Financial Decision Making: SKANSA PLC Performance Analysis Report

This report provides a comprehensive analysis of financial decision-making within SKANSA PLC, a public construction company. It begins by critically evaluating the importance of accounting and finance functions, duties, and roles within the organization, emphasizing their significance in recording transactions, financial reporting, auditing, and cash management. The report then delves into the calculation and interpretation of various financial ratios, including return on capital employed, net profit margin, current ratio, average receivable days, and average payable days. These ratios are used to assess SKANSA PLC's financial performance, liquidity, and efficiency. The analysis offers insights into the company's profitability and financial health, providing a perspective for potential investors. The report concludes by summarizing the key findings and highlighting the importance of sound financial decision-making for achieving business objectives.

Financial Decision
Making

Table of Contents
Table of Contents.............................................................................................................................2
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Critical evaluation of the importance of accounting and finance functions, duties and roles
within SKANSA PLC..................................................................................................................1
TASK 2............................................................................................................................................5
a. Calculation of ratios for SKANSA PLC..................................................................................5
b. Comment on the performance of company from an investor with 1-million-pound
perspective...................................................................................................................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................9

INTRODUCTION
Financial decision making is the process which is followed by the entities for the purpose
of formulating effective decisions for future so that desired objectives of business could be
attained. For all the businesses it is very important to make sure that appropriate strategies for
operating all the future operations are formulated systematically as it is required to meet all
predetermined objectives (Asandimitra, Aji and Kautsar, 2019). Main aim of this report is to
understand the importance and benefits of financial decision making for businesses. In this
assignment the analysis will be made on the basis of SKANSA PLC which is a public company
engaged in construction activities. This project will cover various topics such as evaluation of
importance of finance and accounting function, roles and duties within the organisation. Apart
from this, calculation of ratios is also performed in this assignment for the purpose of evaluating
the performance of company.
TASK 1
Critical evaluation of the importance of accounting and finance functions, duties and roles within
SKANSA PLC
Accounting could be described as the process of recording information of all the business
transactions in specific books. It is very important for all the organisations to make sure that all
tasks related to it are performed systematically as it can help to maintain the financial
performance of company. On the other hand, finance is the required funding for carrying out
operational activities. It is very important for all the businesses to make sure that sufficient
funding is arranged for the business as it can help to accomplish all the business goals and
objectives. There are various accounting and finance functions, roles and duties that are essential
to be focused by the businesses as it can help to reach desired goals and objectives (Basdas,
2020). In SKANSA PLC the managers are focused with performing all the roles, duties and
functions in systematic manner. Discussion of all of them is as follows in context of the
enterprise:
Accounting and finance functions: There are various functions of accounting and
finance department of the organisation as it can help to perform all the activities in systematic
manner. Some of the main functions that are focused in SKANSA PLC are as follows:
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 Recording of all the business transactions: It is one of the main function of finance and
accounting department of all the organisations because with the help of it details of all the
transactions made during the year could be recorded systematically. In SKANSA PLC
the managers are making sure that they record all the transactions properly so that actual
position of business could be determined.
 Financial reporting: It is also a function of accounting and finance department because
with the help of it all the final accounts could be formulated. The main financial
statements that are formed under this function are profit and loss account, balance sheet
and cash flow statement. All of them are created by the managers of SKANSA PLC as it
can help to determine actual financial position of business.
 Auditing: It is a finance function which is performed by the businesses for the purpose of
analysing business’s records. In SKANSA PLC the managers are assuring proper
auditing of the final accounts so that it could be analysed that the recorded information of
them is appropriate or not. With the help of this function actual capability of company to
sustain in the market could be analysed (Esch, Schnellbächer and Wald, 2019).
 Management of cash: For all the businesses it is very important to make sure that the
funds are managed in systematic manner as it can help to carry out future operations
systematically and maintain liquidity. In SKANSA PLC managers make sure that cash
which is used for operations is managed properly with the help of effective procedures. It
helps to keep sufficient amount of funding for meeting requirements of business.
Importance: The significance of all the accounting and finance functions could be
analysed with the help of following points:
 It is very important to record all the transactions in all the books properly as it can help to
analyse that the details are accurate or not. It can help to analyse actual position of
business.
 Financial reporting function is also important for all the companies because with the help
of it all the financial statements could be formulated in systematic manner that can help
to determine profitability as well as sustainability of business.
 Auditing is one of the major finance function which is essential to be focused by
businesses because it can help to determine that the business is carried out according to
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laws and principles of legal authorities or not. It can help to determine any type of
misinterpretation of the information recorded in final accounts.
 In order to carry out all the operational activities in systematic manner it is very
important for all the business to manage cash properly because it can help to fund all the
operations. It shows that, cash management is also a main function of accounting and
finance (Ferreira, 2019).
