Financial Decision-Making Report: Financial Analysis of SKANSKA PLC

This report delves into the financial decision-making processes of SKANSKA PLC, a UK-based construction company. It begins with an overview of accounting and finance, distinguishing their objectives and functions within an organization, and highlighting the role of the accounting and finance department. The report then examines the interpretation and analysis of SKANSKA PLC's financial performance, including the calculation and interpretation of various financial ratios to assess the company's financial health and stability. The report explores essential functions like budget preparation, financial and investment management, risk management, and merger-acquisition decisions. It also discusses the roles and responsibilities of the accounting and finance department, such as bookkeeping, cash flow management, tax management, and financial analysis. The analysis is supported by the company's financial statements, offering insights into its past and projected future performance.

FINANCIAL
DECISION-MAKING

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK 1............................................................................................................................................3
Overview of Accounting and Finance....................................................................................3
Accounting and Finance Department.....................................................................................4
Functions of Accounting and Finance Department ...............................................................4
Role and Responsibilities of Accounting and Finance Department.......................................6
TASK 2............................................................................................................................................8
Interpretation and analysis of financial performance of SKANSKA PLC............................8
Calculation of Ratios..............................................................................................................8
Ratio interpretations...............................................................................................................9
CONCLUSION .............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Financial Decision-making is said to be crucial tool for an organisation's overall
productivity taken by financial manager considering company's overall financial position. It
includes various finance related activities such as lending and borrowing of funds for short as
well as long term. Financial decisions are concerned with adequate capital structure held by
organisation which comprises of both debt and equity. Financial decision helps an organisation
to outgrow its operations by utilising its funds in effective manner. Ratio analysis helps an
organisation to determine its financial position in relation to the monetary value in the market
segment. In this reference, SKANSKA PLC UK based organisation has been using various ratios
in order to identify its current performance and future performance analysis to expand its
operations over other places in upcoming years with the help of financial statements of the
company. In this report, it will be concluded that how effectively SKANSKA PLC can operate
by reviewing its financial structure and also significance of finance and accounting in the
organisation's overall profitability and efficiency.
TASK 1
Overview of Accounting and Finance
Accounting refers to collection and evaluation of all financial data in an organisation, by
summarising it in various accounts such as journal, ledger, income statement, etc. whereas
Finance concerned with identifying and analysing organisation's actual financial position by
measuring its past activities and performance and interpreting of its future appraisals (Ambuehl
and et. al., 2018). SKANSKA PLC is devoted towards highlighting the use of financial
accounting in its construction based organisation through assessment of its previous year's
statements in order to extend its operations further in other countries. Accounting and finance
has different objectives in reference to company's overall growth which can be discussed as
below:
Accounting Objectives
 Accuracy: To provide accuracy in accounting results with the use of past statements.
 Reliable: To conclude reliable outcomes in order to prevent uneasy flow of working and
operations.

 History estimates: Usage of historic data based on past events in order to evaluate
present performance of an organisation.
 Accounting principles and rules: Use of accounting principles and policies in order to
advance implementation of accounting procedures and policies.
Finance Objectives
 Pre-determined future position: To determine future position of an organisation in
context with its growth and performance.
 Analysing financial position: To evaluate company's financial structure with the use of
different methods in order to conclude its financial stability.
 Inherent use of Ratio analysis: Use of various ratios in reference to analysing
company's overall profitability and productivity.
 Focused approach towards cash flows: It considers cash inflows and outflows in order
to identify company's total outside liabilities and owner's funds as well as flow of cash.
 Evaluation of economic value: Prime objective of finance is to determine organisation's
economic or monetary value which will reflect its financial position in the market.
Accounting and Finance Department
It is significant part of organisation which deals with management of financial activities
resulting in monetary value. It ensures organisation's efficient financial management and control
which is necessary to assist business related activities (Ma and et. al., 2020). Finance department
is committed unit which coordinates finance based activities in an organisation. Each person of
this unit has concerned task relevant to finance itself. Through development of accounting unit,
SKANSKA PLC has helped to keep complete transparency in relevant financial matters with
support of experts and skill based team and supervisors. This way respective company will be
able to develop performance index with use of impactful techniques and methods in order to
increase its overall profitability and performance. Its techniques could be adoption of effective
management tools, compliance with accounting principles, management principles, etc.
Functions of Accounting and Finance Department
Finance department follows wide range of functions which helps an organisation to
increase its profitability level and productivity as a whole (Jha, 2019). Finance department is
concerned with different tasks which determines its financial position in a market segment.
Financial status is the core element of organisation's operations which reflects its reason for

