BM414 Financial Decision Making: Analysis of SKANSKA Plc

This report provides a financial analysis of SKANSKA Plc, a construction company, focusing on financial decision-making processes and the importance of accounting and finance functions within the organization. It elucidates the duties and responsibilities of various departments such as financial accounting, management accounting, tax, auditing, investment, financing, dividend, and working capital management. The report further employs ratio analysis techniques to evaluate SKANSKA Plc's financial performance, specifically examining the Return on Capital Employed (ROCE) for the years 2018 and 2019, to inform potential investment decisions. The analysis highlights the strengths and weaknesses in the company's financial operations, offering recommendations for improvement and strategic financial planning. Desklib offers a range of study tools and resources for students seeking similar solved assignments.

Financial Decision Making

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Explaining the importance of accounting and finance function along with its duties and
responsibilities.............................................................................................................................3
Commenting on the financial performance of SKANSKA Plc by using ratio analysis technique
.....................................................................................................................................................7
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Financial decision making may be defined as a process which emphasizes on the
selection of best alternative which contributes in organizational success. There are mainly three
types of decisions such as operating, investment and financial which in turn highly impacts
organizational growth. It is an accountability of manager to take significant decision about
financial aspects so that competitive advantage can be attained. The present report is based on
the case scenario of SKANSKA Plc, a construction company, which is planning to explore
business operations with the motive to maximize productivity and profitability. In this, report
will shed light on the significance of accounting duties, roles and functions within an
organization. Along with this, report will also present the use of ratio analysis technique in
analyzing and evaluating performance of SKANSKA Plc. Report will highlight the extent to
which financial performance and position of SKANSKA Plc improved or deteriorated over the
time frame.
TASK 1
Explaining the importance of accounting and finance function along with its duties and
responsibilities
Accounting department
Accounting department is required in SKANSKA PLC to record all goods and services
that company pays for and makes sure that all expenses are paid on time. It helps in keeping
track of all payments made and yet to be made. Accounting function consists of following
departments which re discussed below along with its importance: Financial accounting: It is concerned with keeping record of and maintaining accounts
of all money which is coming in and going out of SKANSKA PLC. All financial
transactions are recorded, summarized and analyzed to evaluate current situation of
company. Annual reports are prepared which consists of income statements, balance
sheet and cash flow statements. Shareholders examine financial reports before investing
in business. It is important to publish such accounts and data to have transparency while
revealing financial status of SKANSKA PLC.

 Management accounting: This function or department is considered to be important
because it gives financial information which helps managers in taking various decisions.
It helps in forecasting of business costs and revenues and effect of long term business.
With the assistance of management accounting, company can take decisions like
determining prices, profitability trends, make or buy products, etc. Various budgets are
prepared using information provided by MA (Zhou, 2019). Decisions regarding staffing
and recruiting can be done so that unnecessary funds on wasted on employing people
which are not required.
 Tax Function: SKANSKA PLC has to comply with all rules related to taxation and there
as separate function of tax is there in company. Managers need to understand corporate
tax is independent but fully operated which requires formation of tax strategy, identifying
metrics through which strategy can be effective, integrating tax accounting and enhancing
business process to optimize taxes, etc. Now-a-days, government is requiring company to
formulate tax strategy and publish it. Therefore, it is important for SKANSKA PLC to
have tax function.
 Auditing function: This function examines the efficacy of SKANSKA PLC’s internal
control in order to have transparency of business to all the stakeholders. Auditing
function deals with detecting any frauds and errors done by company to present a better
picture of financial position. All the documents and vouchers are examined to check the
validity and correctness. This function involves checking credibility of financial accounts
which provides confidence to shareholders that statements prepared are true and fair.
Finance department
The department which is responsible for procuring funds for SKANSKA PLC and
utilizing it in the best possible manner to provide maximum result. This function effectively
manages and control finance which is important to supports all other activities the function
involved in finance department are explained below: Investment function: in this function, SKANSKA PLC takes a decision about selecting
assets in which funds will be invested by them. Assets can be long term providing
benefits for longer time period or current assets yielding benefits that can be converted
into cash quickly (Puasa, Smith and Amirul, 2019). This function is crucial for business
because huge funds are involved in acquiring assets which cannot be wasted on

