Financial Decision Making Report: Analysis of SKANSKA PLC Performance

This report provides a comprehensive analysis of SKANSKA PLC's financial performance, focusing on the role of accounting and finance within the organization. The study begins with an overview of accounting and finance functions, detailing their responsibilities and positions within a business context. The main body of the report conducts a ratio analysis of SKANSKA PLC over two years, utilizing financial statement data to assess the company's performance from an investor's perspective. Key financial ratios, including Return on Capital Employed, Net Profit Margin, and Current Ratio, are calculated and evaluated. The report explores the impact of these ratios on SKANSKA PLC's financial health and operational efficiency, and discusses the implications of the findings. The analysis includes a discussion on the importance of accounting ratios in business, supporting the answer with research and references. The report also analyzes the role of management accounting techniques in planning, control, and decision-making processes within the company, and explains how these techniques can be best applied to enhance company practices. The report also touches on how management accounting techniques like financial planning, statement analysis, and budgeting, influence the financial landscape of SKANSKA PLC. The report concludes with a summary of the key findings and recommendations based on the financial data and ratio analysis.

Financial Decision Making
1

Executive Summary
This study-report is formulated for management of SKANSA Limited, taking into account
the organization 's financial data The role of accounts and finance functions within corporation
are addressed in the first section of this study. This also provides an overview of the accounting
and finance division's responsibilities and positions in the business. In second section of the
study, numerous ratios are measured for the corporation over two years utilizing information
from business's financial statements, and comments regarding the corporation's performance
from perspective of investor has been made.
2

Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................4
Main Body.......................................................................................................................................4
Task 1...............................................................................................................................................4
Accounting & Finance Overview...........................................................................................4
Accounting & Finance Department........................................................................................4
Accounting Department..........................................................................................................5
Finance Department:..............................................................................................................7
Task 2...............................................................................................................................................8
Ratio analysis of SKANSKSA PLC.......................................................................................8
Performance Evaluation of SKANSKA PLC.........................................................................9
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12
3

Introduction
Accounting and finance are considered to be key aspects of an enterprise since they depict all
financial details. It primarily consists of business's financial statements, accounting information,
including multiple performance evaluation instruments that are used to determine a corporation 's
financial status in the related sector (Black, 2019). Accounting is primarily concerned with day-
to-day financial reports as well as information management of company concern, while finance
is concerned with the usage of those data in relation to an organization's potential growth
prospects using appropriate techniques and minimizing costs. In this regard SKANSKA PLC '
performance, which is one of the pioneering construction enterprises in United Kingdom, has
been analysed. Accounts and Finance division's functions of SKANSKA PLC has been analysed
in this study, including these division's roles and responsibilities in the organization. In addition,
a ratio study will be performed in attempt to assess the corporation 's performance in terms of
potential growth.
Main Body
Task 1
Accounting & Finance Overview
Accounting implies to process of tracking and maintaining business activities in
accounting records, while finance is process of managing money that flows in as well as out of
business entity. This is regarded as an essential component of enterprise that deals with financial
matters and is accountable for a firm's long-term growth.
To function effectively, SKANSKA PLC, being construction company, needs a substantial
financial investment as well as a sufficient investor pool. As a result, this particular segment is
critical to the corporation 's ultimate growth and expansion. Whether this is day-to-day operating
or capital-based activities, it's indeed critical to handle a corporation's finances in an acceptable
way for longer term. Multiple stakeholders in a business serve an important role in financing and
accounting concerns in order for the firm to attain financial as well as non-fiscal performance
(Çera and Tuzi, 2019).
4