existence, criteria of operations and so on (Mette and et. al., 2019). SKANSKA PLC being a
construction company based in UK, has developed effective finance department with significant
functions to be performed in order to achieve company's ultimate profitability. These functions
can be summarised as follows:
 Budget Preparation: It is one of the significant task of finance team to ascertain the
prevailing cost which will occur in the upcoming period (Trinh and et. al., 2020).
SKANSKA PLC has implemented budget structure in order to build cost baseline before
actual monetary expenditure done by company. It is developed with the use of part data
to identify prevailing cost of the company's activities.
 Financial Management: In finance department it is necessary to determine all available
sources of funds to maintain good capital structure of an organisation. This is significant
task of department to evaluate cash inflows and outflows in order to maintain appropriate
cash balance with the organisation. SKANSKA PLC has been focused towards
assessment of cash inflows and outflows which will reflect company's liquidity state
over the period.
 Investment Management: Department is required to manage investment related matters
appropriately in order to have access at sources of funds in balanced way. SKANSKA
PLC is indulge in investment portfolios by acquiring adequate opportunities in capital
market through securing reasonable deal which will help to prosper it operational
limitations in the long term.
 Risk Management: There are endless risks associated with company's operations which
can be solvency, liquidity, financial contingencies, natural calamities and so on (Saurabh
and Nandan, 2018). In this regard, SKANSKA PLC has implemented techniques such as
project analysis, investment structure evaluation, prioritizing risk, treating it as well as
follow up actions. This will help it to resolve problems in more effective manner and
assess future risks in upcoming years over reliable data.
 Merger- Acquisition decisions: For creation of better brand image it is necessary to
conduct decisions such as merger and acquisition in order to eliminate any future
contingencies related to company's growth and profitability. SKANSKA PLC has been
following up on this criteria by analysing market trends, level of competitions, new
entrant, potential risk or threats to the company, etc.

 Interpretation of financial position: It is said to be vital for company's overall growth
to identify its financial position in the respective industry (Amicelle and Iafolla, 2018).
In this reference, SKANSKA PLC has formulated use of different ratios in order to
determine its financial performance which reflects company's actual position in the
market.
Role and Responsibilities of Accounting and Finance Department
Finance Department has provided a significant contribution to company's overall growth
and performance efficiency. Such department is said to be solely responsible for company's
overall monetary activities having impact over its daily operations. Finance is a vast field which
has to play immense role in company day to day activities (Duan, 2019). In order to cope with
financial fluctuations in a company, financial department has been formulated to keep an eye
over company's overall performance and efficiency. In this regard, SKANSKA PLC has been
working on its existing functioning by emphasizing to review its financial department roles and
functions in the following manner:
 Book-Keeping: It is considered as the basic activity for which finance department is
responsible and accountable. It consist of day to day analysis, recording, interpretation of
organisation's overall financial transactions. It consists of keeping an eye over company's
purchases, sales and other monetary matters. This role is being played by book-keeper
who will be held responsible for company's books and statements formulation in more
effective manner.
 Cash flow: It is of utmost importance to manage all cash related flows in an organisation.
This will help to build smooth structure of company's activities in effective manner.
SKANSKA PLC has been managing its credits, collections and debts related policies in
order to ensure their timely completion in a correct order.
 Budget and forecasting: It is necessary tool for an organisation to prepare budget in
order to analyse future contingencies in simplified manner (Yavas and Malladi, 2020).
Budget is a structure which includes all the horizons of an organisation in reference to
upcoming expenditure in the given criteria. In this reference, SKANSKA PLC has been
developing various types of budgets such as purchase budget, sale budget, master budget,
etc. in order to facilitate smooth working of its operations in the long run.