Accounting and finance duties: There are several duties of accounting and finance
department of all the entities and it is very important to perform them systematically. It is
required for all the companies as it can help to carry out operations properly. Some of the main
duties are discussed below in context of SKANSA PLC:
 Gathering and monitoring the financial information: The accounting and finance
departments in companies is responsible for analysing and collecting the information
which is related to financial activities. It is also performed by the managers working in
SKANSA PLC as it can help to determine the actual position as well as status of
business. If the managers will not be able to perform this duty properly then it can affect
the formulation of financial statements.
 Forecasting revenues and incomes for future: It is also a duty of accounting and
finance division. The managers of this department are liable to estimate the future
incomes and revenues so that the strategies for carrying out operational activities could
be formulated. In SKANSA PLC the managers are paying attention towards estimating
the future revenues and incomes so that strategies for spending them in business could be
formulated.
Importance: All the accounting and finance duties are important for the entities to be
focused. The discussion of their importance is as follows:
 The duty of collecting and monitoring finance related information is very important
because it can help to formulate all the final accounts accurately which facilitate analysis
of actual position of business.
 Forecasting the future income and revenues is also an essential duty of accounting and
finance department of companies like SKANSA because with the help of it estimation of
future incomes could be made and decisions could be formulated on the basis of it
(Füllbrunn and Luhan, 2020).
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Accounting and finance roles: There are various types of roles that are performed by
accounting and finance departments of all the companies. It is very important for all the
individuals working with this division to make sure that the roles are performed properly.
Discussion of some of the main roles that are performed in SKANSA PLC by the managers is as
follows:
 Management of taxation: The accounting and finance department of entities play major
role in management of taxation because it is very important to be focused to ignore
interference of legal authorities in business. In SKANSA PLC the managers are assuring
proper management of tax so that the profitability as well as the efficiency of the business
could be maintain the retain the interest of investors.
 Preparing budgets: Managers in accounting and finance department play essential role
as they are responsible to prepare budget so that funding for future operations could be
arranged. In SKANSA PLC the management team at accounting and finance division are
formulating budgets on monthly, quarterly, half yearly and yearly basis so that
overspending of funds could be controlled and liquidity could be maintained.
Importance: For all the individuals working in finance and accounting department of
SKANSA PLC to make sure that they are paying attention towards playing all the required roles
properly so that business goals could be accomplished. The significance of all the roles is as
follows:
 Managing tax role of accounting and finance department is essential for the businesses
because with the help of it, the entities will be able to determine the accurate tax which
should be paid and managed to maintain financial position.
 Another major role of accounting and finance department is to prepare budget and it is
important for businesses because it facilitate the ignorance of overspending of funds for
business (Gbongli and et.al, 2020).
The above discussion demonstrates that there are various functions, roles and duties of
accounting and finance department and it is very important for all the businesses to be focused
with them so that the desired success could be achieved. If the accounting processionals of
SKANSA PLC will not be able to perform all of them then it may result in issues for business.
Some of them are decreased profitability, overspending of budgets, inappropriate formulation of
final accounts etc.
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TASK 2
a. Calculation of ratios for SKANSA PLC
Ratio analysis is the process of analysing the position and performance of business with
the help of financial records. By using different types of ratios estimation of actual condition of
business could be done (Grishikashvili and Bechter, 2019). Calculation of various ratios for
SKANSA PLC is as follows which is performed for the purpose of analysing the financial
position of business:
Return on capital employed: It could be defied as an accounting ratio which is
calculated for the purpose of analysing profitability of the enterprise. Calculation of it for
SKANSA PLC is as follows:
Return on capital employed
Particulars Formula 2019 2018
Net profit
Net profit / capital employed * 100
675 600
Capital employed 5850 3825
Result 11.54 15.69
Net profit margin: It is a ratio which is used for determining the capability of the
enterprise to attain profits over sales during the accounting year. Detailed calculation of it for
two years’ period of SKANSA PLC is as follows:
Net profit margin
Particulars Formula 2019 2018
Net profit
Net profit / sales * 100
675 600
Sales 6000 4800
Result 11.25 12.5
Current ratio: It is a liquidity ratio which is used in businesses for analysing the ability
of making payments of short term liabilities with the help of current assets (Hübner, 2019). The
calculation of it for SKANSA PLC is as follows:
Current ratio
Particulars Formula 2019 2018
Current assets
Current assets / current liabilities
2070 1515
Current liabilities 2220 645
Result 0.93 2.35
Average receivable days: This ratio is calculated for the purpose of determining the
days in which the credit amount will be received from the debtors. For SKANSA PLC all the
calculations of this ratio are as follows:
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Average receivable days
Particulars Formula 2019 2018
Account
receivables Account receivables / annual total sale *
365
1200 900
Annual total sale 6000 4800
Result 73 68.44
Average payable days: It is mainly used for the purpose of determining the time period
which will be taken by the organisation for making payment of all the debts in specific time
period (Khan, 2020). Calculation of it for SKQANSA PLC is as follows:
Average payable days
Particulars Formula 2019 2018
Account
payables
Account payables / cost of goods sold *
365
2100 570
Cost of goods
sales 5250 3900
Result 146 53.35
Woking notes:
Calculation of capital employed:
Calculation of capital employed
Particulars 2019 2018
Total assets 8070 4470
Less: Current liabilities 2220 645
Capital employed 5850 3825
b. Comment on the performance of company from an investor with 1-million-pound perspective
From the calculations of ratios, it has been determined that the financial position of
SKANSA PLC was good in 2018 if it will be compared with 2019. For 2019 the ROCE is 11.54
which is decreased from 15.69 that is related to 2018. Apart from this, for 2019 net profit margin
is 11.25 which is decreased from 12.5 since year 2018. Both the ratios are demonstrating that the
organisation is not able to maintain its profitability and because of this it is losing its competitive
advantage in the market (Mertzanis, 2020).
