Financial Decision Making: Skansa Plc Accounting and Finance Role

This report provides an analysis of financial decision-making, focusing on the importance, roles, and duties of accounting and finance functions within an organization, particularly in the context of Skansa Plc, a UK-based construction company. It discusses the significance of maintaining financial records, avoiding legal problems, making budgets, analyzing performance, and facilitating internal and external communication. Furthermore, the report elaborates on the role of accounting and finance in obeying the law, creating budgets, analyzing financial performance, and developing business strategies. The duties encompass preparing financial statements, tax reporting, inventory processing, data collection and analysis, advising on project funding, and creating KPI reports. The report also includes a ratio analysis of Skansa Plc to evaluate its financial performance and concludes with key findings and recommendations.

Financial Decision Making
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Table of Contents
Introduction......................................................................................................................................3
Task 1...............................................................................................................................................3
Importance of Accounting and finance functions.......................................................................3
Role of Accounting and finance functions..................................................................................5
Duties of Accounting and finance functions...............................................................................6
Task 2...............................................................................................................................................8
Ratio Analysis of Skansa Plc......................................................................................................8
Conclusion.....................................................................................................................................11
REFERENCES..............................................................................................................................12
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Introduction
Financial decision making is referred to the opportunity wherein the individual or an
organisation aims at acquiring the financial knowledge along with the skills that are required in
order to succeed in the dynamic business environment. The financial decisions are important in
order to maintain the financial liquidity in the organisation as well as the financial performance.
Financial decision making is a process that comprises of various stages such as identifying the
decisions to be made, Exploring the alternatives, Choosing the best alternative and acting in
accordance with the decisions. After acting upon the decisions it is important to evaluate the
performance of the decisions upon the organisation as well (Balasubramnian and Sargent, 2020).
Skansa Plc is a UK based construction organisation that was established in the year 1984.
The organisation is planning to expand its business operations across Europe in the coming 10
years. The financial statements have been provided and further the financial analysis in aspect of
the performance has been discussed in the report.
Task 1
Accounting and finance has a crucial role to play in the management of every
organisation and same is the case in aspect of Skansa Plc. The accounting and finance function is
important as the business operations are dependent upon the money and until and unless they are
monitored the business operation can not be smooth and successful. The various important, roles
and duties of Skansa Plc have been discussed below (Chen, 2018).
Importance of Accounting and finance functions
The accounting and finance function aims at recording, summarising as well as analysing the
financial transactions that further facilitates the various stakeholders of an organisation to
evaluate and analyse the financial health of the organisation. The importance of accounting and
finance function for Skansa Plc have been discussed below.
 Maintenance of financial records- The accounting and finance department of Skansa
plc will help in recording and maintaining the various financial records of the business.
The financial records comprises of the various financial activities of the business that
needs to be recorded. The various financial records include journal, ledger, trial balance,
income statements, etc. These help in tracking the income as well as expenditure of the
business on the daily basis. It will help the organisation to manage the finances of the
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organisation and further in aspect of the future as well as also facilitates understanding of
the cash flows (Eberhardt, de Bruin and Strough, 2019).
 Avoiding legal problems- The accounting and finance function helps in avoiding legal
problems for the business. An accuracy on the part of financial records will help in
complying with the laws of the business. In case the organisation misses out minute
details, it may have to face major applications in context of tax management. The finance
and accounts department helps in deducting the unnecessary expenses of the organisation
also facilitates tax payment in time. These help in avoiding the legal trouble for the
organisation.
 Making budgets- The accounting and finance department helps in making budget for the
organisation. The accounting and finance function will focus upon understanding the
flow of the money in the business along with the proper accounting practices and this will
initiate budgeting. The accounting and finance department of the organisation will work
upon the anticipation of the revenues as well as expenses that will help in using the
knowledge and further making decisions in context of growth and maintenance. Budgets
are basically referred to the accumulation of a good financial records along with its
maintenance and record keeping. The formulation of budgets is a complex task as it
required a lot of efforts as well as information to create business opportunities to focus
upon the success as well as stability of the organisation (Kim, Gutter and Spangler,
2017).
