Financial Decision-Making Report, BM414, Finance, Bucks University

This report provides a detailed analysis of financial decision-making within Skansa Plc, a construction company. It begins with an introduction to financial management and the company's background, including its strengths, weaknesses, opportunities, and threats. The report then delves into Task 1, which examines the roles and responsibilities of the accounting and finance departments. The accounting department's functions, including financial accounting, management accounting, tax functions, and auditing functions, are thoroughly discussed. The finance department's functions, such as investment, financing, dividend, and working capital management, are also analyzed. Task 2 focuses on ratio analysis, calculating and interpreting key financial ratios such as Return on Capital Employed (ROCE), Net Profit Margin, Current Ratio, Average Receivable Days, and Average Payable Days for 2018 and 2019. The analysis includes a comparative assessment of the company's financial performance based on these ratios, highlighting trends and potential areas for improvement. The report concludes with a summary of findings and recommendations for enhancing financial management practices within Skansa Plc.

FINANCIAL DECISION
MAKING

Table of Contents
INTRODUCTION..........................................................................................................................3
Task 1..............................................................................................................................................3
Importance, duties and role of financial function.......................................................................3
Task 2..............................................................................................................................................7
Ratio analysis..............................................................................................................................7
CONCLUSION.............................................................................................................................11
REFERENCES.............................................................................................................................12

INTRODUCTION
Financial management is defined as managing financial resources associated with the
business entity. This report is based on the case study of Skansa Plc initiated business operations
in the year 1984. Company is associated with the construction sector. Currently the business
entity providing employment opportunities to approximately 33585 employees. Company is
owning an income of £ 6.054 billion. Company own a market share of approximately 2% that is
very impressive due to the presence of healthy market competition. Business entity contain
positive brand value, diversified resources, efficient employee base and well-structured
organisation hierarchy are the strengths associated with the business entity. Certain weaknesses
like less focus over innovation, technological advancement and inflation in economy is the
major weakness associated with the business entity. Opportunities such as global expansion,
product development, technical advancement and innovation is also associated with the business
idea hold by business entity. Competition is considered as the key threat associated with the
business operations company functioned in market. This project will discuss the financial
management related practices in respect to the business entity. Henceforth, report will emphasis
over different functional roles and responsibilities company channelise in order to manage its
finances in the best way possible. Furthermore, report will discuss the overall performance of
business entity for the two financial years based on comparative assessment.
Task 1
Importance, duties and role of financial function
Financial management practices are allocated to finance and accounts teams in the
organisation hierarchy of the Skansa Plc. Account and finance department both the areas allow
the business entity to establishes smooth control over the financial resources undertaken by the
business entity. Management has segregated different roles and responsibilities related to the
financial management in between account and finance department based on the skills and
abilities of the employees associated with individual department (Al Muhair and Nobanee,
2019). The basic segregation into the role both the departments play is that accounts deportment
is mainly focused towards the projection of the accounting transactions company has entertained
and on the other hand finance team is more involved in analysing the financial position of
company and make the best level of decision based on the needs and requirements of the
business entity.

