BM414 - Financial Decision Making: Roles, Duties at SKANSA PLC

This report evaluates the importance of accounting and finance functions, duties, and roles within SKANSA PLC. It assesses the role of accounting in tracking income and expenditures, ensuring statutory compliance, and providing information to investors. Key functions such as planning budgets, maintaining records, and managing cash flow are discussed. The report also covers financial accounting, financial systems, payroll, budgeting, management accounting, taxation, and supporting business strategy. Task 2 analyzes SKANSA PLC's financial performance using ratio analysis, including ROCE, net profit margin, current ratio, debtor's collection period, and creditor's payment period, identifying reasons for changes in these ratios and their effects on the company.

Financial decision making

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK1.............................................................................................................................................1
Evaluating the importance of Accounting and Finance functions, duties and roles...................1
TASK2 ............................................................................................................................................5
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Financial decision making is the process which helps in weighing the pros and cons of a
decision taken in business plan and determine current financial situation of the organization. On
the base of these Financial decision, company set development goals by identify and evaluating
adequate actions for implement in business plan.
Present report in the task 1 Evaluating the importance of Accounting and Finance and in
addition to that, functions duties and roles will be explained. Furthermore, in the task 2 the
report is reviewing performance of SKANSA PLC and mentioning the cause, reasons and effects
for the change in ratio.
TASK1
Evaluating the importance of Accounting and Finance functions, duties and roles
Financial Accounting is a measurement process which involves the communication of
both financial and non-financial information of economic entities. For example business and
corporations (Greenberg and Hershfield, 2019). Vital role of accounting helps in tracking the
income and expenditures for making business decisions It ensures statutory compliance and
provide investors, which are the main role of accounting process. Information provided by this
process helps SKANSA PLC to reach at the decision of managing the business, make
investment or lend funds in the business as it accumulate and report information of the financial
position of the company.
Financial accounting function is important in the business because it involves financial
statements in the accounting record such as income statement, balance-sheet and statement of
cash-flow. The list of statements also includes the information of retained earnings and discloser
that accompany the financial statements of businesses. Importance of accounting and finance in
the SKANSA PLC are: Planning Budget- Process of constructing a budget which helps in control the operation
of business and reduces the risk is based on various budgeting policies and procedures.
This core factor helps SKANSA PLC to notice the expenditures which exceed the budget
amount and save money (Lee, 2020). This document maintained through accounting help
business to plan and make new budgets.
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 Banks and lenders- Retail lender provide mortgages to the business and institutions and
offer products such as saving accounts and loans on the bases of their financial status.
SKANSA PLC use these financial information by taking proper accounting system and
present these books of record to share financial institution. It includes assets, liabilities,
profit recorded and tax paid as records are carefully check by financial institutions
before awarding loan. Keeping Records- SKANSA PLC keeps the record in order to run its business carefully
as it consist the record of transactions, journal, general ledgers and trial balance-sheet.
All records of these books are collected, organized and interpreted in order to make them
communicable to the end user which helps in making decisions (Safriansah, Zukhri and
Andriyansah, 2021). With the help of bookkeeping SKANSA PLC make economically
viable decision which leads business toward positive productivity and growth. Decision Making- Financial statements play bigger role in making any decision
regarding business organization as these statements are the result of accounting. In the
absence of financial statements, business organization can not make any sound decisions
without proper accounting informations as the assumptions might not fix with the actual
situation and lead to false output. Hence, to achieve any organization objectives
regarding business development new invest or withdrawals it requires book of records
with proper accounting as it involves past creditors assess, liquidity and creditworthiness
of business. Information to investors- To identify the risk areas the investors use company's report, as
it points to potential losses in asset value and this crucial information plays huge role in
the overall decision of investors. It contains the statement of shareholder's equity,
balance sheet and the income statement which represent the business to the stakeholders
such as debtors, creditors and government (Bangma and et.al., 2017). Lack of clear
financial records create doubt of uncertainty for investors as these records represent
actual financial status of the business which might bring change in the decision of
investors. Reporting profits- Profits are realized benefits when any company generates revenue by
business activity after reducing the cost, tax and expenses while exceeding activity. The
calculated total revenue after expenses make actual profit which are required reporting as
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it enables the interest of parties contributing in the business deal. To attract new investors
SKANSA PLC maintain its accounting system to ascertain business transactions which
are based on systematic accounting to show transparency in the business.
 Managing and Monitoring Cash Flow- Cash Flow management consist of the process
which tracking the money coming into and going out of the business as it keeps track on
the flow on the transactions (Maloki and Mashenene, 2020). Monitoring cash flow
involves examine the flow and analyse all the changes which helps to spot the trend and
prepare for the future situations by tackle the problems in the cash flow. SKANSA PLC
take proper accounting system which take care of working capital and any other cash
requirements for the business organization as it needs to maintain sufficient funds to pay
expenses, taxes and bank loans.