unproductive ones. By having proper investment function, company can focus on
procuring assets which will be helpful in production process and aids in reducing costs.
 Financing function: In this function, capital structure is decided by SKANSKA PLC,
that is, combination of debt financing ad equity financing is done under this function.
Identifying various sources of finance that can be approached at least cost possible is very
important for business to flourish in long term. Optimum capital structure is prepared
which have reasonable proportion of debt and equity so that company does not faces any
consequences. Dividend function: Another function of finance department is of declaring dividend that
will be given to shareholders (Saleh and Jawabreh, 2020). Effective profit management is
required because SKANSKA PLC has to options, either to retain the profits or distribute
it as dividends. This function is important because company has to decide about
investment opportunities available in market and take first mover advantage by retaining
profits. Working capital function: Managing working capital is very important to examine the
requirement of cash that will needed to run business smoothly in SKANSKA PLC. For
purchasing inventory, settling short-term debt, operating expenses, etc. working capital is
needed, therefore, WC function is necessary to have in company. In addition to this, in
order to have sound financial position of business and having operational success,
managing working capital is very crucial (Mättö and et.al., 2017). Further, by having
adequate working capital, SKANSKA PLC can focus on growth and expansion of
business.
Duties and responsibilities of accounting and finance function Financial accounting: It is the duty of accounting function to maintain all records of
transactions by using bookkeeping system and summarizing them in ledger accounts.
SKANSKA PLC performs this function by appointing financial accountant who is
responsible for recording such data. Budgeting: Various budgets are prepared under accounting function which helps in
forecasting future expenses and revenues, which further help in proper planning and
controlling (Muda and et.al., 2017). In organizations like SKANSKA PLC, budget are

maintained which aids in planning activities related to expansion, cash needs, staffing
requirement, etc. in future. Finance department also make use of past information and
data to predict future horizons. Managing cash flow: another duty of finance function to maintain and manage proper
cash flows in order to make sure that SKANSKA PLC has sufficient cash to meet short-
term obligations. Company ensures that credit policy is duly maintained and vendors are
paid on time to enhance creditworthiness in market. Sourcing long-term finance: Further, it is the responsibility of finance department to
provide useful advice and suggestions regarding financing long term capital at least cost
possible (Kokina and Blanchette, 2019). Proper capital mix is prepared by the department
and necessary arrangements are made regarding acquiring such sources. Tax management: SKANSKA PLC also has to manage taxes which is the duty of
finance department which is done by creating cordial relations with government and
making sure that all laws and regulations related to tax matters are handled with care. It
should also be made sure that taxes are paid on time without any delay which can affect
the reputation of company. Investment management: Another important responsibility of accounting function is to
manage investments of SKANSKA PLC. All current, fixed and capital assets should be
analyzed before making investment because company has limited resources which needs
to be employed in unlimited ways. Therefore careful selection is to be made which
increases profitability and liquidity of company. Financial reporting: It is the responsibility of accounting function to take raw financial
data and transform it meaningful and comparable final accounts in order to measure
profitability, liquidity and leverage of SKANSKA PLC. Such information is also required
to be communicated to all stakeholders in logical format which is done through preparing
annual report and publishing it. Strategic decisions: Moreover, major strategic decisions are formulated by finance
department related to make or buy product, pricing policies, payback periods, dividend
policy, etc. All such decisions are taken after complete evaluation of all related matters in
order to reduce the costs and enhance profitability levels.

 Auditing: The duty of finance department is also to conduct internal audits for
SKANSKA PLC so that any errors can be identified and measures can be taken to rectify
it in order to provide a clear and correct picture about the financial condition of company. Evaluating risks: Finance department is also responsible to examine the risks which are
involved in various investments opportunities. Such risks should be clearly identified so
as to minimize risks and threats arising and taking remedial measures to reduce it. Analyzing financial trends: Examining the trends and opportunities available in market
so that SKANSKA PLC can benefit and take first mover advantage is also an essential
responsibility of finance department. It is important to analyze such trends and patterns
which can be beneficial for company to grow. Tracking accounts payable and receivable: Furthermore, it is the responsibility of
accounting function to track payments and receivable in order to predict cash
requirements. Relations should be maintained with vendors to make sure that payment is
done on time (Muda and et.al., 2018). Also, it should be considered that customers and
debtors make payment on right time. Payroll duty: A crucial role of accounting department is to see that all employees of
SKANSKA PLC are paid their salaries on time in accurate manner. Credit of salary in
accounts is a motivating factors which encourages employee to work better, therefor they
should be paid on time. Financial controlling: Complying with GAAP standards and accounting principle is very
important function of accounting department in order to prevent any fraud and theft. It is
the duty of department to make sure that all procedures are followed positively without
any errors. In addition this it also help in building goodwill and reputation and
stakeholders shows interest in working of company.
TASK 2
Commenting on the financial performance of SKANSKA Plc by using ratio analysis technique
Ratio analysis tool helps in analyzing and interpreting financial statements in quantitative
form. This technique provide organization with highly valuable information for decision making
by covering different areas such as profitability, liquidity, solvency, efficiency and investment
(Carreras Simó and Coenders, 2020). According to the cited case situation, investor wants to