Accounts department
Management of Skansa Plc has allotted certain responsibilities such as financial
accounting, management accounting, tax functions and auditing functions to the accounts
departments. All these are the four primarily functions related to the accounting.
Finance accounting: Finance accounting is among the primary role and responsibility that
accounts department play in Skansa Plc. Financial accounting is more like utilising the series of
accounting principles and practices in order to represent the financial position of business entity
in the best way possible. Skansa Plc follow accrual basis when it comes to reporting the
financial position of the organisation. Accounts department classified financial data in certain
ways such as revenue, expenses, assets, liability and equity (Alkaraan, 2018). Revenue and
expenses are accounted and reported in the income statement of the respective financial year.
Assets, liability and equity accounts are projected under the balance sheet section of the
financial accounting. The basic aim behind the finance accounting is that to present or reflect the
accounting records associated with the respective financial year. Profitability is the main
element that accounting team try to identify against reporting transactions under finance
accounting.
Management accounting: Management accounting is all about taking financial decisions or
related to business operations undertaken by organisation. Management accounting techniques
further include ratio analysis, investment decision-making and other types of the assessment that
can empower the organisation to improve growth of company. Management accounting also
include cost accounting under which different costing methods such as job costing, batch costing
and other such techniques used by the Skansa Plc to take the best and profitable business
decision-making (Asandimitra and Kautsar, 2019). In context to the business growth and
development decision-making is a key tool that is used by organisation to maximise its growth
possibility. This part of operations include different roles and responsibilities such as forecasting
future growth, make or buy decisions, forecasting cash flows, understanding performance
variance and also to analysis the rate of return against a certain investment. This part of
accounting put a direct influence over the growth and development possibility of business
organisation. Skansa Plc also try to take competitive advantage with support of this technique
and accounting practice.

Tax functions: Tax functions are also coordinated by the accounts department of Skansa Plc.
This includes on the basis of the net income reflected under the profit and loss account of
company for the respective financial year evaluating the tax liability business entity need to
meet. Tax is the liability which business entity mitigate against earning profits from business
operations (BAKAR and BAKAR, 2020). This is also a ethical responsibility attached with the
businesses to pay back to the society whatever society has given to business house against
channelising business operations. Role of accounts teams is only not restricted to assessing the
tax liability buyt also to pay the same to meet up the responsibility.
Auditing functions: Audit is all about authorising the authenticity of the financial records such
as trading accounting, profit and loss statement and the balance sheet of company. This is about
to authenticate that the accounting treatment company has done is fair and as per the accounting
principles and requirements attached with accounting standards applicable over company
(Bawole and Adjei-Bamfo, 2020). Skansa Plc needs to conduct audit every year as this is the
mandatory requirements associated with the company act. Audit report also present by the board
of director of company in the annual general meeting held every year. Accounts department look
all the responsibilities associated with auditing the financial statements of business entity.
Finance department
Finance department is also associated with the organisation hierarchy in Skansa Plc.
Finance department in Skansa Plc play roles and responsibilities like inveterate functions,
funding functions, dividend functions and working capital functions. All the four different
functions allow the business entity to achieve high growth possibility in respective market.
Investment function: Finance department of the Skansa Plc play role in taking investment
decisions that can empower the business entity to achieve all business objectives. Investment
decision is made by the company with support of different techniques like net present value
method, payback period method, investment rate of return technique and such other techniques
and methods. Capital and financial resources are minimum which further imposed the balanced
between risk and reward when it comes to making investment decision (Boisjoly and et.al.,
2020). Investment functions can be stated as the core function and responsibility associated with
the finance department. This is a huge challenge to select a particular investment among
multiple options with support of different methods. As every method of investment decision-
making contain certain level of limitation that restrict the management taking best level of

decision. Finance team choose a particular technique or method to choose the investment
decision-making.
Financing function: Financing function involve formulating budget so that proper funding
could have been allotted for every single functional area associated with the business entity.
Budget is all about projecting the expected financial needs and requirements of business entity
that can empower every single department of Skansa Plc meeting all responsibilities and sustain
a good flow of operations (Herranz and et.al., 2017). Financial resources are prominent and
empower the entity to achieve smooth control over operations. Financing function is stated as
the primary role and responsibility finance department play in company.
Dividend function: Dividend function is denoted as finalising how much dividend company
needed to pay to its shareholders and investors. This is another crucial function that finance
department play ion company. Shareholders also contain expectations against the capital;
resources they allocate to the Skansa Plc. Dividend is the return shareholders earn against the
investment decision they made in business functions of company. Under this responsibility
finance professionals require taking decision over the level of dividend needed to pay to
shareholders and investors so that more investment could have been attracted towards the
business entity.
Working capital function: Working capital is defined as the financial resources required to
mitigate day to day responsibility. Working capital is the balance between current nature asserts
of company and current liability associated with respective financial year of business entity. In
clear term it can reflect that working capital is the liquidity that in any situation Skansa Plc
required to sustain to achieve smooth control over functional responsibilities. There are certain
responsibilities which Skansa Plc maintain with support of working capital management such as
it allow company to hold strong liquidity position in business. It also evades the company
getting interruption in operations of company. It also enhances profitability of company against
operations (Marqués, García and Sánchez, 2020). This support the financial health of the
Skansa Plc. It can be projected that working capital play role of value addition in favour of the
business entity. Finance department play role in sustaining proper working capital and meet up
the needs and requirements associated with the business entity related to management of
company's working capital in business.