 Sourcing long term financing: It is considered as responsibility of finance team to view
best long term sources of finance which will help them to run their operations in
smoother manner. Various sources of long term finance could be debentures, financial
institutions, banking companies, etc. These sources helps organisation to reflect better
performance in the respective industry. SKANSKA PLC being construction company has
considered this role as most important for company's overall growth and profitability in
the long term. Organisation has been reviewing different sources of funds which could
help it to operate in a more convenient manner in the market in order to extent its further
operations.
 Management of Taxes: Tax savings has been considered vital for company's financial
progress so in this reference, SKANSKA PLC has appointed respective authority who
seeks company's relevant tax payable, savings, etc. This is important to manage tax in an
organisation in order to maintain integrity and harmony in the eyes of government,
customers and relevant stakeholders.
 Financial analysis and reporting: This is part of higher authority in financial
department which considers raw accounting entries in order to convert them into useful,
comparable and impactful financial statements. In this regard, SKANSKA PLC has
formulated their strategic procedures in order have systematic approach towards policy
implementation. As it is brief of all the financial statements which is to be summarised in
a report provided to directors.
 Assistance in key managerial decisions: It is necessary for key managerial personnel to
make financial decision-making in consultation with financial experts or specialists who
are placed in financial department (Choi, Kim and Oh, 2017). These decisions are
significant for company's overall operations and day to day activities. In this regard,
SKANSKA PLC is working on building adequate financial team which will consists of
specialist who will assist company's key personnel in order to achieve ultimate targets
and goals.
SKANSKA PLC financial department is facilitating company's overall growth through
regulating rules and regulations in this behalf. It has been playing significant role in order to
achieve specified goals which will organisation to prosper and grow in optimistic way. There are
various roles and responsibilities being managed by financial management team of the respective

company. The main aim of financial team is to optimise company's financial position so that it
can survive in intense competitive environment. This will help organisation to expand its
operations over a wide platform which will increase its overall profitability and sustainability in
the respective industry.
TASK 2
Interpretation and analysis of financial performance of SKANSKA PLC
Interpretation and analysis of financial data is ascertain in order to forecast organisation's
financial performance which will reflect its future earnings, debt payment, long term sourcing of
finance, profitability in the long term and so on. The main objective of performance evaluation is
to conclude company's related strengths and weaknesses so that they can be achieved or
eliminated or worked on (Kostini and Raharja, 2019). This is a wide concept which consists of
various steps such as analysing nature of each transaction in terms of debit or credit, recording
each transaction in respective accounts as well as preparation of financial statements. Also
various ratios are used to analyse organisation's financial position by evaluating its performance.
There are vast range of ratios which will interpret company's day to day operations, liquidity
rate, solvency rate, profit margin, etc.
Ratio analysis refers to quantitative technique which identifies organisation's efficiency,
liquidity, productivity, profitability, and profit margins through scrutinizing its financial data
such as statement of profit and loss, income statement and balance sheet. It marks company's
actual performance over the years with use of various ratios for this particular behalf. In general,
ratio analysis is helpful to investors and experts who want to know company's actual financial
health for sake of investment in respective company. SKANSKA PLC is one of well-established
construction company which seek usage of such ratios in order to increase its performance
efficiency by pre-determination of its status as well as attracting investors for improvement of
company's financial structure.
Calculation of Ratios
Ratio Formula 2018 2019

Return on capital
employed
Operating profit/Total
assets-current
liabilities*100
750/3825*100 =19.60
%
975/5850*100=
16.67%
Ratio Formula 2018 2019
Net profit margin Net profit/ sales*100 600/4800*100=12.5% 675/6000*100=11.25
%
Ratio Formula 2018 2019
Current ratio Current assets/ current
liabilities
1515/645= 2.35 times 2070/2220= 0.93
times
Ratio Formula 2018 2019
Debtors collection
period
Trade
debtors/sales*365
900/4800*365= 68
days
1200/6000*365= 73
days
Ratio Formula 2018 2019
Creditors payment
period
Trade
creditors/purchases*3
65
570/2000*365= 77.05
days
2100/4800*365= 159
days
Ratio interpretations
Return on Capital Employed: It is said to be financial ratio which to assess
organisation's capital efficiency and profitability which helps to determine company's capacity of
profit generation from its existing capital structure (Bhutoria and Vignoles, 2018). It is one of the
profitability ratios which is used by financial managers, stakeholders as well as investors. It