invest £1 million in the operations of SKANSKA Plc. For this purpose, ratio analysis technique
has been used so that better decision about investment can be made.
Ratio analysis of SKANSKA Plc for the period of 2018 and 2019 is enumerated below:
Return on capital employed
ROCE presents the extent to which business unit used its capital in relation to profit
generation. Investors prefer to analyze this ratio before making any decision about investment as
it helps in evaluating company’s efficiency level.
Particulars Formula Figures 2018 Figures 2019
Operating profit 750 975
Total assets 4470 8070
Current liabilities 645 2220
Capital employed Total assets - current liabilities 3825 5850
ROCE
(Operating profit / capital employed) *
100 19.61% 16.67%
Graphical presentation entails that ROCE of SKANSKA plc deteriorated over the period.
ROCE of the firm was 19.61% and 16.67% in the concerned years which shows that firm’s
ability pertaining to profit generation decreased. It depicts that, in 2019, SKANSKA Plc failed to
get high returns by using its capital. Increase in the current liabilities may found as one of the

main reason behind decreasing ROCE. For improving the current position of ROCE, manager of
SKANSKA plc need to make focus on reducing cost and enhancement of sales. Regarding this,
firm should employ variance analysis and social media marketing (SMM) technique. Through
SMM, company can increase customer base and thereby profitability. Along with this, by paying
off debt SKANSKA Plc can reduce the level of current liabilities and meanwhile improves
ROCE.
Net profit margin
It depicts profitability in % form which firm generated from its sales after deducting all
the expenses. It reveals company’s efficiency in relation to maintaining control on cost of goods
sold and other indirect expenses (Tumanggor, 2020). NP ratio indicates the extent to which
company is performing its operations successfully.
Particulars Formula Figures 2018 Figures 2019
Net Profit 600 675
Net sales 4800 6000
Net profit margin (NP / Net sales) * 100 12.50% 11.25%
The above depicted table shows that NP ratio of SKANSKA Plc decreased from 12.50%
to 11.25% at the end of FY 2019. Through analysis, it has found that due to the rise in finance
cost from £150 to £300 profitability of firm affected adversely. Irrespective of increased sales

revenue business unit failed to maximize net profitability aspect. In order to maximize net
profitability aspects manager of SKANSKA plc should focus on employing budgetary control
tools and techniques. Moreover, budgetary control focuses on comparing current performance in
against to benchmark for finding deviations. By this, business unit can eliminate unnecessary
expenditure and thereby improves profitability. In addition to this, focus should be placed on
analyzing different alternatives with respect to meeting financial requirements. This in turn
assists firm in reducing finance and other related cost.
Current ratio
This ratio measures organization’s ability in relation to meeting short term debt or
obligations. Current ratio is usually undertaken by the investors for assessing the extent to which
company can enhance or increase current assets for satisfying the payables (What is the Current
Ratio?, 2021).
Particulars Formula Figures 2018 Figures 2019
Current assets 1515 2070
Current liabilities 645 2220
Current ratio CA / CL 2.35 0.93
By doing ratio analysis, it has been assessed that, in the year of 2018 and 2019, current
ratio of SKANSKA Plc accounts for 2.35 and .93 respectively. This ratio is very far from the

ideal framework which in turn not considered as good indicator. Moreover, according to ideal
ratio such as 2:1, business unit must maintain 2 current assets in against to 1 current liability. On
the other side, comparatively, in the year of 2019, due to the rise in payables current liquidity
position of the firm was poor. In order to strengthen liquidity position or aspects business
organization is required to tighten credit policies. By this, organization would become able to
improve its liquidity and working capital as well. Besides this, by selling capital assets which
have no use for an organization liquidity can be improved. Hence, at the time of maintaining
current assets company should keep in mind ideal ratio or framework so that activities can be
performed uninterruptedly.
Debtors collection period
This measure furnishes information about the time which business unit will take for
collecting amount from trade debtors. In the context of business unit, debtor’s collection period
and day to day operations are highly associated with each other (What is the Average Collection
Period?, 2021). Moreover, it assists in finding whether the concerned business unit has enough
cash for complying with near financial accountabilities or not.
Particulars Formula Figures 2018 Figures 2019
Debtors 900 1200
Sales 4800 6000
Debtors collection
period (Trade debtors / Sales) * 365 68 73

In the financial year 2018, debtor collection period of SKANSKA Plc was 68 days,
whereas at the end of 2019 it reached on 73. According to this efficiency ratio, for ensuring
smooth functioning of business operations and functions SKANSKA Plc is required to collect
receivable from debtors early. In contrast to this, FY 2019 evaluation represents that the
collection period increased by 5 days. For improving this position, manager of SKANSKA plc
should focus on finding customers with good credit rating. Through this, SKANSKA Plc would
become able to maintain enough funds within an organization and thereby perform daily
operations effectually.
Creditors payment period
It is used by the stakeholders for calculating the time taken by business unit for making
payment to suppliers (Creditor (Payables) Days, 2021). By using this, SKANSKA plc can also
ascertain problems associated with cash flows.
Particulars Formula Figures 2018 Figures 2019
Creditors 570 2100
COGS 3450 4350
Creditors payment
period (Trade payables / COGS) * 365 60 176

