Financial Decision Making Report: Accounting and Finance Analysis

This report provides a comprehensive analysis of financial decision-making at Skanska Plc, a UK-based construction company. It begins with an introduction to the company, including its establishment, business activities, and expansion plans. The report then delves into the roles of the accounting and finance departments. The accounting department's functions include financial accounting, management accounting, tax function, and auditing. The finance department's functions encompass investment, financing, dividend, and working capital management. The report further examines financial ratios, including Return on Capital Employed (ROCE), Net Profit Margin, Current Ratio, Debtor's Collection Period, and Creditor's Collection Period, analyzing Skanska Plc's performance from 2018 to 2019. The analysis highlights trends and provides insights into the company's financial health, including areas for improvement such as capital management and liquidity. The report concludes with a summary of findings and recommendations based on the financial data and ratio analysis.

Financial Decision

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Explanation of accounting & finance department.......................................................................1
TASK 2............................................................................................................................................4
Ratio analysis...............................................................................................................................4
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................8

INTRODUCTION
Financial decision making is a procedure in which management analysis all the financial
activities in proper manner after that take right decision. It supports firm to recognise the way
that can interpret financial data, facts as well as information of various kinds of entity like short
term, medium and long term company (Barbić, Lučić and Chen, 2019). This report based on the
Skanska Plc that is situated in UK. It was established in 1948 and planning to expand their
business activities across the countries in Europe in the next ten years. The main aim of the
business to enhance their business activities all over the world and generate more revenues. In
this report consist of financial report that helps to ratio analysis. Along with consist of function
and roles of finance and accounting team in proper manner.
TASK 1
Explanation of accounting & finance department
1. Accounting department:
Financial accounting: The main role of financial accounting to manage all the financial
information and present in front of external parties which are related with business in direct and
indirect manner. It is utilised to record and manage various transactions. Therefore, it is mainly
using by administration to take financial decision that analysis of double entry and accrual basis
accounting. The management presents of financial statements, principles as well as financial
reporting to external parties. Such as, Skanska Plc has to assure about the financial report in
proper manner after that make any decision. It is critical for the company that helps in
determining and evaluating of different information to assure about the attainment of the goals as
well as objectives (Guzman, Paswan and Tripathy, 2019).
Management accounting: It is a procedure of analysis of various kinds of reports as well
as financial data that presents actual performance of business entity. It consists of preparing as
well as providing timely financial and statistical data to finance manager. On the basis of these
results company take right financial decision in regard day to day activities. It can support to
accomplish goals and objectives in potential period of time. It consists of different types of
systems and reports to present actual position of business after that using techniques to analysis
profit and using budgets for proper planning for the future. Such as, Skanska Plc plans to expand
their business activities into other countries so for this require to analysis their financial
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information that company able to expand business or not. After that they are taking decision to
expand in next 10 years. This accounting essential for any business because company reach out
at conclusion and get recommendations from the consultancy company in regard of their
expansion. Therefore, the finance manager in a position to analysis the profitability to enhance
business in European nations (Nofsinger and Shank, 2019).
Tax function: It is essential function for any business entity that supports to analysis the
tax liability of any company. A company liable to pay different types of tax after that calculate
their profitability. There are consisting of various taxes such as, direct tax, indirect tax, sales tax
and many others. By this function management of Skanska plc able to assure about the liabilities
that based on the tax that highly effectively as well as efficiently. For the right decision require to
analysis other country tax functions that directly impact on the revenues after that take decision
of expand in European country. The use of this function is useful in the firm because it supports
to analysis of tax to be paid in effective manner and leads to taking of decisions correctly.
Auditing function: It is essential function that apply by firms to checking authenticity of
the financial transactions. There are analysis various errors and frauds in the financial statements
that can be effectively recognised. Thus, Skanska plc is plans to enhance their business in
European countries so require to audit their financial statements to analysis financial position in
good manner. By the use of audit can be presented effectively by the check of financial activities
that are being done by the organisation in European nations that can be kept and supports in
taking in maintaining accounts effectively. Different countries follow different rules and
regulations so accordingly business follow their business activities and require to conduct audit
in which present all the financial statements properly (Grishikashvili and Bechter, 2019).
2. Finance department-
Investment function- It is an essential characteristic in the Financial department because
it helps financial analysts to forecast potential decisions by using it. The function's job is to
assess the institution's financial situation, the investment opportunities open to it, and the best
decision that can be made based on that information. As a result, as Skanska Plc prepares to
grow into European countries, it must quickly and efficiently analyse the investment
opportunities open to it. As a result, a thorough review of investment opportunities can be carried
out, and the appropriate decision can be made. As a result, if a company wishes to extend its
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activities into European countries, it must understand the investments that should be checked to
make that activities operate smoothly in these nations (Harford, Kecskés and Mansi, 2018).