Accounting & Finance Department
Every firm's accounts and finance division is in responsibility of ensuring that everything
functions smoothly as well as ensuring effective financial management practices and monitoring
of financial affairs and taking appropriate steps to facilitate all business operations. No
organization or corporation may operate efficiently without a stable sources of funds, an
effective supply of funding, and effective accounting (Finkler, Smith and Calabrese, 2018.).
A corporation 's accounting section is in charge of the financial statement planning,
general ledger management, bill processing, customer bill processing, staffing, and other
functions. In other terms, they are in-control of the organization 's total financial management,
while a firm's finance section is in-control of gathering funding for the organization managing
funds within business, and planning for the distribution of funding on various assets.
Finances and accounting are 2 distinct fields which are often messed up.
Finance is structured process of strategically managing the allocation of an organization 's assets
Accounting involve practices of recording and recording fiscal activities. Since they also deal
with management of a corporation's money financing and accounts are often mixed together. The
enterprise or organization would not prosper at any expense without a sufficient or effective
accounting and financing division (Grohmann, 2018).
Accounting Department
It is characterized as a component of business wherein financial and monetary transactions
are reported for later use in attempt to keeping control of company's financial details in attempt
to achieve reliability and productivity within a given time frame.
Functions
 Financial Accounting: This is task of accounting that focuses on analysing, reporting,
and summarizing financial statements for administrators to use in making final decisions.
Cash flows statement, ratio review as well as other finance-related reporting are examples
of different financing reports. It is critical to an organization's overall growth. Its
intention is to show an accurate and fair picture of an entity 's fiscal transactions.
 Management Accounting: It involves use of financial including non-financial to assist
management in making final decisions. It is centred on informing management staff
concerning financial statements such that appropriate decisions can be taken in relation to
5

the business 's overall performance. It aids in the management of an organization's cost
structures and profitability (Li and Chapman, 2020).
 Tax function: This is one of most significant dimensions of business organization that
focuses on taxation-related factors of a company It contains both direct as well as indirect
taxation that are related to an organization's finances in any way. As a result, it is
necessary to manage taxes and adhere to various regulations. It emphasizes on improving
company leverage over their global activities.
 Auditing function: It has to do with detecting and preventing fraudulent activities and
discrepancies in the corporation 's financial statements This is primarily concerned with
adhering to accounting standards in such way that mistakes and fraudulent activities can
be identified more easily. Skanska Plc has also been following auditing practices and
standards in order to aid in the detection and avoidance of mistakes, and also the
recognition of accurate and authentic financial data (Moreland, 2018).
Roles and Duties
 Bookkeeping: it entails regularly capturing, reviewing, and comprehending an entity's
financial transactions. For small companies, this role is typically filled by bookkeeper,
however as the organization grows and expands, this might be covered by more expert
payables and accounts receivable associates. In this regard, Skanska corporation has
developed an integrated bookkeeping system to help maintain business records more
effectively and reliably (Mumtaz, Saeed and Ramzan, 2018).
 Billings: the corporation's billings unit gathers data through the shipment and client order
units in order to produce invoices for company's customers, which is sub-division
of accounting department that Skanska corporation should emphasize accordingly.
 Collection: the accounting division is in control of collecting past-due invoices payments
from customers, and it uses a variety of methods to do so. The accounting team at
the Skanska corporation is expected to handle and report receivables collections data
in acceptable manner such that business's liquid assets can be handled more effectively.
 Taxes: a community of advanced-degreed accountants estimates the figure of taxable
income which the company is required to receive and makes annual income tax payments
to government based on such figure. The tax party files taxation returns in variety of
jurisdictions in additions to franchise taxation, income taxes, consumption taxes, as well
6

