting suitable financing
mix which ensures organizational growth & profitability.
Provides guidance for long-term financing: Finance department having duty to
develop competent capital structure which maximizes profitable. The rationale behind this,
capital structure of the firm has direct impact on profitability aspect (Forcellati and et.al.,
2021). Therefore, manager should set capital structure by taking into account ideal
framework such as .5:1. Accordingly, in against to 2 equities business unit should issue 1
debt. In this way, manager is accountable for setting optimal capital mix for an organization.
TASK 2
Commenting on the financial performance of Skansa Plc using ratio analysis tool
Ratio analysis may be presented as a quantitative method which provides deeper
insight about company’s position from several perspectives such as profitability, liquidity,
solvency and efficiency. This tool assists firm in making evaluation of company’s
performance over the years and in comparison to competitors as well. Hence, by considering
outcome of ratio company can take further effectual measures for performance enhancement

(What is ratio analysis?, 2021). On the basis of given case scenario, an investor wishes to
invest funds in SKANSA Plc for capital appreciation. In this regard, for getting deeper insight
about company’s performance ratio analysis too has been applied. This in turn helps in
evaluating performance and recommending strategies for future improvement.
Ratio analysis of SKANSA Plc for the period of 2018 and 2019 is as follows:
Particulars Formula 2018 2019
EBIT 1350 – 600 = 750 1650 -675 = 975
Capital employed Total assets – current
liabilities
4470 – 645 = 3825 8070 – 2220 = 5850
ROCE EBIT / Capital
employed
19.6% 16.7%
Net profit (NP) 600 675
Net sales 4800 6000
NP margin or ratio NP / Sales * 100 12.50% 11.25%
Current assets (CA) 1515 2070
Current liabilities
(CL)
645 2220
Current ratio CA / CL 2.35 .93
Sales 4800 6000
Debtors or
receivables
900 1200
Average Receivable
days/ Debtors
collection period
Debtors / Sales *
365
68 days 73 days
Creditors or payables 570 2100
COGS 3450 4350
Average payable Creditors / COGS * 60 days 176 days

days/ Creditors
payment period
365
Return on capital employed
ROCE entails company’s efficiency in relation to generating profit from capital
employed. According to the theories increasing ROCE indicates that company is performing
activities more efficiently. Tabular presentation shows that ROCE declined from 19.6% to
16.7% which in turn not good. It indicates that currently company failed to generate enough
profit margin through capital used for the operations. For getting high profit margin business
entity of SKANSA Plc can organize training session for personnel. By this, company can
enhance proficiency level of personnel and thereby become able to attain high profit margin.
Along with this, by emphasizing on promotional aspects SKANSA can maximize both sales
and profitability aspect.
Net profit ratio

Net profit margin helps in making evaluation of firm’s profitability aspect pertaining
to the concerned years. It reflects profit which business unit has generated in against to
indirect expenses incurred (Ratio analysis, 2021). By doing ratio analysis, it has found that
NP margin of Skansa Plc deteriorated from 12.50% to 11.25% at the end of 2019. It presents
that profitability of business unit decreased irrespective of increasing sales trend. In the year
of 2019, both operating and finance expenses of the firm were increased. In 2019, finance
expenses incurred by SKANSA Plc increased from £300000 to £600000 respectively. Hence,
due to high operating or indirect expenses net profit margin of company fallen. Thus, for
improving profitability aspect firm should lay focus on undertaking budgetary control tools
and techniques. By doing this, manager of Skansa Plc can exert control on expenses and
thereby improves profitability to the significant level.
Current ratio

Current ratio helps in measuring company’s ability in relation to fulfilling short term
obligations from assets. Outcome of ratio analysis clearly exhibits that, in 2018, current ratio
of SKANSA Plc was 2.35. On the other side, at the end of financial year 2019, it reached
on .93 which in turn highly lower as compared to the ideal ratio. Moreover, as per the
standards, company’s liquidity position can said to be sound when it has 2 current assets in
against to 1 obligation. As per the results, in 2019, company possessed only 1 current asset
for fulfilling 1 obligation. Hence, referring results it can be said that liquidity position of
SKANSA Plc was sound in the period of 2018. However, in 2019, business unit failed to
maintain enough liquidity within the firm. The rationale behind this, in 2019, cash level of the
company decreased to a great extent from £75000 to £15000. Due to this, liquidity position of
SKANSA Plc was affected adversely. Hence, business entity need to make focus on
maintaining enough cash balance in line with liabilities and ideal framework. By applying
theoretical framework pertaining to working capital management owner can ensure enough
liquidity within the firm.
Receivable days

Debtor’s collection period refers to the number of days within which amount of credit
sales are collected from customers. By doing evaluation it has found that debtor’s receivable
period increased from 68 to 73 days. This is not a good indicator because it directly impacts
company’s liquidity position and day to day operations as well. Moreover, if business unit
receives amount from debtor’s after longer duration then it may result into lower liquidity.
As, in 2018, company was receiving payment from debtor in 68 days which in turn less from
2019. Hence, manager of SKANSA Plc should tighten credit policy and do focus on
customers who make payment within short time period. Moreover, by collecting amount from
debtors within suitable time frame company can run daily business operations prominently.
Along with this, less receivable period also offers opportunity in relation to investing funds in
profitable operations.
Payable days