Under this category, business position of SKANSKA Plc was improved in 2019 as
compared to 2018. Outcome of ratio analysis shows that creditors payment period of SKANSKA
plc increased from 60 to 176 days. This means, in 2019, business unit had more than enough
time in relation to making payment to the suppliers which owed to it. Accordingly, business unit
had opportunity to invest such funds in other business opportunities so that profitability can be
maximized.
Referring overall evaluation, it is reported to the Camden Limited that performance of
SKANSKA plc decreased in 2019. However, there is not a major difference in the profitability
and other aspects of firm. By adopting significant measures pertaining to credit policies, cost
control, sales enhancement etc company can improve its position significantly. Hence, from
investment perspective position of SKANSKA Plc can said to be good. Thus, by investing funds
in the operations of SKANSKA plc, Camden Ltd can earn good returns. Moreover, concerned
construction organization is focusing on covering several countries in Europe. This indicates
that market share, customer base, sales and profitability will increase significantly in the
upcoming ten years.
CONCLUSION
By summing up this report, it has been articulated that accounting department plays an
important role within SKANSKA Plc. Moreover, finance manager focuses on the preparation of
financial statements at the end of accounting period by taking into account all the related records

or transactions. Besides this, it can be inferred from the evaluation that finance manager plays a
crucial role in determining the financial need of different departments and thereby formulates
budget accordingly. It can be summarized from the evaluation that ratio analysis technique is
highly significant which assists in evaluating company’s performance from several perspectives.
It can be seen in the report that financial position of SKANSKA plc decreased over the time
frame. Hence, business unit is required to make modifications in the existing strategic and policy
framework for achieving desired outcome. Further, business needs to focus on controlling
expenditure so that enough profitability and liquidity can be maintained.

REFERENCES
Books and Journals
Carreras Simó, M. and Coenders, G., 2020. Principal component analysis of financial statements:
a compositional approach= Análisis en componentes principales de los estados
financieros: un enfoque composicional. Revista de Métodos Cuantitativos para la
Economía y la Empresa, 2020, vol. 29. p. 18-37.
Kokina, J. and Blanchette, S., 2019. Early evidence of digital labor in accounting: Innovation
with Robotic Process Automation. International Journal of Accounting Information
Systems. 35. p.100431.
Mättö, T. and et.al., 2017. Quality management in the public sector accounting department-(un)
avoidable quality costs and unlikely financial impacts. International Journal of
Accounting and Finance. 7(3). pp.234-252.
Muda, I. and et.al., 2017. THE INFLUENCE OF HUMAN RESOURCES COMPETENCY
AND THE USE OF INFORMATION TECHNOLOGY ON THE QUALITY OF
LOCAL GOVERNMENT FINANCIAL REPORT WITH REGIONAL ACCOUNTING
SYSTEM AS AN INTERVENING. Journal of Theoretical & Applied Information
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Muda, I. and et.al., 2018. The analysis of effects of good corporate governance on earnings
management in Indonesia with panel data approach. Iranian Economic Review. 22(2).
ppi.599-625.
Puasa, S., Smith, J. and Amirul, S. M., 2019. Perceptions of accounting information
effectiveness: preliminary findings from the Malaysian Federal Government. Labuan e-
Journal of Muamalat and Society. 1. pp.48-59.
Saleh, M. M. A. and Jawabreh, O. A., 2020. Role of environmental awareness in the application
of environmental accounting disclosure In tourism and hotel companies and its impact
on Investor’s decisions in Amman Stock Exchange. International Journal of Energy
Economics and Policy. 10(2). p.417.
Tumanggor, M., 2020. The Influence of Current Ratio, Quick Ratio and Net Profit Margin on
Return on Assets at PT. Hero Supermarket Tbk. PINISI Discretion Review. 1(1). pp.137-
146.
Zhou, L., 2019. The Transformation and Development of Financial Accounting to Management
Accounting in the New Environment. The Frontiers of Society, Science and
Technology. 1(10).
Online
Creditor (Payables) Days. 2021. Online. Available through: <
https://www.tutor2u.net/business/reference/creditor-payables-days>

What is the Average Collection Period?. 2021. Online. Available through: <
https://corporatefinanceinstitute.com/resources/knowledge/accounting/average-
collection-period/>
What is the Current Ratio?. 2021. Online. Available through: <
https://corporatefinanceinstitute.com/resources/knowledge/finance/current-ratio-
formula/>.