Financial Decision Making Report: SKANSA PLC Performance Analysis

This report provides a comprehensive analysis of financial decision-making within SKANSA PLC, a construction-based company. It delves into the importance of accounting and finance functions, outlining their roles and duties, such as financial planning, managerial accounting, and fund flow statements. The report examines key financial ratios, including return on capital employed, net profit margin, current ratio, average receivable days, and average payable days, and comments on SKANSA PLC's financial performance between 2018 and 2019. The analysis covers various aspects, including tracking income and expenses, proper planning for business, allocation of budget and resources, and generating money. The report also highlights the duties of accounting and finance, such as preparing financial statements, tax reporting, and inventory management. The findings showcase how SKANSA PLC utilizes accounting and finance functions to make informed business decisions, maintain productivity, and achieve profitability. The report concludes with an assessment of SKANSA PLC's financial strategies and their impact on the company's overall performance.

FINANCIAL
DECISION
MAKING

Table of Contents
INTRODUCTION...........................................................................................................................1
Importance of Accounting and Finance functions, duties and roles in SKANSA PLC..............1
TASK 2............................................................................................................................................5
a. Calculation of of ratios for the company..................................................................................5
b. Comments on the performance of SKANSA PLC and position between two years...............7
CONCLUSION................................................................................................................................9
REFRENCES:................................................................................................................................10

INTRODUCTION
Financial decision making is defined as longer process which is taken by all individual
and group of people in order to operate a business and increase the organization productivity and
profitability. Every organization should be understand different task and activities which are
important to consider and supports to operate a business effectively (Aprea, 2016). Decision
making process are as establishment of goals, formulation of planning, organizing, directing, and
taking the right action which can help to develop a business. If all functions and funds are
properly managed then it will be an opportunity for industry to attain the competitive advantages.
For all accounting transactions and running a business properly there should be have good
knowledge and understanding about financial reports and it helps to make right decision. The
present report is based on SKANSA PLC that is a construction based company founded in the
year 1984. The com0pany is establishing their business in UK by using all accounting
information and transaction helps to increase performance. The report covers structure of and
terms used in financial statement, management accounting techniques for planning, decision
making and controlling. Moreover, calculation of ratio and role of finance and accounting within
organization is uses to make right business decisions.
TASK 1
Importance of Accounting and Finance functions, duties and roles in SKANSA PLC.
Accounting is the main function of every business which involves various activities and
transactions that needs to consider while operating an organization and attaining the profitability.
The process of accounting involves summarizing, analysing, reporting and maintaining the all
transactions effectively which can help to operate and regulate the business in changing
environment and develop the higher performance. This is one of main function for all industry in
which books and accounting reports are handled by a person and manage the all activities
effectively (Black, 2019).
Finance is the another main function for organization that considered as main part of
financial management which uses by all business concern in order to operate and manage the
business effectively. The aim of finance functions is to acquire sufficient funds and arrange them
in important activities which can help to complete the task and manage the all activities
effectively. This involves different activities and functions which are important to consider while
1

operation and develop the business effectively. In context to SKANSKA PLC, accounting and
finance functions are most important as management of such organization is able to recording,
keeping, and maintaining all financial transaction properly which can help to manage and operate
the business effectively which increases productivity and profitability (Drew and Cross, 2016).
This is important for management to track all incomes and expenditure of their business which
are incurring while operation and controlling the activities. All accounting principles, and
financial regulations are implemented by management which can help to manage the overall
expenses and develop the business performance effectively.
Types of accounting and finance function
Financial Planning – Planning is the main strategy of organization that involves
collection of information, formulation, and proper arrangement of funds which are related to
business can help to increase the sales and profitability. In other words, financial planning can be
explained as important functions which uses to manage the all activities and functions that can
help to attain the business goals and objectives. In SKANSKA PLC, management are responsible
to understand the task and focus on financial planning which can help to make effective financial
transaction (Finkler, Smith and Calabrese, 2018).
Managerial accounting – This can be explained as continuous process of arranging,
creating and preparing the reports in relation to business which can help to increase the
organizational performance. This is important for organization to understand position and make
the right decision by managing all activities and functions accurately. The management of
organization should understand the task and being use for financial decision making activities. In
context to SKANSKA PLC, management performs all functions and activities for the purpose of
making right business decision in challenging situation and develop their business.
Fund flow statement – This can be explained as financial document which uses by
organization to maintain the balance between inflows and outflows which can help to increase
sales and productivity. This is important for all organization to prepare the effective fund flow
statement then take any actions, if expenses are going beyond. In relation to SKANSKA PLC,
management analysis the financial position of company by using balance sheet and other
statement. With the help of knowing financial status of company management become
responsible to prepare the reports as well as fund flow statement which can help to operate a
business effectively.
2

