Financial Decision Making Analysis and Recommendations for SKANSKA PLC

This report delves into the realm of financial decision-making, specifically focusing on the case of SKANSKA PLC, a UK-based construction and engineering services company. The introduction highlights the importance of financial evaluation for future planning and expansion, particularly within the European market. The report explores key accounting and finance functions, including financial and management accounting, cost control, working capital management, taxation planning, arrangement of finance, internal auditing, investment decisions, and statutory needs. It emphasizes the roles of these functions in organizational success and risk mitigation. The report then transitions to ratio analysis, a crucial tool for interpreting financial results, providing a step-by-step guide to its calculation and interpretation. The benefits of ratio analysis, such as forecasting, budgeting, and assessing liquidity and profitability, are discussed. The report concludes with recommendations for SKANSKA PLC, based on the ratio analysis and financial data provided, offering insights into how the company can improve its financial strategies for future growth.

FINANCIAL DECISION
MANAKING

Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
TAKS 2............................................................................................................................................6
a. Calculation of ratio for SKANSKA PLC for the year ended 2019..........................................7
b. Provide recommendation for SKANSKA PLC on the basis on ratio calculation-..................7
CONCLUSION................................................................................................................................9
References......................................................................................................................................10

INTRODUCTION
The project is based on financial decision making, it is the process to evaluate the
financial result to make future decision and planning. The manager is responsible for decision
making about the liabilities and the equity management of organization. The given organization
is SKANSKA PLC that is in construction business. Company is based in UK, it also serve in
engineering service to clients they have started their business in 1963. Company wants to expand
business function the rest European countries and for that they want to assess their financial
position. Importance of financial team and decision that need more critical evaluation and
consideration for future has been highlighted. This report will help management to find the
valuable information from financial result to make better decision for future aspect
accomplishment of mission set by firm. Further in this report ratio calculation and interpretation
are discussed to provide useful information and recommendation for better functioning of the
organization has been highlighted.
TASK 1
Accounting and finance- these are the activities handle all business transaction that are
held in financial year. Before understanding importance these function there is need to evaluate
what are the main functions. The key accounting functions are managing production function
smoothly with their need like raw material, machinery, land and labor. These functions will lead
to provide better production and effective cost management that lead for profitability. Another
function is to prepare financial statement for organization and prepare base for evaluation.
Financing function undertake the activities that needed for arrangement of cash requirement for
organization short and long term period. Need of the finance is based on future target and goals
that company want to achieved and will need money for that.
Importance of accounting and financing function and their roles to towards the
organizational success for future planning-
Any business can’t survive in current corporate world without getting effective sources of
finance and better decision for accounting system (Leitch, 2019). Role of these can be classified
under some groups that are as follows that will help the SKANSKA PLC for better decision
about future goals.
Financial Accounting- Role of financial accounting is very important for current as well
as for future decision making. These will provide the details about the financial position and
satiability in reference to their cash and other management. And will get attraction from
investors’ point of view. SKANSKA PLC is looking for expansion plan and need timely
financing for future project (Grossmann, Mooney and Dugan, 2019). This need cab be fulfill
with developing good and fair accounting system that have consistence performance with
effective growth rate from last year. In will help company to show better position in terms
accountability and sustainability that capture more investors towards company. There are many
functions that need accuracy and efficiency to perform like journal entries and ledger posting,

preparation of Profit and loss, balance sheet. Accounting need to perform his duties to make
better position.
Management accounting- it is the net next in financial decision making process that
take financial statement and further evaluate to make result in shorter and concise format that
will help the management for better information to serve future goals. It provide ratio analysis
that define trend from past performance make better decision for future (Khosiev, and et.al.,
2019). Company like SKANSKA PLC that are running for very long period and have strong base
however every project need to be evaluate on the basis future consideration. It allows them to
assess the right future and set the better and achievable target for firm. This help to mitigate the
risk factor with considering inflation at the time of preparation of new project estimation chart.
Company that is in construction business need to provide importance to inflation rate because in
can lead to cause the profitability.
Cost control- Another important role of accounting it help in to assign the cost for every
function that make improvement in for cost management and provide cost efficient production. It
is managerial task to make effective cost function by using the tool of management accounting
like- cash and fund flow, budgetary techniques that assign cost for future task and provide better
cost management. The selected company is preparing for future expansion and foe that they need
to assign better cost for succession in outside of the country (Unerman, 2020). Also the company
which is in construction business that needs to make more consideration due to rapid change in
the prices of raw material and labor. These techniques will lead to set cost according to future
planning it increases the chance of expansion plan.
Working capital management- SKANSKA PLC manufacturing related business, these
companies need to focused on the working capital. Working cycle in this type of business is very
important function moreover, they have to invest much part in core business that is construction.
For that they need to make better working cycle at new place to survive and make stand in
market. Better working cycle lead for better current assets and liabilities management for
company, it also allow them to manage the liquidity position and measurement for it (Mweta,
and Kipronoh, 2019). It make efficient management of cash and its equivalent with managing
better receivable and payable period at par level. These can be the key management function for
sustainability in new market.
Taxation planning- with the vision for 10 years expansion planning has a big impact of
tax rates with different countries and its management. It is the important function for accounting
department to mitigate the chances of failure. Many European countries come under Economic
Union that has set same level of regulation and rate (Berbel, and et.al., 2019). However there are
some countries which not a part of it has own taxation rate that need to be manage by the
accounting team for long term sustainability and profitability in new market. SKANSKA PLC
has to maintain a separate sub department for efficient functioning under accounting work.
Arrangement of finance- Company will be in need for financing for future goals, with
the big business plan and nature of business they will need money to finance project at initial
stage. However in construction business owner of business has to put cash for all activities and at
last money will be receive (Ha, and et.al., 2019). So they need more much financing for projects

