Financial Analysis: Skanska PLC Performance - BM414 Report

This report provides a comprehensive financial evaluation of Skanska PLC, a UK-based company, focusing on its financial management practices and performance. It highlights the importance, roles, functions, and duties of financial management within the organization, including financial planning, fund allocation, decision-making, and financial control. The report also analyzes Skanska PLC's performance using ratio analysis techniques such as Return on Capital Employed (ROCE), Net Profit Margin, and Current Ratio, comparing data from 2018 and 2019. The analysis aims to assess the company's capital efficiency, profitability, and liquidity, providing insights into its financial health and the effectiveness of its financial strategies. This report is relevant for understanding financial decision-making in a business context.

FINANCIAL EVALUATION
OF SKANSKA PLC

Table of Contents
INTRODUCTION...........................................................................................................................3
Task 1...............................................................................................................................................3
Importance, roles, functions and duties of financial management...............................................3
Task 2...............................................................................................................................................7
Performance of organsiation........................................................................................................7
CONCLUSION..............................................................................................................................10
References......................................................................................................................................11

INTRODUCTION
Financial management is a practice involve managing the financial resources associated
with the business entity. This report is based on the case study of Skansa Plc in context to its
management of finance related practice. The organisation is based in United Kingdom which
initiated its business operations in the year 1984. The organisation is further planning to expand
its operations in other business locations as well such as Europe within the time spam of 10
financial years. The aim of the project is to evaluate the financial performance of the business
unit and on the basis of that to understand the relevance of expansion of business unit.
Henceforth, report will give emphasis over the importance of accounting and finance functions in
the organisation. Duties and roles of financial management will also understand in this project,.
Furthermore, the performance of the Skansa Plc would be analysed with the use of ratio analysis
technique.
Task 1
Importance, roles, functions and duties of financial management
Financial management is about to manbage the fuinancial situation of the business
enterprises.
Financial planning:
This practice is important as it allow the Skansa Plc to manage the financial position of
the business entity. The significance of this technique adopted by the organisation is such that
managing financial resources is very important in respect to the business venture. The limitation
of the financial resource also motivate the business venture to incorporate the financial
management like practices adopted by the organisation (Cui, Jo and Na, 2018). Financial
planning involve allocation of funds and proper use of the financial resources adopted by the
business unit. This is an obvious fact that the Skansa Plc is a growing firm that require the
business unit to make a strong use of the financial resources available with the organisation.
Financial planning is about to coordinate the best use of the financial resources available with the
organisation.
Proper use and allocation of funds
The aim of the financial management practice at the Skansa Plc is to properly use the
financial resources. Based on the different requirements related to the business venture this is
about to allocate funds in against to follow the business practices. The aim of the financial

management practice is to ensure the best use of resources and financial feasibility available with
the organisation (Drempetic, Klein and Zwergel, 2020). Allocation of funds involve on the basis
of the specific need of each functional activity associated with Skansa Plc it involves
segregation of funds over different operations. This also support the overall objectives of
organisation to mitigate the business objectives.
Taking sound financial decisions
Financial management further comprises with taking up the financial decisions. This
involve taking up the sound financial decisions. The role of the financial management practice is
also to make strong decisions that can ensure the mitigation of the financial objectives in the best
way possible. The resources available with the Skansa Plc are limited which require the
management and expert to take on the sound decision-making when it comes to utilising the
financial resources at the work place (Rondinelli, 2017). Taking up sound decision would
include assessing the financial need of each individual functional activity and on the basis of the
need identified this involves making strong decisions. Allocation related decisions are involved
in this practice. The aim of the management is to make the optimum use of the financial
resources that further support the business unit to mitigate the business objectives in the best way
possible.
Acquisition of funds
Financial duty wisely involve acquisition of funds related aspect. This involve identifying
the sources to collect financial resources associated with the organisation. Identification of
sources of funds is equally essential for the business venture as financial resources are required
for delivering every single functional activity. Acquiring fund is very important as it further
support the business unit to process further the financial resources in regular business functions.
Funds acquisition is very important part of the business practices adopted by the venture. Every
single functional direction associated with the organisation seek finance and funds to meet up
various functional responsibilities of the company (Milliman and Clair, 2017). The overall
financial resources available in the respective market are limited in number that allow the Skansa
Plc to effectively allocate all its resources in all different business operations entertain by the
organisation. Also acquisition of funds are very powerful function that needed to operate by
business venture in an y given situation. IT is important to assess the cost of acquiring the
finances in the market. When it comes to evaluating about the funding options available cost of