Importance of Accounting and finance functions
Tracking income and expenses: The main function of accounting and finance is to
analyse the financial performance of company by involving incurred income and expenses which
can help to operate the business. The aim of accounting is to track income and expenses so that
right decision can be made. In context to SKANKSA, management uses this function for
tracking income and expenses that supports to operate the business (Lieberthal and Lampton,
2018).
Proper planning for business: In all organization finance and accounts is needed as it
can help to formulate the proper planning and strategies which are related to business and
provides competitive benefits. In SKANSKA PLC, accounting functions is performing by
management by formulating effective plans and strategies in relation to cash planning,
marketing, and sales.
Allocation of budget and resources: The another function of accounting and finance is
allocation of budget and resources in organization which can help to complete the task in certain
time and attain the higher profitability. In SKANSKA PLC, management allocate all budget and
resources in to important activities which can help to develop a business effectively (Moreland,
2018).
Generating money: For establishing and running a business in changing environment
there is need of money which is valuable and uses in important activities, so that profitability can
be maintain. The management of SKANKSA PLC spends their money in other activities and
generate the money which can help to increase productivity and profitability (Newell, Lagnado
and Shanks, 2015).
Therefore, accounting and finance function uses by SKANSKA PLC for the purpose of
recording, organising, and directing the financial information which can help to maintain the
higher productivity and profitability. The management influences number of customers by
arranging funds and uses in important activities which satisfy customers and generate higher
money.
Duties of accounting and financing
To prepare financial statements: To increase the productivity and profitability by
preparing financial statement is the main duty of accounting and finance that supports to develop
3

the business performance. In SKANSKA PLC, management perform their duty and prepare
financial statement by considering all income and expenses (Morewedge, 2015).
Tax reporting and inventory process: Finance and accounting is uses by organization
for preparing tax reports and managing the inventory process that can help to increase sales and
performance. In SKANSKA PLC, management is preparing financial report for maintaining the
tax reports and managing inventory in relation to organization.
Collecting and analysing data: In an organization, management of SKANSKA PLC
uses finance and accounting function for collecting and analysing the data that supports to
complete the project and attain higher profitability (Park and Sela, 2018).
Importance of duties in accounting and finance
In business organization, it is important for management to understand the financial
position and formulate planning which can help to solve the problems and make right business
decisions. In context to SKANSKA PLC, management is playing important role as it analysis the
functions by recording accounting and financial transactions which can help to develop a
business and attain higher profitability. The management of such organization formulates
effective planning and arrange the all functions which can help to develop a business effectively
(Purves, Niblock and Sloan, 2015).
Roles in SKANSKA PLC
Accounting and finance is playing important role in SKANSKA PLC as it uses to collect
information, managing income and expenses, development, and controlling the expenses which
can help to maintain the higher productivity and profitability.
The description of accounting and finance role in the selected organization are as described:
Obeying the law: SKANSKA PLC is following all regulations and laws which are
formulated by finance authority can regulate and operate their business effectively. This can help
to manage the all functions and activities accurately and attain the higher profitability (Rigatos,
2017).
Creating a budget and financial records: For running and growing a business there is
need to prepare the financial statement by involving all financial records and creating budget
which can help to manage a business and attain the higher productivity so that all activities can
be form effectively.
4

Developing business strategy: The role of finance and accounting is development of
business strategy by managing task and all functions. In SKANSKA PLC, management is able to
formulate the business strategy and arrange the all workings accordingly which can help to
operate a business and attain higher performance.
Importance of roles in relation to finance and accounting
The important task for all organization is to understand task and allocate the roles and
responsibilities of employees so that effective decision can be made and develop the all business
activities. In context to SKANSKA PLC, management are handling all functions by focusing on
accounting and finance that are as explained:
 The finance and accounting role is important in selected organization as it supports in
regulation and operation of business.
 To understand the financial position and formulate planning in which data is collected
and arrange them properly (Shen and Tzeng, 2015).
 SKANSKA PLC is providing better quality of services to its clients by using accounting
principle and financial standards.
 To arrange funds in important activities and maintain the good performance.
Thus, it has evaluated that SKANSKA PLC is using accounting and finance function in
their organization effectively which can help to complete the task and make right business
decision in changing environment so that higher productivity and profitability can be maintain.
TASK 2
a. Calculation of of ratios for the company
Return on capital employed: This can be explained as ratio that uses by organization for
analysing the profitability by investing amounts on important activities. The calculation of it for
SKANSA is as follows:
Particulars 2018 2019
Net profit 600 675
Capital employed 3825 5850
Result 15.69 11.54
5