Functions, Duties and Roles Financial accounting- Financial accounting is a process of keeping accounts of the
transactions of the business to create transparency in the business. SKANSA PLC use
double entry bookkeeping system, by preparing final accounts which are suitable for
meeting various requirements for statutory report. These regulatory requirements are
important for every business wheatear it is a small or large for the systematic accounting
process. Financial System- SKANSA PLC use well-framed financial system to analyse the
financial informations which needs to review in existing system by employee an
accountant. As medium-to-large sized organizations needs to take accountability of it
financial informations with proper records to take decisions. Accountant of the
organization is responsible for design and maintain these financial system and provide its
report to the higher authority of the management who makes decisions regarding
business (Soboleva and et.al., 2018). Financial System provide interface between the
finance and other system departments. Payroll- Payroll process consists tracking and filling employee compensation data which
includes their pay check, taxes and other benefits of the organization. Organization's
transaction and total cash flows are summarized in these payroll by the accountant.
SKANSA PLC keep accounting of its payroll and payroll taxes as they affect the net
income of the company to corporate with the laws and regulations for business activities.
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 Budgeting- Budgeting is the financial plan which includes both financial and non-
financial information (Piontkevich and Shatkovskaya, 2020). This budget a part of
accounting with obvious features of revenue and expenses which helps in setting funds
for create transactions for the future. SKANSA PLC carried out a budget accountant
which make the accounting process easy and to manage accounts of the business on
monthly basis. Management accountant also make report against financial evaluation of
plans by concerned report. Management accounting- The concerned report which provide informations of the
business transactions to the managers, called management accounting. It broader the
concept with providing these informations to stockholders, creditors and other people
outside the organization. SKANSA PLC aggregate accounting informations into
financial statements to the internal processes for business transactions such as day-to-day
transactions. Cost and management information directly provided through these financial
accounts by structured them by fully integrated standard costing system which is only
possible by management accounting. Taxation- Accounting method's structure focuses upon taxes and it governed by the
Internal Revenue Code, which are the specific rules followed by the company to prepare
tax returns. These tax affairs of the business are dealing by the taxation departments with
management and reporting (Blankespoor, deHaan, and Marinovic, 2020). Tax
implementation are identified for decision-making and financial plans. SKANSA PLC
accounted the taxes and made available pay at right times, therefore, cash planning and
budgeting affects with the activities of taxations. Supporting the business strategy- Company's financial department have financial
directors who is responsible for providing financial environments that supports business
strategy. To meet the organization's aspiration finance director gives right combination
of short-term, long-term finances and equity funds available with the agility of benefits
from future opportunities. SKANSA PLC use these financial strategies that must be meet
with the businesses plan.
 Creating value- In the business plan, finance director is accountable and responsible for
create value which can be a challenge task. SKANSA PLC obtain the best possible
borrowing rates and reduce the financial risk to create value in the business. Many
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directors apply the method of cost-cutting and controlling for better cash management.
Improve the debt collection activity is also a part of creating value in the business
transaction which helps business to grow effectively.
TASK2
(a) Calculation
Ratio FORMULA 2018 2019 Changes
ROCE EBIT/Capital
employed
= 600/3825
= 0.15
= 675/5850
= 0.11 0.04% decreased
Net profit
Margin
Total asset-
current liability
= 600/4800*100
= 12.5%
= 675/ 6000*100
= 11.25%
1.25 decreased
Current Ratio: net
profit/revenue*10
0
= 1515/645
= 2.34
= 2070/2220
= 0.93
1.14 decreased
Debtor’s
collection
period:
Trade debtors/
sales *365
900/4800*365=
68days
1200/6000*365=
73days
7 days increased
Creditors
Payment period:
Trade payable/
purchase *365
= 570/2700*365
= 77 days
= 2220/4800*365
= 168 days
91 days increased
1. ROCE is financial ratio that helps to measure the company's profitability of its capital
employed. From the above table it can be interpreted that SKANSA PLC's ROCE in year
2018 was 0.15 and in 2019 was 0.11. Table showing the change of 0.04 decrease in
ROCE which indicates financial ratio of the company by capital efficiency is affected
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and result in loss with profitability. This loss might be occurred due to loss of
competitive advantage or lower market validation than the company burns up its capital
which results less outcome than expected. Another reason can be, the company using
outdated machineries which cannot increase the efficiency into work and results in
decreased (sales) than expected (Dickinson, Kassa and Schaberl, 2018). This reduction
of sales due to lesser production can be a cause of company face downfall, which be
balance by right decision of capital investment, to make effective and efficient sales in
the company and raise profit.
2. Measure of profitably is called net profit margin, which calculated through a 'percentage
of the revenue finding the net profit' . Above table showing the net profit margin for year
2018 was 12.5 and for 2019 was 11.25, which reduced by 1.25 and it points SKANSA
PLC's net income has decreased. Reason of decrease in net profit margin ratio might be
indicating company using ineffective cost structure or poor pricing strategies which can
be balance by effectively strategies in company's management. Inefficent management
can increase cost expenses which company need to analysis and find solutions by
recreating methods and strategies. Company can generate enough profits through sales,
by using effective methods for reducing operation costs and overhead costs. This
process increasing the net margin by raising total revenue, can result in generating more
profits for the company.
