Report on Financial Decision Making and Ratio Analysis for SKANSA PLC

This report provides a comprehensive financial analysis of SKANSA PLC, a UK-based construction company. It begins with an introduction to financial decision-making and its importance, highlighting the key aspects businesses must consider. Task 1 focuses on the significance of accounting and finance functions, duties, and roles within SKANSA PLC, detailing various types of accounting functions such as financial planning, managerial accounting, and financial accounting. The report emphasizes the importance of these functions in monitoring earnings, planning, allocating resources, and managing funds. Task 2 involves the calculation and analysis of financial ratios, specifically the Return on Capital Employed (ROCE), to assess the company's financial performance. The report includes the calculation of ROCE for 2018 and 2019, providing insights into how effectively SKANSA PLC utilizes its capital. The analysis helps understand the company's profitability and efficiency in managing its capital investments, concluding with an overview of the company's financial health.

Financial Decision
Making

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Importance of Accounting and Finance functions, duties and roles in SKANSA PLC:.............3
TASK 2............................................................................................................................................7
Calculation of of ratios for the company and comment on performance of company................7
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Financial decision-making relates to set of activities or mechanism of assessing the positives and
negatives of decisions when it applies to the application of capital. The major aim of this study-
report is to highlight all key aspects that all enterprises need to consider in attempt to
take appropriate business financial decisions. Financial decision making provides assistance to
leverage available financial resources to accomplish the goals of the company, until a sufficient
standard of business financial performance is attained (Valaskova, Bartosova and Kubala, 2019).
This offers both a strategic as well as conceptual basis for the process of financial decision-
making. The main facets of entire financial decision-making apply to funding, investments,
dividends and managing of net-working capital. The current study is primarily based on
the SKANSA PLC, which is UK based construction corporation formed in year-1984. Study-
report cover thorough evaluation of company's financial position by using ratio analysis.
TASK 1
Importance of Accounting and Finance functions, duties and roles in SKANSA PLC:
Accounting and finance both these concepts aggregately have primary role for the company that
are used to carry out its operations in order to meet corporate objectives. The method of
recognizing, acquiring, categorising and reporting financial findings relating to a firm is regarded
to be accounting that is crucial for determining the adequate business decisions. Any firm must
evaluate the financial operations and the information which offer the relevant information as well
as to control the operations. In the case of SKANSKA PLC, both accounting as well as finance'
key functions are employed by administration to monitor their company by monitoring both sales
and expenses relevant to the company that enables to improve effectiveness (Kim, Gutter and
Spangler, 2017).
Types of accounting and finance function
 Financial planning: this described as the primary function within business for the
organisation's financial scheduling and preparation as well as making budgets with help
of this. In company SKANSKA, mangers are accountable for execution of on financial
planning process by taking into consideration all accounting and financial transactions.
 Managerial Accounting: This is the practice for formulating reports, managing both
accounting and finance processes and compiling business-related records. The

administration of SKANSKA performs these functions to support the appropriate
business decisions by compiling financial and integral reports.
 Financial accounting: It concerns the maintaining of accounting records for all
transactions, use of the double-entry accounting system and the preparation of final
statements that are sufficient for fulfilling the multiple governmental specifications for
legislative reporting, stock exchange and financial regulators. The financial accountant,
who will usually report to top management, is the individual accountable for this work in
most mid to large enterprises.
 Supporting the business strategy and making financial policies: Finance manager is
accountable for making financial environment which supports financial and business
strategy. The right combination of shorter-term and longer-term finance and capital
resources ought to be made accessible to fulfil the organisation 's objective and have the
organisational agility required to take advantage of potential opportunities. All executives
have primary function to generate value, and the chief duty of finance officer is to allow
them to achieve so (Loerwald and Stemmann, 2016).
Importance of Accounting and finance functions, duties and roles:
Monitoring Earnings and Expenditure: accounting finance is key aspect in
enterprise that allow it to monitor the earnings and spending accrued or actually
incurred/earned in business. It is crucial for entity to classify the expenditures and monitor the
function. In the SKANSKA Corporation, administration employs accounting and finances
processes to monitor earnings as well as expenditures which contribute to enhance productivity
(Black, 2019).
Sound and effective business planning: finances and accounting processes are required
in the enterprise as they help to devise effective plans and tactics that will serve to improve the
functioning in competitive marketplace and to accomplish the targets. There is a significant
requirement of this in SKANSKA PLC to effectively accomplish the different administrative
tasks. In this context, administration emphasizes primarily on fund management, revenues,
business growth, the setting of targeted profitability and the determination of the stock
level which helps to gain competitive advantages.
Allocation of business resources: various activities are performed in the enterprise
thus it is necessary for managers to employ accounting and finance aspects that will enable them