The above mentioned roles and responsibilities are associated with the finance and
account department associated with the organisation hierarchy of Skansa Plc. It becomes
essential that both the department effectively sustain healthy control in between the functional
responsibilities attached with the accounts and finance department of company. In order to
manage the effective financial health both the departments requires to deal with the associated
responsibilities effectively.
Task 2
Ratio analysis
Ratio is the statistical representation of the performance of business entity. Ratio supports the
business entity to monitor the performance of entity in respective market. Performance
evaluation is the process where based on certain ratios overall performance of business entity is
monitored and measured. This involves ratios such as return on capital employed, net profit
margins, current ratio, average receivable days and average payable days.
Return on capital employed:
Earning before interest and tax / Capital employed (Total asset – current liability) * 100
2019
1650 / 5850 (8070 – 2220) * 100
= 28.21%
2018
1350 / 3830 (4470 – 645) * 100
= 35.25%
Return on capital employed is a term denoted the total revenue company could era
against the capital employed or the liquidity it has sustained in business. Revenue under this
ratio is about the earning Skansa Plc has earned before the interest and tax. This can be stated as
the revenue business entity could get against the operation and functions it has performed in
trading. Financial records reflect that Skansa Plc could face downfall in its return on capital
employed ratio. This clearly state that it has faced a downfall in sales for the year 2019 as
compare to the year 2018 that is further reflecting under this ratio. The down fall is
approximately 7.04% which is huge in one year (Mishra, 2018). There might be certain reason
such as product quality, marketing glitches, customer satisfaction related issues and many other
issues that could effect the level of consumer satisfaction business entity could gain against

channelising business operations. 2019 was further a challenging year for many companies as
pandemic has also arises in the respective financial year. In order to improve the return on
capital employed Skansa Plc can focus over increasing its sales in the future. Further this is
important that the organisation can take decision reading control the operational cost so that
more earning can be addressed before interest and tax liabilities. This will make earning before
interest and tax stronger. Company can also take better decision to improve the working capital
management so that more effective numbers can demonstrate in future related to this particular
ratio.
Net profit margin:
Net profit / sales * 100
2019
675 / 6000 * 100
= 11.25%
2018
600 / 4800 * 100
= 12.5%
Net profit margin is the net advantage and financial benefits company is getting against
channelising business operations. This is the net profitability iof the business entity of the
respective financial year. Net profit is the revenue left in the bank of company after deducting
all possible expenditures for the respective financial year. Skansa Plc could earn the net profit
margin in the year 2018 was 12.5% whereas in the year 2019 the ratio is 11.25%. There is
significant downfall in the net profitability level of the business entity in the year 2019 as
compare to the financial year 2018. This clearly reflect that Skansa Plc could address reduced
level of profitability against the business operations entertained by company. The possible
reason behind the lower profit margin is probably company has addressed mow sales in the year
2019 as compare to the year 2018 (Setyawati and Suroso, 2017). Along with reduced sales
further the operational cost might also be more than the previous financial year that has also
created negative impact over the profit margin company has earned. In future for improving the
profitability business entity can take strong decisions to improve the sales of company. Further
the decision can also be taken against reducing the level of expenditures business entity has