3. Current Ratio generally shows good short-term financial strengths of the company to pay
short term liabilities and dues within one year. To satisfy current debts and other
payables company need liquidity cash, which needs to be managed with effective
methods. High current ratio is the sign for the problem in the management of working
capital. SKANSA PLC's ratio was 2.34 in 2018 and 0.93 in 2019 which the table
showing 1.14 of decrease, it is an indication of company is having less liquidity problems
in the company. Management of working capital is balanced well in 2019, with good
inventory management in compare to the past year (Forcellati and et.al., 2021). Company
can raise its proficiency by increase the working capital in business which can be
improved by selling unnecessary assets and unproductive assets by converting them into
cash within a year.
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4. Debtor’s collection period assess the time taken for collecting trade debts. By increase
the efficiency, company can reduce the period for debtor's collection. Above table is
indicating that SKANSA PLC’s debtor collection period has increased by the year 2019,
as we can see table showing figure 68 days for 2018 and 73 days for 2019. Difference of
7 says showing that company's average trade collection period has increased within a
year and the reason behind this raise might be granting more credits. Company's
management's decision for increasing it sales by grating more credits to its customer
results in creating credit conditions which are hard to redeem within a year. Company
needs to bring change in management and recreate strategies to enhance its sales rather
than allowing more credit sales. By maintain the strategies which can be helpful to set
buyer's payment discipline might bring change in the situations as company will be able
to collect its funds on time.
5. Creditors Payment period is a term used for calculating the time in (day) for average time
taken by the company to pay its suppliers. To know the business is able to take the
advantage of trade credit availability in systematic manner or not, SKANSA PLC take
proper analyses of its credit availability. Above figures showing in the table that in 2018
company has 77 average creditor's payment period and 168 in 2019 which increased by
91 days. Purchase of inventory can be caused of increase in accounts payable, which
results in increase of creditor's payment period due to late recovery (Greenberg and
Hershfield, 2019). In order to make efficient and effective structure for the funds,
management of the company need to make decisions which includes credit availability in
appropriate proportion. This method can bring efficiency in repaying the creditor's
payment and reduce cash-flow problems.
Above study has concluded that SKANSA PLC needs to develop its management system
to improve and grow in the competitive market. To attract new investors company need to
recreate its strategies which lead company towards success. Right now, company it's not in good
conditions that investors can make any decision in favour of invest into so SKANSA PLC has to
rebuild strong strategies to grow fast.
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CONCLUSION
The above report has been summarized, that accounting and finance functions is
important at it measures financial information of the businesses and helps to plan budget. This
process helps with the crucial information provided to banks and lenders which leads these
records to get the loans and other borrowings from external resources. Internally these book
keeping records helps in decision-making and reporting profits for future framework of polices
in the bushiness. Furthermore, it has been concluded that every business requires financial
planning by the functions, duties and roles which includes financial accounting, financial
system, payroll and budgeting in the business for efficient growth and development.
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REFERENCES
Books and Journals
Greenberg, A. E. and Hershfield, H. E., 2019. Financial decision making. Consumer Psychology
Review. 2(1). pp.17-29.
Lee, T. A., 2020. Financial accounting theory. In The Routledge companion to accounting
history (pp. 159-184). Routledge.
Safriansah, S., Zukhri, N. and Andriyansah, A., 2021. Analysis of Financial Performance Using
Budget Absorption Indicators. Budapest International Research and Critics Institute
(BIRCI-Journal): Humanities and Social Sciences. 4(1). pp.1467-1478.
Bangma, D. F. and et.al., 2017. The effects of normal aging on multiple aspects of financial
decision-making. PloS one. 12(8). p.e0182620.
Maloki, A. and Mashenene, R. G., 2020. Determinants of Procurement Records Keeping
Compliance at The Tanzania Ministry of Finance And Planning.
Soboleva, Y. P. and et.al., 2018. Monitoring of businesses operations with cash flow
analysis. International Journal of Civil Engineering and Technology. 9(11). p.2034.
Piontkevich, N. and Shatkovskaya, E., 2020, January. An Organization’s Cash Flow
Management in Digital Economy. In Ecological-Socio-Economic Systems: Models of
Competition and Cooperation (ESES 2019) (pp. 475-478). Atlantis Press.
Blankespoor, E., deHaan, E. and Marinovic, I., 2020. Disclosure processing costs, investors’
information choice, and equity market outcomes: A review. Journal of Accounting and
Economics. 70(2-3). p.101344.
Dickinson, V., Kassa, H. and Schaberl, P. D., 2018. What information matters to investors at
different stages of a firm's life cycle?. Advances in accounting. 42. pp.22-33.
Forcellati, C. L. and et.al., 2021. Support for Financial Decision-Making. In Maritime
Informatics (pp. 255-273). Springer, Cham.
Online
Accounting and Finance: Why Is It Important to Your Business?. 2021. [Online]. Available
through: <https://www.freshbooks.com/hub/accounting/why-is-accounting-and-finance-
important?fb_dnt=1>.
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