Financial Analysis and Decision Making Report: SKANSKA PLC Performance

This report provides a comprehensive financial analysis of SKANSKA PLC, a UK-based construction organization. It begins by explaining the crucial roles of the accounting and finance departments, detailing their functions in recording transactions, creating financial statements, and aiding in decision-making. The report then delves into the relevance of these departments within SKANSKA PLC, highlighting their importance in recording transactions, evaluating performance, creating budgets, aiding in decision making, and optimizing the use of monetary resources. The core of the report is an analysis of SKANSKA PLC's financial performance using ratio analysis, including return on capital employed, net profit margin, current ratio, debtors collection period, and creditors payment period. The analysis reveals a decline in the return on capital employed, attributed to increased current liabilities, and offers insights into improving financial strategies. The report provides valuable insights into SKANSKA PLC's financial health and offers recommendations for improvement.

FINANCIAL DECISION MAKING

EXECUTIVE SUMMERY
Business organization for maintain their position within market need to take correct
financial decision, for this purpose accounting and finance department play vital role. As
manager of these department have responsibility to take decision on the basis of recording all the
information and represent theses information in effective way. This report describe information
regarding SKANSKA PLC , which is Britain based construction organization. It includes the
relevance of finance and accounting department by describing their function roles. In another
part it consider the use of financial ratio for measuring monetary performance of SKANSKA
PLC .

Table of Contents
EXECUTIVE SUMMERY..............................................................................................................2
INTRODUCTION...........................................................................................................................2
Explanation of accounting & finance department.......................................................................2
Relevance of Accounting and Finance department within SKANSKA PLC ............................2
Role of accounting department ...................................................................................................3
Role of Finance department ........................................................................................................4
TASK 2............................................................................................................................................5
Analysis financial performance of SKANSKA PLC ..................................................................5
CONCLUSION ...............................................................................................................................9
REFERENCES..............................................................................................................................10
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INTRODUCTION
Financial decision making is the process of applying tools of accounting as well as
financial for take decision . To understand this concept SKANSKA PLC has been taken , it is
situated in United Kingdom, this organization run its business at construction field. They
provides best qualities of services to their client. However some issue has been arise since two
years. This report has been formulated to defined the importance of account as well as finance
department, their role functions. It also includes measurement of financial performance of
SKANSKA PLC and on the basis of that identify reason of low financial performance and
suggestion to improve the performance.
Explanation of accounting & finance department
Every business organization need to run their business activities in effective manner, thus
they need to formulate accounting as well as finance department within their business
corporation.
Accounting department: It is consider as a department which is engaged in the work of
recording every transaction of organization in systematic manner. They are play vital role within
the business corporation by recording every transaction in effective manner, use records for
purpose of collect and maintain records of data which further useful for future investigation
purpose. In this department personal who have knowledge regarding recording of data entry
system,, use Tally, Excel, and their tax software, system, are hired for fulfilling accounting
department function (Unda, Khosa, Burch, and Wilkin, 2020).
Finance department: This consider as most essential department. Employers formulate
financial statement, and on the basis of take decision and plan for future financial policies and
strategies related with allocation of financial resource of organization. This department is
engaged with budgeting and forecasting and managing cash resource activities of business
corporation.
Accounting and Finance department both are inter related with each other as on the basis of data
collected from accounting department manager of finance department able to formulate their
financial statement. Accounting information provides base for prepare income statements.
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Relevance of Accounting and Finance department within SKANSKA PLC
Record transaction: Accounting department help in recording all the relevant
information and transaction in formal manner. Theses data help in formulate business policies
and strategies and also useful during the time of auditing. Accounting information is consider as
proof document thus it is very essential to record all the data. This will help in saving time of
SKANSKA PLC.
Evaluate performance: Accounting as well as Finance department play major role. As
theses departments help in measure performance of organization for a particular time period.
This information also relevant when performance is compare with rival business industries. On
the basis of calculation of profit and value of financial assets, financial institution give raking to
organization by recognize their financial statements. Thus theses department play vital role .
Creation of budget: Finance manager formulate budget on the basis of collet accounting
information. Theses budget are prepare on the basis of data collected from performance,
accounting receivables and other reports. Theses budget are useful in identify opportunities as
well as those business activities which may become the reason of future business loss. On the
basis of calculate value of profit as well as loss manager plan those strategies which help in
reduce chance of risk and help in attain business advantage (Burns, and Jollands, 2020).
Help in decision making: On the basis of analysis financial performance of SKANSKA
PLC, manager take decision regarding their future portfolio investment. They use various
techniques of financial management which help in finding out best alternative which help in
generate more profit.
Optimistic use of monetary resources: By using information of accounting department
and reviewing financial statement, management department take decision regarding allocating of
their monetary resource according to the requirement of various department of organization.