By analysing current ratio of SKANSA PLC it has been determined that in 2018 the ratio
was 2.35 which is decreased up to 0.93 which shows that liquidity of the enterprise is reduced for
the year. The calculation of average receivable days is showing that for 2018 it was 68.44 which
is increased up to 73 days in 2019. It shows that the entity is receiving late payments from the
clients. It is also analysed form the ratio analysis that for 2018 the payable days were 53.35 and
these are increased in 2019 up to 146. It shows that the organisation is making delayed payments
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to the creditors which may leave negative impact upon credibility of business (Yeşildağ, Özen
and Baykut, 2020).
By analysing the ratios, the investor with 1 million pound will be able to determine actual
position of business. The ratios are demonstrating that the performance of SKANSA PLC is not
good so the investor is suggested to ignore making investment within this organisation.
Possible causes, reasons and effects of changes in the ratios:
 Return on capital employed ratio is reduced in 2019 because the capital employed in
2019 is enhanced which is the reason of decrement. It will leave impact upon the ability
of the enterprise to invest profit in the operations.
 Net profit margin ratio of the enterprise is reduced in 2019 because of the increased sales
and cost of goods sold. Due to this, profitability of the enterprise will get impacted and it
may also affect the interest of investors in business.
 Current ratio is also decreased for 2019 and main cause of it was increased current
liabilities. It will leave impact upon the liquidity of the enterprise which may also affect
the execution of future operations (Yuneline and Suryana, 2020).
 The decrement in average receivable days took place because of increased sales and
account receivables. It may leave impact upon the operational efficiency because they
will not be carried out properly if debtors will make late payments.
 Average payable days of the organisation were also increased and the main cause of it
was delayed payments by SKANSA PLC. It is impacting credit worthiness of business
because the creditors may refuse to provide credit in future (Zaighum and Abd Karim,
2019).
CONCLUSION
From the above project report it has been concluded that financial decision making is the
process of formulating effective strategies for effective execution of all the operations. There are
various accounting and finance functions, duties and roles that are required to be focused by all
the entities as it may result in attainment of all the business goals. There are various types of
ratios that could be used for the purpose of analysing financial position. These are ROCE, net
profit, current, average receivable and payable ratios.
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REFERENCES
Books and Journals:
Asandimitra, N., Aji, T. S. and Kautsar, A., 2019. Financial Behavior of Working Women in
Investment Decision-Making. Information Management and Business Review. 11(2 (I)).
pp.10-20.
Basdas, U., 2020. The Role of Financial Inclusion: Does Financial Inclusion Matter?.
In Emerging Tools and Strategies for Financial Management (pp. 248-279). IGI
Global.
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internal decision making? An experimental study of investment behavior. Business
Strategy and the Environment. 28(4). pp.599-610.
Ferreira, S. J., 2019, October. Is financial risk tolerance influenced by personality traits?.
In Proceedings of Economics and Finance Conferences (No. 9511451). International
Institute of Social and Economic Sciences.
Füllbrunn, S. and Luhan, W. J., 2020. Responsibility and limited liability in decision making for
others–An experimental consideration. Journal of Economic Psychology. 77. p.102186.
Gbongli, K. and et.al., 2020. Evaluation and Classification of Mobile Financial Services
Sustainability Using Structural Equation Modeling and Multiple Criteria Decision-
Making Methods. Sustainability. 12(4). p.1288.
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Hübner, J., 2019. Towards Improving Consumer Financial Decision-Making Through Mobile
Information Systems (Doctoral dissertation, ETH Zurich).
Khan, D., 2020. Cognitive Driven Biases, Investment Decision Making: The Moderating Role of
Financial Literacy. Investment Decision Making: The Moderating Role of Financial
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Mertzanis, C., 2020. Financial supervision structure, decentralized decision-making and
financing constraints. Journal of Economic Behavior & Organization. 174. pp.13-37.
Yeşildağ, E., Özen, E. and Baykut, E., 2020. An Assessment for Financial Performance of Banks
Listed in Borsa Istanbul By Multiple Criteria Decision Making. In Uncertainty and
Challenges in Contemporary Economic Behaviour. Emerald Publishing Limited.
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
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Zaighum, I. and Abd Karim, M. Z., 2019. Peer effects, Financial Decisions and Industry
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