as property taxes. As a result, Skanska plc must handle such a process appropriately
(Njegovanovic, 2018).
 Financial statement preparation: a reporting team within department creates evolving
journal entries, publishes financial statement endnotes, and publishes financials at end of
each the reporting period to bring corporation 's formal financial statements through
compliance with the applicable accounting framework. As a result, Skanska company's
financial structure must be sufficient in order for company activities to be handled
effectively over a longer period of time.
Finance Department:
This department oversees acquisition, lending, dividend, and working capital operations, both of
these are primarily connected with the proper managing of corporation funds (Roger, Otjes and
van der Veer, 2017). The following are the financial roles that can be addressed in relation to
the SKANSKA PLC:
Functions
 Investment function: It contains all applicable variables that influence an organization's
investment ability in a possible investment strategy. As a result, SKANSKA corporation's
finance team is tasked with effectively and efficiently handling all of these
considerations.
 Financing function: It corresponds to the elements that need organizational attention in
attempt to organize a business corporation's finances. SKANSKA Corporation has
highlighted the related sources from which construction business could potentially obtain
sufficient means of funding in attempt to broaden its activities more quickly.
 Dividend function: It is the allocation of a corporation 's earnings to a select class of
shareholders that own the most stock in the organization The finance role is associated
with effectively distributing such earnings so that productivity can be sustained. As a
result, in order to foster a safe business climate, SKANSKA Corporation must implement
appropriate policies and legislation.
 Working capital function: It is defined as day-to-day expenditures that must be handled
in a practical way. In this regard, SKANSKA Corporation must assess its activities
through its finance division in attempt to encourage cost-effective strategies for routine-
based expenditure.
7

Roles and Duties
The following are most common roles of SKANSKA corporation financial department:
 Budgeting and forecasting: the finance division works with executives to prepare the
corporation's budgets and forecasts, and also offer financial advice. This information can
be employed to address the cash needs of each department plan organization personnel
levels, and prepare for asset acquisitions and improvements prior they become necessary.
 Management of business’s cash flow: the finance division is in charge of managing all
business cash flows in as well as out of a business, and also ensuring that sufficient
funding is enough to support the business's day-to-day requirements. This area also
includes the business's credits and cash collections procedures, which assure that
distributors and lenders are paid properly and on specific schedule and also the
organization itself (Shakeel, Shahzad and Abdullah, 2020).
 Management of company’s investments: in order to evaluating and choosing new
acquisitions, the financing division is in charge of handling the corporation 's current
assets. Quite apart from business's capital assets, Skanska's finance
department/unit should be focused on current assets. Since company's working capital
should be managed effectively in attempt to maximize profits in comparison to the sum
of money spent, it has an effect on the corporation’s liquidity instead of fixed assets.
 Budgeting: the corporation's finance department assists the balance of the enterprise in
developing company-wide budget, that is used to plan for future expenditures in the
upcoming year, including purchase of capital and fixed assets.
 Payrolls: the accounting division collects time worked details from personnel and hires
rate data from personnel resources, calculates payroll and other reductions from staff
wages, and allocates net compensation to staff in cash terms, checks, pay vouchers, or
bank transfer.
Task 2
Ratio analysis of SKANSKSA PLC
Ratio valuation is regarded as the most critical aspect of a company's financial accounting.
It is defined as an efficient performance assessment technique that has been used in the past to
assess the success of a company over a long period of time. It requires a variety of financial as
8

well as non-financial indicators that are used to determine a status of the organization in the
marketplace (Yuneline and Suryana, 2020). Different metrics were used to calculate the financial
success of SKANSKA PLC, that is one of the largest constructors in the United Kingdom, over a
given time span. The accounting calculations are measured in the following way for the specified
purpose:
Ratio Formula 2018 2019
ROCE
Operating profit/Total assets-current liabilities
*100 15.69% 11.54%
Net profit margin Net profit/Sales*100 12.50% 11.25%
Current Ratio Current assets/current liabilities 2.35 0.93
Average receivable
days Receivables/Sales *365 68.44 days 73 days
Average Payable
days Payables/Purchases * 365 77 days
160
days
Performance Evaluation of SKANSKA PLC
Return on capital employed: It is an indicator of monetary ratio which is used to evaluate a
profit margin and also capital productivity in order to determine a company's profit generating
potential. It is among the most widely used performance assessment tools, and has been used by
businesses to quickly adjust their processes in order to maximize profits. Higher financial return
on capital invested is thought to mean a profitability system has been well and powerful. In this
respect, SKANSKA PLC recorded a return on invested capital of 15.69 percent in 2018, but just
11.54 percent in 2019. It means that the firm ’s resource productivity and total performance are
not up to par. This has a diminishing rate of return, that would be detrimental to the company's
ability to expand activities in the future because it is unable to produce adequate returns on its
financial performance (Zaimah, 2019).
Net profit margin: It refers to the amount of sales obtained by a company during its normal
business practices and operations. It is indeed among the most reliable metrics of a company's
performance and financial stability. It also looks at the decrease and increase in an organization's
profitability. If the gross margin is larger, that ratio indicates that the company is profitable,
whereas vice versa. This also aids investors in analysing good investment opportunities in the
future. When it comes to SKANSKA PLC, it's worth noting that perhaps the particular revenue
9