 Analysing the performance- The accounting and finance department of the organisation
helps in analysing the performance of the business. A good accounting system of the
organisation helps in reviewing the financial records of the organisation. The accounting
and financial function helps in analysing the cash in flows as well as cash outflows of the
business along with the financial benefits that is being derived by the organisation. This
will help in analysing the contribution of overall operations of the upon extraction of the
value from the organisation. The information will help in formulating informed decision
in context of the growth and downsizing of the organisation as well. It will also help the
organisation to assess the new rooms for growth of the organisation
 External communication- The communication plays a very important role in success of
the business. The accounting and finance department helps in efficient and effective
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external communication. The accounting and finance department focuses upon
communicating the financial position of Skansa plc to the various external parties. When
an organisation has an understandable and transparent financial record, it attracts the
potential investors towards the organisation (Klačmer Čalopa, 2017).
 Internal communication- Internal communication is also facilitated by the accounting
and finance function in the organisation. The personnel of accounting and finance
function is helpful in communicating the information of the organisation to its internal
stakeholders. The information might at times be relevant to the employees who have a
keen interest in the profit sharing as well as compensation techniques of the organisation.
The internal communication also helps in communicating the strengths and weaknesses
of the business among the stakeholders.
 Development of strategy- Another importance of Accounting and Finance department is
that it helps in developing various strategies for the organisation. An ideal accounting and
finance function helps in formulating a good strategy for the organisation. When an
organisation has successfully formulated a budget and analysed it further, it is important
for Skansa plc to understand the records and the financial position, as it will help in
formulation of an ideal strategy that will help in accomplishment of the goals for the
organisation. The strategy formulation process is a significant step in enhancing the
profitability (Lichtenberg And et.al., 2018).
Role of Accounting and finance functions
The role of accounting and finance function for Skansa plc have been discussed below.
 Obeying the law- The role of accounting and finance function of Skansa plc is to comply
with the law along with the good and fair accounting practices. The accounting and
finance function plays an important role of complying with the legal obligations that are
very important in order to avoid the legal suits for the organisation. The decline in the
authenticity of the accounting system might lead to negligence of minor details in context
of the legal aspects. It is very important for Skansa plc to oblige with the safety laws at
the organisation and the finances in these aspects need to be looked upon by the finance
department.
 Creating budgets and financial records- Another role of accounting and finance
function is that the organisation can focus upon the process of formulating the budgets.
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The accounting and finance function will focus upon understanding the flow of the
money in the business along with the proper accounting practices and this will initiate
budgeting. The accounting and finance department of the organisation will work upon the
anticipation of the revenues as well as expenses that will help in using the knowledge and
further making decisions in context of growth and maintenance. Budgets are basically
referred to the accumulation of a good financial records along with its maintenance and
record keeping. The formulation of budgets is a complex task as it required a lot of
efforts as well as information to create business opportunities to focus upon the success
as well as stability of the organisation (Mousavi and Lin, 2020).
 Analysis of financial performance- The accounting and finance function of Skansa Plc
can play an important role in analysing the financial performance of the business. It can
be difficult for the business to improve the business performance when the organisation
does not have access towards the past performance in order to understand and further
learn from them. A good accounting system of the organisation helps in reviewing the
financial records of the organisation. The accounting and financial function helps in
analysing the cash in flows as well as cash outflows of the business along with the
financial benefits that is being derived by the organisation. This will help in analysing the
contribution of overall operations of the upon extraction of the value from the
organisation. The information will help in formulating informed decision in context of
the growth and downsizing of the organisation as well. It will also help the organisation
to assess the new rooms for growth of the organisation (Plieger and et.al., 2021).