to manage business resources and allocate resources to such different activities/functions in order
to achieve the business objective. Managers of the SKANSKA PLC apply accounting and
finance data to recognize all accessible business resources and allocate them to
increase efficiency with optimal resource usages.
Action plan for Long-term objectives: the company seeks to expand and broaden its operations
to a broad level as well as to attain vision. pTo do same, manager are required to devise long-
term strategy. But long-term plan can be implemented in business by an effective action plan
which so they apply accounting and finance processes and extracted information for this. In
SKANSKA, managers use accounting and financial details to support their action plan
for achieving longer term objectives (Bouzguenda, 2018).
Managing and generating funds: to commence and continue operating an enterprise, funds are
essential thus business managers have to ascertain adequacy of funds in business as to operate
business functions effectively. Accounting and finance here in this case is vital for them as to
assess the exact requirement of funds, manage the flow of funds within business as well as
identifies the effective sources of funds. The administration of SKANSKA employs financial
and accounting processes to effective monitoring of funds, maintain adequate
liquidity position of company as well as recognise best alternative to raise funds when required
(Davis and Davis, 2019).
Revenue Management: This strategy is main initiatives initiated by finance department
for those relevant to money or cash equivalents. The sales control strategy includes amount of
liability that may be taken by the organisation at any given time frame or duration. Revenue
operations and administration are typically controlled by Assistant Finance Manager or Junior
Accountant, while Chief Financial Officer manages any element of FA. As a construction firm,
SKANSKA PLC should have adequate sales control to ensure that any construction project has
the anticipated revenue level. SKANSKA PLC would also require proper sales forecasting
methods to be reliable and less dependent on assumptions (dos Santos, Pires and Fernández,
2018).
Investment valuation method: this is technique developed by accounting and finance division,
it is a quite useful business method. Since it allows investor to determine the result
of investment, investor can recognize the appropriate choice among the options by
utilizing investment appraisal methodology. SKANSKA PLC is a well-known construction firm

which holds a broad investment account. In order to retain current investors and draw further
investors, accounting and finance division of SKANSKA must develop suitable investment
valuation strategies to draw the current investment entity along with potential investors to market
(Sapkauskiene and Orlovskij, 2017).
Establishing Accounting Policy and Procedures Manual: key duties of accounts and
finance division is the development of accounting policy that regulate all accounting
& finance transactions. Such policies will ensure that any transaction is carried out
internally externally throughout the sector. since such policies needs to be accepted by upper
executives, they are originally developed by accounting and finance division. Accounting policy
decisions are rules developed by accounting and finance division. Accounting practises are very
relevant for SKANSKA, as they can allow the company to maintain track of any sale.
Monitoring transactions is most important things to remember and handle, since losing trace of
even single transaction will disrupt the entire financial system of the company.
Budgeting: This is one of main foundations of every company. This has to be achieved
effectively, and the success of the company rests largely on how effectively budgets are being
created. Budgeting is a crucial feature of accounting and finance division since it holds a full list
of figures within the company. Finance department could review the figures and determine the
current state of the firm. Budgets allow customers to anticipate a vision of the future such that
the agency has to be productive enough to function appropriately. Budgeting is essential for all
larger or smaller companies, such that SKANSKA PLC, as a well-known large company,
requires considerably more budgeting for facing the challenges of competitiveness on market.
SKANSKA PLC. Has to determine the priorities to be set in accordance with existing market
assessments, along with status of the rival. Without adequate budgeting methods, accurate
planning is not feasible (Motylska-Kuzma, 2017).
Eradicating frauds: one of key tasks of accountants inside an company is to prevent
frauds and emphasize accountability in all transactions. It is impossible for upper management to
avoid theft on their own. Higher management is heavily reliant on accounting and finance
division for the avoidance of fraud. Since inflows and outflows are maintained by finance
department, department should be mainly accountable as greater responsibility brings significant
responsibilities. The larger the scale of the company, the greater workforce and the greater the
opportunity for bribery in the company. SKANSKA PLC is huge company, and it's much more