has dropped from 2018 to 2019. In 2018, the corresponding operating margin was 12.50 percent,
while being in 2019 it was 11.25 percent. In 2018, the corresponding net profit margin was 12.50
percent, while in 2019 it was 11.25 percent. The operating margin has been declining, indicating
that the organization needs to boost its total sales generating capability over time. As a result,
proactive strategic policies must be implemented in order to meet sales targets (Park and Sela,
2018).
Current Ratio: This is the mixture of existing shareholder ’s equity that defines a firm’s short-
term liquidity status in order to effectively fund its short-term contractual obligations. If a
corporation's liquidity amount will be less than one, it is assumed that firms is unable to term
financial obligations financial commitments in a timely manner. It is among the most successful
strategies for determining an operating cash flow status such that appropriate steps can be taken
to meet the business goals. In the case of SKANSKA PLC, the current ratio throughout 2018
were 2.35, which is considered to be very good in repaying its simple obligations. In 2019, it
reported a current ratio of 0.93, which really is significantly lower than in previous years needs
more improvement in order to offset current debts. It really is important to have a sufficient
amount of cash on hand so that SKANSKA PLC can extend its activities without going into debt
but gain sufficient income over time (Camerer, 2020).
Average receivables days: It refers to the time frame where a corporation's borrower is expected
to settle their loan within a certain amount of time. It represents the creditworthiness of the
business and also the quality of the collection era. It is important to get a short receivable term in
order to handle the bank's profitability in a sustainable manner. In order for an organization to
provide successful results, it must have an appropriate account receivables time. It is important to
provide a sufficient receivables collection cycle in order for an organization to provide reliable
performance over a long period of time. When a corporation has bad loans, it means that its
financial health is inadequate, and so as a result, the organization's procedures must be improved
in order to encourage productivity. The smaller the compilation time, it is said, the best for
organization. The greater the compilation time, the worst the opportunities for organizational
advancement. In the current scenario, SKANSKA PLC has a processing time of 68.44 times in
2018 through 73 days in 2019, which would have to be improved for the business's future growth
prospects. As a result, it is necessary to change receivables allocation in order to retain the
organization's operations further (Duan, Edwards and Dwivedi, 2019).
10

Average payable days: That really is the timeframe at which a system is planning to reimburse
its debts to creditors within the agreed time frame. In order to provide an appropriate collection
of services for an organization even as its profitability can be sustained on a lengthy period, it
really is important to have optimal payable days. These are claimed that a prolonged payable
duration is beneficial to an operating cash flow status over a given time period, whereas a shorter
really see is detrimental. In the current scenario, SKANSKA PLC has a payable duration of 77
days in 2018 as well as 160 nights in 2019, which would be deemed to be ideal for long-term
liquidity. It really is important to provide the best payable term possible in order for the business
to run efficiently. It is important to provide the best payable word possible in order to maximize
the productivity of business processes. This is also assumed that if a corporation does not repay
its loans for an extended period of time, its market share would deteriorate, affecting the
company's long-term growth. As a result, a reasonable compensation cycle is required such that
the business can run in a more efficient manner (Lieberthal and Lampton, 2018).
CONCLUSION
In last of report, it is stated that Accounting and finance are very important for each
organization, according to the findings of this study. A new dimension called reporting and
financial services was established to handle a company's assets and expenditures in regularly to
secure that corporate activities ran smoothly. It has a significant impact on an organization's
overall growth, which would eventually benefit the organization. It performs a critical part in the
overall growth of an organization, eventually assisting in the creation of a profitable venture.
SKANSKA PLC is a leading company in the building industry, but it has been analysed in terms
of financing in this article. The importance of the financial and economics departments is also
covered in this article, as is the revenue growth review of SKANSKA PLC has to make changes
to its financial framework in order to improve its profitability in the coming years and devise an
ambitious and profitable strategy for future growth. As a result, it is advised that the corporation
take the appropriate steps. As a result, it is advised that the organization take the requisite steps
to change its existing plans and practices in order to enhance its corporate activities for the long
term.
11