and need to make proper system for that to meet future goals and need. It is the duty of financing
team arrange source that are useable for long term with effective rate of interest that can be
beneficial for organization. There are mainly two sources of finance internal and external,
internal are the shareholders and retain earning second is external are loan, debenture etc. It is the
duty of financing manager to decide which source will be best for company.
Internal Auditing- Another important task for managerial function of accounting that is
perform to find the correctness of result. It assures the quality of final result and their accuracy
that helps to capture attention from investor gets effective financing. This also helps to make
examination and self assessment of financial performance and internal check. For the company
like SKANSKA PLC that serves in construction businesses where small and small transactions
are held and more in need to make self assessment to assure the standard of accounting. It also
help to find out whether the system of accounting is need to be change or employees.
Investment decision- decision about short and long term investments is the part of
accounting function moreover this is related to the financial position of company in future time
period. Decision for long term is more critical than the short one because for that company need
to make with better can because they are not easily converted into cash. Many companies make
higher investment for long period to earn some extra return and lose the liquidity. It is the big
task for accounting and finance team to evaluate the ratio for investment and liquidity. this ratio
is decided on the basis of future planning, SKANSKA PLC has plan and they need fund for the
so they need to very possessive about ling term investment.
Statutory need- accounting department is liable to fulfill the need to legal aspect that are
related with financial decision and accounting function. There are compulsion from law to
maintain the proper books of accounting and need to follow the standard practices that set for fair
disclosure of final result (Vibhakar, and et.al., 2020). It is the duty and responsibility of
accounting department to make better and fair work. In some cases where top management
pressurized department for showing higher profitability for better financing but they need to
maintain the decorum of company and define the actual result. Many times government will ask
for external audit and need full support from the these department to find reality.
There are many factors that affect the accounting and financing decision-
Risk- Everything in business is related with risk all the decision of financial are interlink
with that is associated with return. Accounting department need to consider all the risk factor that
will accrue in future for expansion plan and try to reduce as much as they can.
Earning- company make all the decision on the basis of future earning that will be
received. However earning are not certain in any case so manager need to be more critical about
future earning and not much decision need to be taken on their base.
Growth factors- every organization has their perception about growth rate that is set on
the basis of past performance and future of business. However it will not always be true foe all
the time and some wrong interpretation may lead for failure in new market. It has big influence
on financial decision that will guide for expansion plan and help to formulate strategies.

TAKS 2
Ratio analysis- it is the mathematical tool that is used to find the valuable information form the
financial result in concise form that help top management to take decision for future goals. It
make help to compare up to five year data that lead to find common trend that lead for future
planning and goal setting. Ratio analysis leads to find the liquidity, efficiency, profitability and
coverage that define the financial position. Steps in ratio calculation-
1. Collection of relevant financial statement
2. Deciding the ratio constructing figures
3. Calculation of ratio
4. Comparing ratio with preceding years to find the valuable information
5. Comparison between standard industry ratio and competitors to make better planning.
6. Draw the interpretation and conclusion.
There are many benefits of ratio analysis are as follow-
Forecasting and planning- Ratio analysis provide the information that are will help to
serve the top management to make decision. This make shorter format foe financial result and
compare with last year and competitors data that make better forecasting.
Budgeting- budget is the key to make cost effective function for the organization. This
guide company to make better cost allocation and optimum utilization of recourse and labor.
Ratio provide last year performance that help to estimate figure like sales, production it help for
better budgeting and cost effective function.
Indication for liquidity position- Many company has adopt low level of cash and
equivalent for the short term period. It can be provide bad result for long term vision so ratio
analysis is the main factors that help them to make better liquidity position. Ratio will help to
compare standard ratio that allow them to maintain cash and short term holding in better to
mitigate risk for short term liabilities.
Help for profitability- this make better forecasting for future result and lead for
mitigating loss making situation. This will help organization to serve for long term because it
prediction and increase the level of profitability. Ratio allows deciding the better management of
debtors and creditors period that help for better working cycle for achievement of organizational
goals.
There are some limitations of ration analysis-
The whole process is depended on financial statement to provide true details all the time.
All interoperation are based on the past result and it not the guaranteed for future decision.
Many companies are not following the standard that is set for industry but may not be fit for
them so change according to their need.
a. Calculation of ratio for SKANSKA PLC for the year ended 2019
1. Return on capital employed Amt. in £millions
Particular Formula 2018 2019
Net profit EBIT 600 675
Capital employed Total assets- current 3825 5850