adopting each individual funds will also be understood. This would provide a clear overview
about the way funds should be managed. Along with managing the funds it further contain a
great opportunity to channelise the financial resources in the best way possible. Skansa Plc also
analysis the repayment term related to acquisition of each financial resource. This make the
practices more effective for the business venture to effectively analysis of the funding choices
available with the company.
Financial control
Financial control is also among the cor duty associated with the management of finances
at the organisation. Controlling financial resources involve taking an eye over consumption of
the funds and different financial choices associated with respective target market. Financial
control would further be included as ensuring the financial feasibility regarding each individual
financial resource avail;able with the Skansa Plc . The overall spectrum of financial control
involve identifying the funding requirements and based on the factors identified this is about to
make the most suitable use of the finances (Li and et.al.,2018). This is essential and important
part of the financial management to control the overall resources are available with the company
so that best level of allocation of funds can be done. This would further make the overall
financial stability more feasible in nature. Financial control supported the Skansa Plc to
maximise the profitability opportunity to the business venture. This further allow the business
entity to improve liquidity situation at the business operations. Controlling would further include
the use of funds in all different business operations adopted by the company. Profit making is
amopng the core objective associated with the business operations deliver by the company. This
aspect of the financial management support the business unit to achieve its one of the core
business objective. Financial controlling favour the company to make the best use of the
financial resources associated with the company.
Increase wealth of firm
Wealth management is also one of the key feature related to the financial management
practices adopted by the company. Wealth is the overall value of the business including all its
assets, business value and such like elements. Wealth management is itself is a core term that
favour or support the business entity to ensure the fulfilment of all business objectives. The basic
role of the financial management is about to incorporate the business tactics in such manner that
overall wealth of the Skansa Plc can be increased. This is an important direction that adopted by

the professionals at the business unit to maximise the overall wealth of the business unit
(Weybrecht, 2017). The duty of the professionals when it comes to entertain financial
management is not only to incorporate the best use of the financial resources along with this the
role is also to improve the overall funds availability. This is a basic responsibility of the financial
professional is to ensure that managing wealth is very significant in respect to the financial
professional at the work place. The availability of the financial resources are limited and in such
a situation this is about to manage the overall financial requirement in such manner that wealth
of the firm could be improved.
Improve liquidity
Financial management also play role in improving liquidity situation of the business unit.
Liquidity involve managing the finances of the organisation in such manner that short term
obligations can meet easily. Boosting up liquidity is required in context to the business unit as it
favour the Skansa Plc to ensure mitigation of short term obligations of the business unit such as
payment to creditor and other short term expenses (Amel-Zadeh and Serafeim, 2018). Improving
the liquidity situation is essential in respect to the business entity channelise its business
operations. This is also a duty of the financial expert to support the liquidity requirements of the
venture.
The above stated points demonstrate about all the cpre role, responsibilities, importance
and other such aspect associated with the financial management practice adopted by the
company. The main aim of the financial management practices adopted by the business venture
is to ensure the best suitable financial stability at the organisation. This is required for the
organisation to avail its resources in such manner that company get to deliver its overall business
objectives in the best way possible.
Task 2
Performance of organsiation
Return on capital employed(ROCE)
Ratios Formula 2018 2019
Return on capital employed EBIT / Capital employed 0.20 0.17
Earning before interest and tax 750 975
Capital employed Total assets – current liabilities 3825 5850

Interpretation
ROCE is the financial ratio that can be used to access a company's capital efficiency and
profitability. With the helps of ROCE, it can be analysed how well a company is earning profit
on its capital that has been invested (Chopra, Bansal and Wadhwa, 2020). Capital employed of
the company is calculated by subtracting total assets to current liability. ROCE is decreased from
the year 2018 to 2019 by 0.20 to 0.17. The main reason behind this is that Skanska Plc has kept
more retain earning as compare to previous year. Moreover, respective stakeholders use this ratio
to analyse the performance of the company by evaluating all the area of the investment.
Likewise, company has various financial assets to create its wealth which include non-current
assets and current assets. Therefore, Skanska Plc choose to deploy their fund in such a way that
can increase its performance. In addition to this, it is computed with the helps of earning before
interest and tax over capital employed (Gulo, 2021).
Net profit margin
Ratios Formula 2018 2019
Net profit margin Net income * 100 / revenue 12.50% 11.25%
Net income 600 675
revenue 4800 6000
Interpretation
Net profit margin shows how much company is generating profit from its operation and
weather operating and overhead cost are being included. A higher net profit ratio indicate that
company is efficient at converting their sales into income. The main aim of the Skanska Plc is
not only maximization of sales but also generate more and more actual profit. Moreover, it is the
most important indicator of company's financial health. Net profit margin is decreased from year
2018 to 2019 by 12.50% to 11.25%. The reason behind this is that Skanska Plc is unable to
convert its revenue into profit (Musallam, 2018). Likewise, it includes business activity like total
revenue, COGS, all the out going cash flow, debt payment, interest payment etc. Moreover,
increase in revenue does not mean high in profit because it can be followed with higher
expenses. On the other side decrease in revenue does not mean less profit because it can be