involved in against delivering business responsibilities. Net profit is the true indicator of the
performance of company and by enhancing the profit margin company can further strong the
portfolio of business.
Current ratio:
Current asset / current liability
2019
2070 / 2220
= .932
2018
1515 / 645
= 2.35
Current ratio is the weight of current assets of company against the current nature
liability maintained by the business entity. Current ratio is the proportion between current nature
assets and current liabilities hold by business venture. Skansa Plc could maintain the current
ratio is the year 2018 was 2.35 whereas the business entity could sustain the ratio as .932 in the
year 2019. The assessment regrading current ratio demonstrate that company has addressed
significant reduction in its current ratio in the year 2019 as compare to the previous financial
year. The idle current ratio is 2 which clearly reflect that in the year 2018 the balance was
feasible and effective that could allow the company to maintain the ratio more than required
value. In the year 2019 ratio could go down at a significant level in comparison to earlier
financial year (Sugeng and Suryani, 2020). The possible reason behind the reduced current ratio
is that Skansa Plc could not maintain a proper balance between the current assets of business
entity and current nature liability own by the organisation. The downfall clearly demonstrate that
the current nature liability could go up in the year 2019 as compare to the 2018 which could
spoil the liquidity situation of business entity. The existing situation is dangerous in context to
the Skansa Plc in regard to its liquidity position. In future Skansa Plc can take strong decision
to minimise the current liability by clearing the dues. Also, company should give huge emphasis
over reduced current assets of company.
Average receivable days:
Debtor / sales * 365
2019

1200 / 6000 * 365
= 73 Days
2018
900 / 4800 * 365
= 68.44 Days
Average receivable days is the average time required to recover the debtor amount. This
time is the average number of days company is allowing to its debtor to pay all the due value to
Skansa Plc. The average receivable days are 68.44 days in the year 2018 whereas the days could
go up in the year 2019 from 68.44 days to 73 days. This clearly reflect that the organisation is
allowing or taking more time to recover its debtor as compare to the previous financial year.
This also create a huge impact over the liquidity position of business entity. In order to maintain
strong liquidity position business entity required to ensure proper control over maintaining
debtor in such way that they do not take or consume much time to repay the due value
(Wahyuni, 2020). The possible reason behind the increased debtor collection period is that the
market could face a downfall which also influenced the sales of Skansa Plc. The downfall in
market could cause into low turnover like debtor, net profit margin and other such issues. The
existing situation is not positive and company should communicate with its debtor to recover the
due amount as soon as possible. Proper communication on a constant basis is the key way to
achieve the lower turnover ratio.
Average payable days:
Trade payable / cost of sale * 365
2019
2100 / 4350 * 365
= 176.21 Days
2018
570 / 3450 * 365
= 60.304 Days
Average payable period is the time company is taking to repay its creditor. This is the
average number of days business entity is getting to clear al the dues against the creditor of
business venture. IN the year 2018 the Skansa Plc could maintain its average payment period as
60.304 days on the other hand the days could go at 176.21 days in the year 2019. This is a huge

change or difference business entity has addressed. This further influence the company's brand
image in respective market (White and et.al., 2019). The possible reason behind the increased
payable period is that the sacrificed liquidity position of the organisation. Company should take
decisions regarding improving the liquidity position so that it will get proper financial resources
to repay all its creditor. As the increased creditor payable period completely demolish the brand
value and goodwill in market.
CONCLUSION
Accounting and finance department pay role and responsibilities in company such as
financial accounting, management accounting, tax functions and auditing functions are the
primary role and responsibility attached with the account department. Finance department
further pay role and responsibilities like investment function, financing function, dividend
function and working capital function. All these are the primary role and responsibilities
associated with the accounting and finance department of company. Skansa Plc could not
perform much effectively in the year 2019 as compare to the year 2018. It is recommended that
in current time any investment made in company is not safe. More time can be taken to analysis
the performance of business entity before taking any investment decision in organisation.

REFERENCES
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