 Development of business strategy- The primary motive of most of the organisations is
to make profits but in order to reach the goal, the organisation is required to make various
plans and short term goals as well that helps in accomplishment of these goals. The
financial data basically comprises tools that can facilitate the organisation to understand
the economic landscape of the industry that the organisation is a part of. The organisation
can analyse the trends in the sales of the products from the various records and hence the
organisation can formulate the financial decisions based upon the trends in the
organisation.
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Duties of Accounting and finance functions
The accounting and finance function has to perform various duties in order to run the
accounting and financial activities of the organisation in a smooth manner. The task of the
accounting and finance function is to analyse the stability of the organisation in terms of
economic stability. This will help in conveying the financial information to the various
stakeholders of the organisation that will further facilitate budgeting and investment decisions. It
is the duty of the accounting and finance department to to report the cost, productivity, margins
as well as the company expenditures of the organisation. The various duties performed by the
accounting and finance department of Skansa have been discussed below (Rasheed and Siddiqui,
2019).
 Preparation of financial statements on a routine basis- The accounting and finance
function of Skansa plc will help the organisation in preparing the various financial
statement of the organisation that are necessary for analysing the financial performance
of the organisation. The various financial statements that are prepared by the accounting
and finance department are trading accounts, profit and loss account along with the
balance sheet. Th e financial statements are required to be maintained on a routine basis
I.e. Quarterly, half yearly or yearly basis.
 Tax reporting as well inventory processing- The accounting and finance department of
the Skansa plc performs the function of reporting of taxes as well as process in of the
inventory. Tax reporting is important in order to determine the amount of taxes that need
to be paid by the organisation. Inventory processing is done by the accounting and
finance department is to track the level of inventory as well as order, sales and deliveries
of the inventory within the organisation (Siegrist and et.al., 2020).
 Collection and analysis of data- The accounting and finance department of Skansa Plc
will work upon the collection and analysis of the data. The data is used by the functional
department to prepare the estimates for a routine basis i.e. weekly or monthly estimates.
 Advising estimated for project funding- The accounting and financing function of
Skansa plc aims at giving advises for the funding of various projects. The functional
department of the organisation suggests the required areas for expenditures and also
suggests on elimination of various unnecessary expensed in order to minimise the cost of
the organisation that further enhances the profit for the organisation.
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 Creating KPI reports- The accounting and finance department of the Skansa pc will aim
at creation of the key performance indicators of the organisation. This will help in
monitoring the performance that will further promote reproducibility of the organisation
as well (Stewart And et.al., 2020).
 Monitoring cash inflows and cash out flows- The accounting and finance function of
Skansa plc works upon creation of the cash flow statement that records the cash inflows
as well as cash outflows of the organisation. It is important for the organisation to prepare
a cash flow statement in order to control the expenditures by avoiding the unnecessary
cash outflows of the organisation.
 Helping in preparing year end accounts- The accounting and finance department of
Skansa Plc is responsible for preparing as well as assisting the preparation of the year end
accounts of the organisation along with the statutory accounts along with proper
accuracy.
 Responding the financial enquiries- The accounting and finance department of the
Skansa plc will help the organisation to respond towards the financial enquiry of the
organisation (Stewart And et.al., 2018).
 Conducting internal audits- The accounting and finance department of the organisation
will be responsible for conducting the internal audit for the organisation. The various
internal audit of the organisation include wage reviews. These audits are helpful in
identifying the various leakages at the organisation that can cause hindrance in the
financial performance of the organisation.
 Managing staff- The accounting and finance staff of Skansa plc helps in management of
the staff and further providing training to the staff, as per the requirement. The
accounting and finance departments aims to provide training to the new joiners of the
accounting and finance department in the organisation.
Task 2
Ratio Analysis of Skansa Plc
Return on capital employed
2018
Return on capital employed = EBIT
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capital employed
= 750 / 3825 * 100
= 19.61%
2019
Return on capital employed = EBIT
capital employed
= 975 / 5850 * 100
= 16.67%
Analysis- The return on capital employed of Skansa Plc for the year 2018 has been analysed as
19.61% whereas the Capital employed for the year 2019 has been recorded as 16.67%. The
return on capital employed has significantly increased in the year 2019 by approximately 225.