includes return on investment, asset and equity. Higher return on capital employed shows
optimum profitability earned by the company and vice-versa.
In SKANSKA PLC, it has showed approx. 20% return on capital employed in 2018
whereas in 2019 it depicted approx. 17% return on capital employed which reflects downwards
slope of company's performance and profitability. Organisation needs to work on correct division
of its capital structure in order to earn more profitability in consecutive years. This will also help
it to expand its operations overseas by increasing its efficiency in order to make further
investments.
Net profit margin: It reflects how much revenue or income has been generated by the
company in percentile form. It is used to determine how well company is operating in intense
competitive environment (Lee and et. al., 2017). It is usually approached by analysts to evaluate
organisation's financial stability in the market. This usually signifies overall growth rate of
company as well as stability which will reflect its profit earning capacity. On basis of effective
implementation of business strategic policies it becomes easier to earn maximum profits for the
company's expansion.
In reference to SKANSKA PLC, percentile of net profit margin has reduced in 2019 as
compared to 2018. Net profit is reported to be 12.5% in 2018 and 11.25% in 2019 which means
that its profit margin retention capacity is declined in consecutive year even with increased sales
revenue. Therefore company should emphasise over its cost of raw materials in order to increase
its profitability level. This will help it to make investments in order to extend operations in other
areas as well.
Current Ratio: It evaluates company's ability to repay its debts in a period of one year or
less. This shows liquidity rate held by company which is necessary in order to have smooth flow
of operations (Han, 2018). It it significant for company to maintain its current ratio which
reflects balance of current assets and currents liabilities. It is believed that current ratio of less
than one is said to be alarming as it indicates that company has low liquidity as compared to its
existing debt obligations.
In regard to SKANSKA PLC, it has achieved optimum current ratio in 2018 but it
eventually declined over the period resulting in lower liquidity in 2019. It is alarming stage for
the company in order to increase its operations further as it is not able to meet its current

obligations. Therefore, organisation should work on its quick conversion of assets into cash in
order to have feasible combination debt and asset.
Debtor's Collection Period: It is considered as a period of time it will take for collection
of relevant trade debts from respective debtors (Metawa and et. al., 2019). It is believed that
shorter the time period of debt collection, the effective and more efficient company will be in its
operations. Debtors are those persons who own company's cash for a relevant time period. These
loans and credit it provided by company for a shorter period of time.
SKANSKA PLC is collecting its cash from debtors in less effective manner which is
reflected by reviewing financial analysis of two consecutive years. It is shown that company is
not efficient in its operations having collection period of 68 days in 2018 and 73 days in 2019.
As number of days have increased over two consecutive years it is required that company needs
to cope with the gap occurred in the given period of time.
Creditor's Collection Period: It is said to be the period in which company is required to
repay its debt to the relevant creditors. These creditor's could be debenture-holders, sundry
creditors, bank institutions and so on (Hillenbrand and et. al., 2020). It is represents time lag in
credit purchases and payments to be made to supplier. This respective ratio is used to compare
other businesses in the same industry.
In context with the SKANSKA PLC its creditor's collection period is observed 77.05
days in 2018 whereas 159 days in 2019 which shows both positive impact as well as negative
impact over company's image and operations. Having increased creditor's collection period
reflects that company has higher amount of liquid funds which it could use in relevant terms
whereas such delay in payment could lead to low priority in future, withdrawal in credits, etc.
Therefore, it should maintain balance between both of these points in order to have effective and
efficient outcomes.
CONCLUSION
From the above study, it can be concluded that organisation needs to improvise its
liquidity, profit margins and collection periods in order to attain higher sustainability
environment through which it can expand its operations across the globe. These ratios are
considered to be vital which reflects company's overall efficiency, profitability and productivity.
Also it has been stated that the role of accounting and finance department is very significant
which manages all monetary activities of respective organisation. It is important to have effective

finance specialist as well as team in order to raise efficiency of company's operations. There are
various functions being performed by this department as finance is considered as the sole core of
an organisation's growth. Therefore, SKANSKA PLC should modify its policies in relation to
finance so that company could perform on better grounds which improved efficiency. This will
also help it to outgrow from its limited operations by expansion to worldwide operations.

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