liabilities
Ratio (Net profit/capital
employed)*100
16% 12%
2. Net profit margin Amt. in £millions
Particular Formula 2018 2019
Net profit 600 675
Total sales 4800 6000
Ratio (net profit/sales)*100 13% 11%
3. Current ratio Amt. in £millions
Particular Formula 2018 2019
Current assets CA 1515 2070
Current liabilities CL 645 2220
Ratio CA/CL 2.35 times 0.93 times
4. Debtors turnover ratio Amt. in £millions
Particular Formula 2018 2019
Sales 4800 6000
Total trade receivable 900 1200
Ratio (Sales/trade
receivable)*365
68 days 73 days
5. Creditors turnover ratio Amt. in £millions
Particular Formula 2018 2019
Purchase 2700 4800
Total trade payable 570 2100
Ratio (Purchase/trade
payable)*365
77 days 160 Ys
b. Provide recommendation for SKANSKA PLC on the basis on ratio calculation-
Return on capital employed (ROCE)- it is the financial ratio that is calculated to find out
the profitability of organization. This define the relation between the net profit earn by investing
its capital, it also to make assessment that how well the company is using its capital for return
(Warganegara, and Siagian, 2020). SKANSKA PLC has decreased the figures from last year it
was 16% and 12% in current year. This indicates that company has not concern with their
investment and need to make focus on it. It reflects that profitability is not at par with capital
employed for it. SKANSKA PLC which have expansion plan that need better utilization of
capital to make better profit.
Net profit margin ratio- Another profitability ratio that define net profit margin with sales.
It allow firm to determine net profit margin in respective to the total product selling. It shows the

net profit percentage that company has earned before tax and interest. With the calculation of
gross profit and net profit can be determine the efficiency level to earn form core business and
other indirect income (Nariswari, and Nugraha, 2020). SKANSKA PLC is in construction
business that needs to be more focus on the profit margin and measurement to because they want
to expand their business across border. However the margin is very low in last year and decline
this year as well that is the one of reason for reduction in ROCE. It makes bad impression on
future goal and on sources of finance. Profitability is one of the reasons that help to increase
financing sources.
Current ratio- It is the liquidity ratio that used for calculation of cash and its holding that is
need for organization. Current ratio define the relationship between current assets and liabilities,
it show the ability to pay its short term obligation with its current holdings (Wulandari, and
Rahayu, 2021). The different industries require the different standard for liquidity position. Like
company is chemical business need not to maintain lower ration than the retail industry.
SKANSKA PLC is in construction business that needs to require more cash holding for day to
day work management. However company has around 2.35 times that is acceptable but in current
year it is less than 1 times. Company need to increase it for better function and result. According
to the industry standard the ratio should between 1.5 to 1.65 times and they have less than it will
be harmful for future period. It create wrong impression on the creditors and long term solvency
of company.
Debtors collection period- This comes under the efficiency ratio and calculated to find the
efficiency of operation function this allow them to maintain better working cycle. This period is
calculated to find out the period that is taken by the trade debtors for payment. Lower the period
will make higher cash flow and efficiency level. There are many companies they have more than
one year for receiving the payment arises the need for debt increment for payment. SKANSKA
PLC has better collection period they received the payment form debtors in 73 days. That is
acceptable for the company and industry.
Creditors’ payment period- another efficiency ratio that is calculated to find the period that
company is taking to make payment. It also helps to decide the liquidity position and working
capital management. Higher the period will allow the firm for more cash balance and higher
liquidity management. An idle ratio for this can be according at same level for debtors’ period;
moreover it helps for payment from debtors to creditors. For the selected company this ratio was
77 days last year and 160 days current. This is good because it indicates that company will
receive payment in 2 month and need to pay in 5 month. This allows them to use the fund for
short term investment and earn more profit form cash holding.
CONCLUSION
This report has been undertaken to find to understand the importance of financial result,
accounting and financing for the present and future of organization. This project highlighted the
importance of the role of accounting manager for providing better result and interpretation for
future goals of company. It also provide knowledge about the impact of accounting function on

the expansions plan of SKANSKA PLC and how they can arrange the financing to
accomplishment of that one. Further in this report the ratio calculation for SKANSKA PLC for
2018 and 2019 has been conducted to find the efficiency and profitability that are the factors.
This will affect the future position, profitability and production activities. This also highlighted
the recommendation that company need to follow for better operation function and to complete
the vision.

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Onlines
5 WAYS MANAGERS CAN USE FINANCE TO MAKE BETTER DECISIONS. 2021. [online]
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