Financing function- It is an important role in the Finance department because it allows
financial planners to determine if a project should be funded. As a result, this feature is critical
for managers because it allows them to make extremely successful decisions. In the sense of
Skanska Plc, it is vital that it analyses overall conditions successfully and efficiently in order to
develop in European countries. This function's primary responsibility is to classify potential
funding sources and how to best use them. It must decide how it can fund its project and the
different forms of funding solutions open to it. As a result of weighing the choices, the right
decision on the investment to be made in a given project can be made. As a result, the company's
managers must figure out how to finance the programs in the most efficient way possible. It is
important for the organization to define its conditions for using funds to invest in European
countries, as this would help them ensure that they will expand their business there while
maximizing profits (Huang, Yang, and Tu, 2020).
Dividend function- It is a feature that companies may use to offer bonuses, cash, and
other benefits to their workers. Thus, for Skanska Plc to grow in European countries, it is critical
that it considers the investment options open to it as well as the dividends that it would be
expected to pay if it selects a specific one. In this way, it would be able to address the needs of
all stakeholders. In this way, it would be able to meet the needs of all stakeholders. It is
important for the company to define the dividend that would be paid to the owners who have
deposited money in order to receive shares. In this way, it would be able to please its owners
while still ensuring that its aims and priorities are met. This will also aid it in acquiring finance
as it is needed in the future.
Working capital function- It is a feature that assesses a firm's working capital. It
determines the funds needed to satisfy short-term financial commitments. As a result, Skanska
Plc's financial managers must use this role to determine the working capital that will be needed
for the company's growth in European countries over the next ten years. This would be
immensely useful in meeting the organization's related goals and priorities. A company's
working capital has to be as high as possible so that it can run its activities smoothly. As a result,
the organization must define and evaluate the conditions for growth in European countries, as
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well as maintain the provision of appropriate working capital to function in those countries
(Andriosopoulos and et.al, 2019).
TASK 2
Ratio analysis
It is a strategy that organizations use to classify and understand associations between
various organizational objects. In order to assess the efficiency of their corporate company, the
general manager of SKANSKA PLC calculates the following ratio-
Ratio Formula 2018 2019
Return on capital
employed
Operating profit/Total
assets-current*100
liabilities
750/3825*100=
19.60%
975/5850*100=
16.67%
Net profit margin Net profit/sales*100 600/4800*100= 12.5% 675/6000*100=
11.25%
Current ratio Current assets/current
liabilities
1515/645= 2.35 times 2070/2220= 0.93 times
Debtors collection
period
Receivables/sales*365 900/4800*365= 68
days
1200/6000*365= 73
days
Creditors payment
period
Payables/
purchase*365
570/2700*365= 77.05
times
2100/4800*365= 159
days
Return on capital employed: The net profit and capital value of a corporate entity is
used to determine the ratio. It assesses the relationship between capital and profits. This ratio is
estimated to determine an organization's ability to earn value from the use of its resources. The
higher the percentage, the more effectively a corporate enterprise uses its money to achieve value
through the use of business resources. Lower ROCE ratio, on the other hand, suggest that the
management department is unable to successfully use or apply its money to produce revenue
(Abdel-Basset and et.al, 2020).
In the case of SKANSKA PLC, their amount of returning invested capital was estimated at 19.60
percent in 2018 and 16.67 percent in 2019, suggesting that the firm is not able to use its capital
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efficiently. The key cause for the drop in this ratio is a high percentage of cash outflow and a
lack of capital management assistance regulation. The investment department of SKANSKA
PLC was able to solve the problem of capital asset management by controlling their funds, and
their ratio has increased as a result of changes in corporate policies (Yu and et.al, 2019).
Net profit margin- The net margin ratio is a ratio that helps determine the probability
rate and relationship of an enterprise. This relationship between sales and benefit has been
recognized by the measurement. A higher net profit ratio indicates that a company is able to
effectively retain its market share, while a poor net profit ratio indicates that an organization is
unable to sell its goods and that its revenue volume has decreased as a result of its high pricing
policy. In the case of SKANSKA PLC, the net income ratio in 2018 was 12.5 % and on the other
hand, its volume was decile and it was measured at 11.25 %, indicating that the profit rate of
SKANSKA PLC has been dropped in a significant manner. To resolve this issue and raise the
percentage of net margin ratio in 2019, the management department implements an aggressive
pricing policy that allows consumers to sign contracts with the firm. This would be beneficial to
the organization's profitability levels.
Current ratio: A ratio that is used to determine the worth of current assets and liabilities
as well as their relationship. This is determined by dividing current assets by the current
liability's value. This ratio is used to assess a company's liquidity status and, as a result,
managers may determine how much money or cash the company needs to meet or pay its debt
obligations. Higher ratios indicate that a firm's balance sheet is adequate to pay its debt
obligations, whereas lower ratios indicate that an organization's policy system has to be changed
in order to improve its liquidity status. In 2018, the present ratio of SKANSKA PLC was 2.35,
and in 2019, it was 0.93. As a result, the company had more liquid investments in 2018 than it
does in 2019. They are successfully handling corporate practices that have a significant influence
on the company. The key explanation for the decrease in the current ratio is that SKANSKA
PLC's management department is unable to effectively handle the company's business efficiency,
resulting in issues with controlling the company's liquidity status (Ivanenko, Hrushko and
Frantsuz, 2018). The above company’s managing department need to focus on enhancing their
current assets as much as possible so that they can deal with current liabilities in an effective
manner.