Thus accounting and finance department help in use resource in optimistic way.
Role of accounting department
Accounting department of SKANSKA PLC play following role
Financial accounting: The main role which play accounting department is that they help
in financial accounting. By recording all the essential accounting information accounting
department provide relevant data which help in analysing ratio, useful in investing appraisal
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technique, help in recognizing ratio, as well as useful in recognize data which useful in making
trading account and income statements.
Management accounting: This is consider as essential approach of any organization.
Accounting department apply this tool for recording data in systematic manner as well as use
various accounting system for calculating cost required for generating business activities. They
also play vital role in using management accounting technique which help in recognize value of
revenue as well as changes volume due to increment or decrement in business units. Managers
on the basis of using all the information by applying technique of managerial account take
decision as well as carry forward all the necessary data which is related with day to day business
activities.
Tax function: Business organization need to pay essential tax liability. It is the duty ad
responsibility of accounting department to calculate tax value. For this purpose they use or apply
accounting standard and legal norm which define how to calculate value of tax. Manager of
SKANSKA PLC on the basis of information collected from accounting department paid their
value of tax liability. If they do not calculate the value of tax then SKANSKA PLC not able to
take benefits of subsidiaries which government provide to their tax payers (Yue, Gizem
Korkmaz, and Zhou, 2020).
Auditing function: Main role of accounting department is to regulate internal audit .
This help in recognize error arise during the time of recording transaction or any secret profits
generate by manager or employers by finding transaction activity. In auditing process each and
every data has been review for finding out the reason or cause of mis matching of financial
statement. Accounting department of SKANSKA PLC thus record transaction which help in
providing data during the time of internal as well as external auditing process.
Role of Finance department
This department also help in successfully run business organization by playing their role
and responsibilities. Following are the role of finance department of SKANSKA PLC
Investment function: Finance department mainly use various technique which help in
taking decision regarding which alternative provides more economic benefits for organization.
Success of the business corporation depend on the decision taken by management department.
Thus finance manager by using capital budgeting technique analysing which beneficial and give
ling term competitive advantage to organization. They use capital budgeting technique and other
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measurement of financial management which recognize profit by calculating rate of returns.
Thus management department of SKANSKA PLC need to work on their finance department.
Finance function: By formulating financial statement, cash flow statement and other
relevant format which useful in recognize financial performance as well as measurement of cash
inflow and outflow business activities. Manage of SKANSKA PLC by using financial statement
can review and measure their department performance. It is the main role of finance department
to formulate budget. Which useful in provides guideline regarding future business activities.
Dividend function: Finance department is recognized as major department of
organization. They take decision regarding distributing dividend , on the basis of analysing
financial performance and calculate profit generate by organization for particular time period.
Dividend is the symbol of growth as well as success of business corporation. SKANSKA PLC
by calculating dividend on the basis of analysing their financial profits organization generate by
their business activities. They also communicate with relevant stakeholders as they have interest
with the organization ad most of shareholder took their investment decision on he basis of
recognize value of dividend (Seetharaman, Patwa Jadhav, and Saravanan, 2016).
Working capital function: It is the responsibility of finance department to manage cash
assets of business corporation. Thus manager by using various financial management technique ,
identify activities which may generate high cash outflow and ration between current asset and
liabilities. Management department of SKANSKA PLC need to manage their cash asset by
formulate these policies which help in increase cash inflow activities instead of cash outflow
business activities. Working capital help in fulfilling data to day business liability thus finance
department by measure value of cash as apply strategies which help in maintain working capital
of SKANSKA PLC
Accounting and finance department consider as major element of every organization.
They play vital role by calculating, analysis recording and representing financial data in
effective manner.
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TASK 2
Analysis financial performance of SKANSKA PLC
For recognize financial performance of SKANSKA PLC manager use ratio analysis
technique. The term ratio can be define as measurement of value and analysis relation between
two term of financial statements.
There will be many types of ratio through which organization can calculate and
measure value of assets as well as liabilities and profit, following are the ratio use for measure
performance of SKANSKA PLC:
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
Interpretation:
Return on capital employed: This ratio includes within profitability ratio category.
Return on capital ratio use in identifying capacity of generating revenue by using capital of the
business corporation. The main purpose of calculating this ratio is to determine organization
able to maintain their capital assets in effective manner or not. Higher value of return of capital
employed show that organization able to manage their capital in effective and efficient way. On
the other side when the value of return of capital assets value has been decline this means that
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business corporation not able to maintain their capital in effective way (Zaleskiewicz, and
Traczyk, 2020).
In this case value of return of capital employed in 2018 was 19.60% and on the other side
it calculate 16.67%.This showcase that SKANSKA PLC not able to manage their capital in
effective manner thus revenue generate by using capital has been decline. This represent that
organization not apply effective businesses policies .