The reason behind the decline in the return on capital employed is that the capital employed has
increased by 2025 while the earnings have increased by 225 which is in a very insignificant
manner. This states that the capital employed at Skansa plc have not been performing well
(Valaskova, Bartosova and Kubala, 2019).
Net profit margin
2018
Net profit margin = Net profit * 100
sales
= 600 * 100 = 12.5%
4800
2019
Net profit margin = Net profit * 100
sales
= 675 * 100 = 11.25 %
6000
Analysis- The Net profit margin of Skansa Plc for the year 2018 has been analysed as 12.5%
whereas the net profit margin for the year 2019 has been recorded as 11.25%. The net profit
margin of Skansa plc has shown minute decline. The reason behind the decline in the net profit
margin is that the sales have increased by 1200 but the net profit has increased just by 75. This
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shows that the sales of Skansa plc has increased but the expenditures have risen at higher pace.
Hence, The net profit has not risen at the same pace.
Current ratio
2018
Current ratio = Current assets
Current liabilities
= 1515 = 2.35:1
645
2019
Current ratio = Current assets
Current liabilities
= 2070 = 0.93 : 1
2220
Analysis- The Current Ratio of Skansa Plc for the year 2018 has been analysed as 2.35:1
whereas the Current ratio for the year 2019 has been recorded as 0.93:1. The current ratio of
Skansa plc has shown a significant decline. The reason behind the decline in the current ratio is
that the current assets have increased by approximately 500 but the current liabilities of the
organisation has increased approximately by thrice. This shows that the organisation needs to
keep a check upon its liabilities and work upon paying off the liability in order to enhance the
financial liquidity of the organisation while enhancing the image as well (Yue, Gizem Korkmaz
and Zhou, 2020).
Average Receivable days/ Debtors collection period
2018
Average Receivable days/ Debtors collection period
= Total Trade receivables * 365
Total sales
= 900 * 365 = 68.44 days
4800
2019
Average Receivable days/ Debtors collection period
= Total Trade receivables * 365
Total sales
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= 1200 * 365 = 73 days
6000
Analysis- The Average Receivable days of Skansa Plc for the year 2018 has been analysed as 68
days whereas the Average Receivable days for the year 2019 has been recorded as 73. The
Average Receivable days of Skansa plc has shown a significant increase of 5 days. The reason
behind the decline in the Average Receivable days is that the Trade Receivables have increased
by 300 and sales have increased by 1200.
Average Payable days/ Creditors collection period
2018
Average Payable days/ Creditors collection period
= Trade payables
Average purchases
= 900 * 365 / 4800
= 68 Days
2019
Average Payable days/ Creditors collection period
= Trade payables
Average purchases
= 1200 * 365 / 6000
= 73 Days
Analysis- The Average Payable days of Skansa Plc for the year 2018 has been analysed as 68
days whereas the Average Payable days for the year 2019 has been recorded as 73. The Average
Payable days of Skansa plc has shown a significant increase of 5 days which is quite nominal.
The reason behind the increase in the Average Payable days is that the trade payable have
increased approximately by 300 and purchases have increased by 1200. The organisation needs
to work upon paying off its credit soon in order to increase the financial liquidity (Zaleskiewicz
and Traczyk, 2020).
Conclusion
It can be concluded from the report that financial decision making plays a significant role
in every organisation. The report has focussed upon the concept of financial decision making and
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its significance upon the primary organisation. The conclusion can be made that financial
decision making has several benefits along with duties as well as roles of the accounting and
finance department of the organisation. Also, ratio analysis has been performed based upon the
financial statements of the organisation. It has been witnessed that the current ratio has declined,
hence the organisation needs to focus upon paying off its liabilities obtain payments as soon as
possible in order to maintain its liquidity and financial performance. Also, Return on Capital
employed has decreased but the organisation can over come it by investing in fruitful resources.
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