REFERENCES
Books and Journals
Bannier, C.E. and Schwarz, M., 2018. Gender-and education-related effects of financial literacy and
confidence on financial wealth. Journal of Economic Psychology, 67, pp.66-86.
Black, K., 2019. Business statistics: for contemporary decision making. John Wiley & Sons.
Camerer, C., 2020. 8. Individual Decision Making. In The handbook of experimental
economics (pp. 587-704). Princeton University Press.
Çera, G. and Tuzi, B., 2019. Does gender matter in financial literacy? A case study of young
people in Tirana. Scientific papers of the University of Pardubice. Series D, Faculty of
Economics and Administration. 45/2019.
Duan, Y., Edwards, J.S. and Dwivedi, Y.K., 2019. Artificial intelligence for decision making in
the era of Big Data–evolution, challenges and research agenda. International Journal of
Information Management, 48, pp.63-71.
Finkler, S.A., Smith, D.L. and Calabrese, T.D., 2018. Financial management for public, health,
and not-for-profit organizations. CQ Press.
Grohmann, A., 2018. Financial literacy and financial behavior: Evidence from the emerging
Asian middle class. Pacific-Basin Finance Journal, 48, pp.129-143.
Li, M. and Chapman, G.B., 2020. Medical decision making. The Wiley Encyclopedia of Health
Psychology, pp.347-353.
Lieberthal, K.G. and Lampton, D.M. eds., 2018. Bureaucracy, politics, and decision making in
post-Mao China (Vol. 14). University of California Press.
Moreland, K.A., 2018. Seeking financial advice and other desirable financial behaviors. Journal
of Financial Counseling and Planning, 29(2), pp.198-207.
Mumtaz, A., Saeed, T. and Ramzan, M., 2018. Factors affecting investment decision-making in
Pakistan stock exchange. International Journal of Financial Engineering, 5(04),
p.1850033.
Njegovanovic, A., 2018. Neurological aspects of finance, transmitters, emotions, mirror neuronal
activity in financial decision. Маркетинг і менеджмент інновацій, (3), pp.186-198.
Park, J.J. and Sela, A., 2018. Not my type: Why affective decision makers are reluctant to make
financial decisions. Journal of Consumer Research, 45(2), pp.298-319.
Roger, L., Otjes, S. and van der Veer, H., 2017. The financial crisis and the European
Parliament: An analysis of the Two-Pack legislation. European Union Politics, 18(4),
pp.560-580.
Shakeel, M., Shahzad, M. and Abdullah, S., 2020. Pythagorean uncertain linguistic hesitant
fuzzy weighted averaging operator and its application in financial group decision
making. Soft Computing, 24(3), pp.1585-1597.
Yuneline, M.H. and Suryana, U., 2020. Financial Literacy and its Impact on Funding Source’s
Decision-Making. International Journal of Applied Economics, Finance and
Accounting, 6(1), pp.1-10.
Zaimah, R., 2019. The probability factor influences the level of financial well-being of workers
in Malaysia. Geografia-Malaysian Journal of Society and Space, 15(3).
12