Net profit margin: This ratio is defining the ability of organization to generate profits
against sales that can help to make right decisions. All the calculations of it for SKANSA PLC
are as follows:
Particulars 2018 2019
Net profit 600 675
Sales 4800 6000
Result 12.5 11.25
Current ratio: This ratio stating the liquidity of organization so it can arrange the all
workings and activities effectively. The current ratio of SKANSA PLC is explained below:
Particulars 2018 2019
Current assets 1515 2070
Current liabilities 645 2220
Result 2.35 0.93
Average Receivable days/ Debtors collection period: This can be explained as
assessment of days where outstanding amount from clients can be recovered and supports to
operate the business. The calculations of it for SKANSA PLC are as follows:
Particulars 2018 2019
Account receivables 900 1200
Annual total sale 4800 6000
Result 68.44 73
Average Payable days/ Creditors collection period: This ratio is showing the time
period in which organization is making payment of all creditors. The calculation of average
payable days in context to SKANSA PLC are as defined:
Particulars 2018 2019
Account payables 570 2100
6

Cost of goods sales 3900 5250
Result 53.35 146
Working notes:
Calculation of capital employed
Particulars 2018 2019
Total assets 4470 8070
Less: Current liabilities 645 2220
Capital employed 3825 5850
b. Comments on the performance of SKANSA PLC and position between two years
In above explanation it calculation of different ratio in context to SKANSA PLC have
done that helps to analyse the financial performance of company. From the above, it has
evaluated that performance of chosen organization was good in 2018 as compared to 2019. The
capital employed ratio demonstrating that in in 2018 it was 15.69 that have reduced for next year
up to 11.54. The reason of reduction company is loosing its benefits and debts might be increase
that reflects on organizational performance and profitability (Tang and Baker, 2016).
The net profit margin of chosen organization was 12.5 for 2018, and it decreased in the
year 2019 up to 11.25. The reason of reduction is increases in expenses, labour, raw material and
other activities which has reduced the profit making ability of organization by generating sales of
the company. All activities of chosen organization is being affected due to increase in
organizational expenses. This ratio demonstrate that construction company is not able to generate
profits as its sales is reducing continuously.
The aim of organization is analyse the financial position by involving current assets,
liquid assets and liabilities that can help to make right business decision and attain the higher
profitability. For organization it is important to arrange the sufficient fund and sources which are
important for management arrange them effectively and increase the organizational performance.
In context to SKANSA PLC, current ratio analysed for 2018 2.35 which was much higher than
2019 as it was 0.93. The meaning of this, in 2018, organization has much assets which helped to
arranged the all functions and activities for the purpose of running business and attain the higher
7

profitability. Having less current ration in current year liabilities of organization has been
increased that has created problems in operating and running business (Theriou, 2015).
The average receivable days means collection days which uses by organization to recover
all credits from their customers to whom it has given credits. In context to SKANSA PLC,
average receivable days for the year 2018 was 68.44 and in 2019 was 73 that means the current
year is taking time higher time for recovering the money from their clients to whom it has given
products and services on credit. This states as organization is having lack of finance that impacts
negatively as creates problems in operations and lack of management in relation to business.
On the other hand, average payable days means clients to whom organization is needed to
pay credit amounts as it has taken good and services from their regular suppliers. It has analysed
that average payable days for 2018 was 53.35 and 2019 it was 146. This is beneficial for
SKANSA PLC to operate their business regularly by making the payment on time and later on.
This can help to operate the business and increase the performance by arranging all activities and
functions properly that can help to make higher productivity and profitability.
Possible causes, reasons and effects of the changes in the ratios:
 It has been seen that Return on capital employed (ROCE) is decreased because capital
employed of the current year has been increased and investment capability also have been
reduced. The reduction in ration have impacted negatively capability of investing profits
has been decreased which create the challenge for organization to operate their business
continuously.
 The Net profit margin ratio of SKANSA PLC is decreased because sales and profitability
of company have been reduced. If sales of organisation is increasing then it will be
opportunity for organization to increase the net profit margin ratio. The reason of
reducing profitability is company was not able to meet with obligations and filling the
customers demand in changing environment which affected the profitability negatively.
 Current ratio is calculated as dividing current assets from current liabilities that states 2:1
is ideal ratio for organization that defines good position of business in market which can
help to develop a business and grow it continuously. It has been seen that current assets
of SKANKA PLC is reduced from a very higher rate where liabilities has increased and
assets of organization reduced. This gaps between current ratio and liabilities in current
8