difficult for a major corporation to cope with frauds. Accounting and financial divisions must
maintain a tight watch on accountability to support SKANSKA PLC eradicate fraud as a whole
(Oehler, Horn and Wedlich, 2018).
Accounting & finance division of SKANSKA PLC should consider functions and roles
described in order to remain an effective business entity. Finance Department as a whole has a
high degree of significance for strengthening of industry. That is why it has a larger duty to
coming up with right strategies and methods to ensuring that the company goal is achieved as
needed. Through the correct application of the strategies and practises proposed by accounting
and finance division, SKANSKA is more able to keep its role or raise it to whole new standard.
Accounting-and-finance practices are crucial for reviewing, maintaining and managing all
financial operations related to business as well as used to carry out all operations. In order to
establish and operate a business, it is important to have a clear comprehension of accounting and
finance aspects that take effect within business while functioning, such that they can be managed
appropriately.
The efficient accounting and finance division of SKANSKA PLC would carry lot of
advantages to the company. Department would be enabled to keep customers optimistic by
delivering the best image of financial stability. The Department would therefore be prepared to
have an acceptable compromise among risk and benefit value creation. Financially, it reflects an
acceptable balance between risk and benefit wealth creation. Financial management promotes a
structured and well-organized decision-making process for the group. SKANSKA PLC would
also have strategic edge as the group will be allowed to adapt efficiently to everything relating
to financial aspect. The total activities of department will function well, and one of crucial
aspects is flow of financing to cover the expenditures properly.
TASK 2
Calculation of of ratios for the company and comment on performance of company
Return on capital employed:
Particulars/Details Year 2018 Year 2019
Net profits 600 675
Capital employed 3825 5850

ROCE: Net profit /
Capital Employed *
100
600 / 3825
* 100 =
15.69
675 / 5850
*100 =
11.54
Working notes:
Calculation of capital employed
Particulars/Details Year 2018 Year 2019
Total assets 4470 8070
Less: Current liabilities 645 2220
Capital employed =
Total Assets less total
current liabilities 3825 5850
ROCE inform management about how well a firm uses its capital. Managers can apply ROCE
as fundamental analysis to decide whether or not business uses their capital employed well or
not. Returns on capital invested, or ROCE, is long-term profitability ratio which calculates how
easily a business makes use of their capital-funds. The measure shows yield produced by each
pound employed. By evaluating the multiple ratios of company SKANSA PLC, this has been
analysed that the corporation's performance is quite good in year 2018 in comparison to
year 2019. The above ratios results indicate that return on capital invested in year 2018 is
around 15.69 and that reduced to 11.54 in following year. This indicates that the corporation is
losing its competitive edge since this decline in ROCE demonstrates that the business's
efficiency to generate returns/yield has been declined over the period (Park and Cho, 2019).
Net profit margin:
Particulars/Details Year 2018 Year 2019
Net profit 600 675
Sales 4800 6000
Net profit Margin = Net
profit / Total
= 600 /
4800 *100
= 675 /
6000 =