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Debtors collection period- This ratio determined the efficiency at which a company
collects funds from debtors. Debtor collection duration is characterized as the amount of time
taken by a business entity to recover funds from its debtors.
Long time period needed denotes that the company will need more time to raise funds from their
company borrowers, implying that the company management will not handle their debtors using
regulations. In the case of SKANSKA PLC, they need 68 days in 2018 to raise cash from
customers, but in 2019, the time required to collect cash from customers has been increased (Rai,
Dua and Yadav, 2019). Managers do not use effective strategies to retain customers, and they
charge a premium price for their goods and charge a high rate of interest, all of which have a
significant impact on the customer's view of the company. They don't use credit management
procedures, but they're in trouble. It is important to control debtor collection time intervals for
this helps a company to effectively manage its cash inflow operations, which assists in the
accomplishment of targets. It also allows an organization to develop appropriate corporate plans
to manage their goodwill with other companies. All of this is essential for managing the accuracy
rate in a competitive market.
Creditors payment period: This ratio is used to determine how long it would take a
company to pay down its debt. This ratio is used to determine how an organization's funds
should be used to pay down short-term debt. Managers may assess whether or not their company
has the capacity to cover their trade payable debt by measuring the creditor payout duration.
Long-term credit periods indicate that the company is having difficulties paying its debts. This
will assist in assessing and defining whether or not a firm is facing financial difficulty. The
primary explanation for the increase in time is that a fall in the sale rate, as well as a decline in
cash inflow operations, had direct effects on the firm's ability to cover debt. They are unable to
raise funds from investors, resulting in insufficient balances to pay their loan obligations
(Amoozad Mahdiraji, Hafeez and Razavi Hajiagha, 2020).
CONCLUSION
Based on the above project report, it can be inferred that corporate companies must make
financial decisions in order to retain their role within the business enterprise. Various methods
have been used to accomplish this aim. Accounting and finance departments were created by the
corporation, and these departments are able to oversee business organizations by tracking
transactions, creating budgets and financial statements, evaluating tax benefit, and measuring the
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success of business organizations based on their positions and responsibilities. The ratio analysis
methodology is used by administrators to make financial decisions. Both aid in the evaluation of
corporate results and the decision-making of managers in order to adjust procedures in order to
improve the entity's business performance.
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REFERENCES
Books and Journal
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behaviour. International journal of consumer studies. 43(1). pp.102-112.
Guzman, F., Paswan, A. and Tripathy, N., 2019. Consumer centric antecedents to personal
financial planning. Journal of Consumer Marketing.
Nofsinger, J. R. and Shank, C. A., 2019. DEEP sleep: The impact of sleep on financial risk
taking. Review of Financial Economics. 37(1). pp.92-105.
Grishikashvili, K. and Bechter, C., 2019. Perceptions of independent financial advisors on the
usefulness of Big Data in the context of decision making in the UK. International
Journal of Big Data Intelligence. 6(2). pp.102-112.
Harford, J., Kecskés, A. and Mansi, S., 2018. Do long-term investors improve corporate decision
making?. Journal of Corporate Finance. 50. pp.424-452.
Huang, J., Yang, W. and Tu, Y., 2020. Financing mode decision in a supply chain with financial
constraint. International Journal of Production Economics. 220. p.107441.
Andriosopoulos, D. and et.al, 2019. Computational approaches and data analytics in financial
services: A literature review. Journal of the Operational Research Society. 70(10).
pp.1581-1599.
Yu, C. and et.al, 2019. A group decision making sustainable supplier selection approach using
extended TOPSIS under interval-valued Pythagorean fuzzy environment. Expert
Systems with Applications, 121, pp.1-17.
Ivanenko, T., Hrushko, V. and Frantsuz, A., 2018. Optimal investment decision making on the
model of production enterprise with limited resources. Investment management and
financial innovations, (15, Iss. 4), pp.61-68.
Rai, K., Dua, S. and Yadav, M., 2019. Association of financial attitude, financial behaviour and
financial knowledge towards financial literacy: A structural equation modeling
approach. FIIB Business Review. 8(1). pp.51-60.
Amoozad Mahdiraji, H., Hafeez, K. and Razavi Hajiagha, S. H., 2020. Business process
transformation in financial market: A hybrid BPM‐ELECTRE TRI for redesigning a
securities company in the Iranian stock market. Knowledge and Process
Management. 27(3). pp.211-224.
Abdel-Basset, M. and et.al, 2020. An integrated plithogenic MCDM approach for financial
performance evaluation of manufacturing industries. Risk Management. 22(3). pp.192-
218.
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