followed with effective cost management. This ratio is calculated in percentage by dividing net
income to net sales.
Current Ratio
Ratios Formula 2018 2019
Current ratio Current assets / Current liabilities 2.35 0.93
Current assets 1515 2070
Current liabilities 645 2220
Interpretation
Current ratio show the liquidity position that means how well company is able to meet its
short term requirements. Respective stakeholders feel secure if company has higher current
assets as compare to current liabilities. The standard current ratios is more than one which
describe that company has enough current assets to meet short term liability. From the above
analysis, it has studied that company's current ratio is decreasing from the year 2018 to 2019 by
2.35 to 0.93. The decreasing in this ratio is not good for the company's liquidity and solvency.
The reason behind this is that Skanska Plc has increased their current liabilities as compare to
previous year (Robison, 2021). Moreover, this year Skanska Plc has increased its current assets
but not as same or higher percentage as current liabilities are increased which means it has high
obligation and less return sources. It is required to take action to rectify this ratio. This ratio is
computed with the helps of current assets over current liabilities.
Debtors collection period/Average Receivable days
Ratios Formula 2018 2019
Debtors collection period Average debtors * 365 / Net sales 68 73
Average debtors 900 1200
Net sales 4800 6000
Interpretation
The average collection period is the time duration in which Skanska Plc receives its
payment in the respect of credit sales. Moreover, it represents the number of days between the

date when company has made credit sales and the day as payment is collected. Higher collection
period show Skanska Plc takes long period to recover its payment. On the other side, shorter
period represent Skanska Plc takes short duration to recover its amount. Further, this ratio is
calculated on the basis of how much company has made credit sales. From the above
computation, it has represented that debtors collection period is increasing from the year 2018 to
2019 by 68 to 73 days. Likewise, Skanska Plc need to manage their collection period to ensure
that has an enough cash in hand to meet financial obligation (Sochima and Iyafekhe, 2018).
Company prefer short period for collecting its payment because it gives chance to explore or
invest in different opportunity which are present in the market. Further, this ratio is computed by
dividing average debtors to net sales and then multiply with the quotient that is no. of days.
Average Payable days/ Creditors collection period
Ratios Formula 2018 2019
Creditor collection period Average creditor * 365/ COGS 60 176
Average creditor 570 2100
Cost of goods sold (COGS) 3450 4350
Interpretation
Average payable days is the financial ratio which indicate the average time duration that
a Skanska Plc to pay its invoice and bills. This ratio is depended on the net credit purchases. This
ratio is calculated on annual or quarterly basis which represent how well Skanska Plc is
managing its cash outflow. Moreover, it is computed with the help of cost of goods sold which
means opening inventory plus purchases and minus closing inventory. The higher creditor
collection period shows company takes longer period to pay its obligations like invoices and
bills. On the other side, shorter payables days indicate that company takes short duration for
making payment to its creditors. From the above analysis, it has been interpreted that average
collection period is increased from the year 2018 to 2019 by 60 to 176 days. Skanska Plc choose
long period for making its payment because it helps to manage working capital requirements and
free cash flow (Yusof And et.al., 2021). Moreover, this ratio is evaluated by dividing average
creditors to COGS and then multiply with number of days.

The overall performance of the organisation is not feasible enough to invest in the
business. Return on capital employed of the company has gone slow in the year with the rate of
19% in comparison to the year 2018 where the ratio was 20%. In the recent financial year the
performance of the venture has gone down that create a negative environment to invest in the
business practices of the venture. This make it significant for the organisation to incorporate the
business practice in such a way that positive level of return can be incorporated. Net profit
margin has also went down in respect to the Skansa Plc. Net profit margin is a true indicator in
regard to the overall performance of the business venture entertain by the organization. This is a
positive indicator that demonstrate the fact that the profitability of the business venture has gone
down. Current ratio clearly demonstrate that the liquidity situation of the business has
challenged. The recent ratio is .93 which is not even close the idle current ratio. This is important
for the organization to have a suitable liquidity positive by considering the current asset double
the number in comparison with the current liability of the organization. Role of current ratio is
very significant for the business unit as it clearly favor the venture to ensure the best suitable
level of current position of the organization.
The liquidity situation of the company has also challenged due to the increased period of
collection against debtor of the business unit. This is identified the fact that the liquidity situation
of the business unit has been went down due to the increased collection time. Today the Skansa
Plc take more time to collect the due of the debtor in comparison to the earlier financial tear. So
as the business unit is taking more time to repay its current obligation. This is further not a
positive situation in context to the business unit as this allows the organization to support the
current position of the organization. Overall this can be stated the fact that it is not feasible
enough to invest in business operations entertained by the organization. Investor can look for
other option available in the market which can provide a better return against the investment
made.
CONCLUSION
Investment decision-making is about to analysis whether the identified investment option
is feasible enough or not. This is important fact that the overall performance of the company
could go down which further affected over the investment choices. In every aspect company
could perform less effectively when it comes to profitability, liquidity and all other aspects. This
is important for the business unit to understand its requirement and to make the most important

decisions. The leadership at the Skabnsa Plc require to evaluate its situation and based on that it
is important to make strong decisions.
References
Books and journals
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