sales/revenue * 100 = 12.5 % 11.25 %
NP margin shows margin left to the shareholders, i.e. to the investors. unlike gross profit
that calculates the operational performance of the company, it determines the total efficiency
of corporation. Appropriate margin of net-profits can only be produced if most of operations are
carried out effectively. It creates a relationship among net profit gained and net sales/revenues.
The net benefit ratio is the profitability measure, that is calculated as a metric and thus
multiplying the result by 100. Corporation's net profit ratio is 12.5 in year 2018 that has
been decreased to 11.25 in year 2019 indicating declining trend in profitability level. It indicates
that the potential of the corporation to produce net income from the corporation activities has
been declined. This decreasing trend in profitability is indication that company's efficiency to
generate net profits has been dropped.
Current ratio:
Particulars/Details Year 2018 Year 2019
Current assets 1515 2070
Current liabilities 645 2220
Current Ratio =
Current Assets /
Current Liabilities
= 1515 /
645 = 2.35
= 2020 /
2220 = 0.93
Current ratio is liquidity ratio that calculates the capacity of a business to cover their
current obligations with funds generated by their current assets. This is determined by dividing
all the current assets by company's current liabilities. Current ratio contrasts current assets
against current liabilities of business as well as informs us that current assets sum are adequate to
satisfy current liabilities in business. There's really no specific effective current ratio, since ratios
are more important when evaluated in the sense of the corporation's market and its rivals. There
is significant decline in current ratio company’s current ratio was 2.35 in year 2018 which has
been significantly declined to 0.93 indicating a declining trend in short term liquidity position of
company. This decremental trend in current ratio below 2 in year 2019 shows that company’s
short-term liquidity position is not good. This decline is due to higher increase in current
liabilities has compare to change in current assets.
Average Receivable days/ Debtors collection period:

Particulars/Details Year 2018 Year 2019
Account receivables 900 1200
Annual total sale 4800 6000
Average Receivable
days = Accounts
Receivables / Total
credit sales * 365 days
900 / 4800
* 365 =
68.44 or 68
days
1200 / 6000
* 365 days
= 73 days
Accounts receivable period also referred to as days of deferred revenue is essentially the duration
days over which credit revenue are received by consumers. This proportion is quite relevant for
managers to determine both collection efficiency and credit sales evaluation. Account
receivable cycle calculates the total no. of days which credit consumers normally pay
to business. The shorter period of days reflected the successful results of collections or credit
review, and longer period of days represented a longer period of time. Company’s average
collection period was 68.44 days which has been increased to 73 days which is not a favourable
sign for company. This upward trend in ratio that company’s efficiency to collect their dues form
accounts receivable has been declined (Salamatian, Shlezinger and Médard, 2019).
Average Payable days/ Creditors collection period:
Particulars/Details Year 2018 Year 2019
Account payables 570 2100
Cost of goods sales 3900 5250
Average Payable days =
Accounts Payables /
Cots of goods sold * 365
= 570 /
3900 * 365
= 53.35
= 2100 /
5250 * 365
= 146
Accounts payable days is accounting liquidity measure that measures how easily a business pays
off creditors (suppliers). Average payment duration means the average time taken by company to
make payments to creditors. This is determined by calculating the no. of working days in year
by turnover ratio of creditors. Accounts Payable days of company in year 2018 was 53.35 around
days that has been reached to 146 days with large gape. This huge increase in accounts payable

days indicates that company’s shorter term liquidity position is not good as company is delaying
in payments to its suppliers.
Overall analysis of all the ratios shows that company’s performance in year 2019 has
been declined in comparison to year 2018. Company’s profitability performance has been
declined over the period as well as there is also decline in ROCE, these points out the decline in
financial performance of company.
CONCLUSION
It has been inferred from above project study that process of financial decision-making
is crucial factor that must be regarded by all companies as it promotes the effective
accomplishments of both long-term and shorter-term targets. Both accounting & finance tasks,
responsibilities and requirements are quite relevant to all enterprises, as they can lead
to successful execution of business and operating activities. When attempting to
evaluate financial state of the organisation, it is quite useful for companies to consider the
evaluation of financial ratio. The various measures that may be employed to assess the financial
condition of the firm are the ROCE, the NP margin, the current ratio, the receivable collection
period and the repayment duration.

REFERENCES
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