The main cause of declining rate of revenue because the value of current liabilities of
SKANSKA PLC has been increase as compare to 2018, thus organization not able to maintain
their capital as well as asset they have liability to pay creditors. Business organization need to
formulate those business policies which help in control the liability ratio within the organization.
This will useful and beneficial in enchaining the return capital employed ratio of SKANSKA
PLC.
Organization need to focus on their business strategies and analysis environment on the basis of
that they can able to maintain position in market.
Net profit margin: This is also part of profitably ratio. The term net profit has been
defined as value of revenue earn after deducting of all the essential expenses which help in run
business activities. Net profit ratio is consider as vital tool of financial management as manager
on the basis of recognizing net profit ratio organization able to identify efficiency and ability of
business entity to generate profit. Net profit ratio useful in take decision regarding dividend
distribution as well as show the true or real value of organization. This will useful in find out
organization which is more beneficial for shareholder thus most of stakeholders took interest in
net profit ratio. It is essential for organization that they need to formulate those strategies which
useful in enhancing profit by enhancing sales volume. By using net profit margin ratio growth
rate of organization can be determine.
In context with SKANSKA PLC it has been recognized that value of net profit ratio was
calculated at 12.25 % in 2018 and in 2019 it was valued at 11.25 & this shows that organization
not able to attain revenue as compare to 2018.
The main cause of decline probability ratio is that in 2019 organization the value of sales has
been increases which may become the reason of incurred more expenses. This directivity impact
on the rate of generating revenue (Boncoeur, Coglan, Le Gallic and Pascoe, 2000).
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SKANSKA PLC by applying effective policies regarding giving offer on sales, attract
customers towards organization by using effect tool of promotion they can enhance their sales
rate which result in increment in net profit ratio. They by cut throat those activities which may
cause of unwanted cash outflow can also increase their value of net profit ratio. Higher net profit
ratio represent strong position of organization.
Current ratio: This is calculated to identifying relation between current asset and
current liabilities. Current ratio help in identifying liquid position of organization for specific
time period. According to the accounting institutions 2 :1 is consider as ideal ratio current ratio.
The main purpose of calculating this ratio is to analysis the ability of business corporation
to fulfil its day to day short term business liabilities. Higher current ratio show that business
entity have sufficient balance of asset to fulfil their current liabilities on the other side lower ratio
showcase lower financial performance and burden of current liabilities which they can not able
to fulfil.
In context with SKANSKA PLC their value of current ratio was 2.35 times this show
strong liquidity position of organization on the other side in 2019 organization value of current
ratio was 0.93 times. This represent that within one year SKANSKA PLC not able to manage its
cash resource thus their value of current asset has been decline which show that organization not
able to fulfil their current liabilities.
The main reason of arises this difference because of increment in the number of creditors
and incurred expense on irrelevant business activities.
Manager of SKANSKA PLC need to control their cash outflow activities which help in
increasing cash balance with the organization. They also need avoid those operation which may
become the reason of increase liabilities of SKANSKA PLC.
Debtor collection period: It is a period or the time which helps the company to collect
all its trade debts. The collection period should be less than 90 days and helps in generating the
profit for the long term. Debtors collection period can be calculate by dividing the average
debtors by credit sales and multiply it by 365 days which help the company to find out days in
which they have collected all the debts (Ray, 2012).
In the context with SKANSKA PLC it has been recognized that the value of the debtors
collection period was calculated 68 days in 2018 and 73 days in 2019 this shows that company
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has less debt in the year 2019 as compared to 2018 as the debts are received is less days and have
good position as compared to 2019.
The cause of increasing the ratio in the year 2019 may be the company is granting more
loans to the customers or have increase the sales which leads to delay in payments.
SKANSKA PLC by applying effective policies like collecting the payments early on the
past due receivables or by offering an early payment discount , offering a payment plan or by
maximizing the cash flow and make the payments easier. Lower the discount collection period
position of the company will be good.
Creditors payment period: In this period the customers are allowed to wait before
paying the invoice. This ratio is very important as it helps in indicating the amount of capital will
be invested in the accounts receivable so that the sales can be generate. Credit payment period
can be calculated by dividing trade creditors by credit sales and multiply by the number of days
365. The time in which we have to pay the bills is known as the credit period.
In the context with SKANSKA PLC it has been recognized that the value of the creditors
payment period was calculated 77.05 in year 2018 and 159 in the year 2019 which shows that
the company has more credit period in the year 2019 as compared to the 2018 which means in
2019 the company has plenty of cash to pay all of its debts (Welsh, J and White 1981).
The cause of increasing the ratio in 2019 may the company has plenty of cash to pay all
of its debts may be the company is managing the cash properly in an effective manner.
SKANSKA PLC PLC by applying effective policies like by offering the discounts or by
improving the stock control of the company, by changing payment terms the company can
increase its creditors payment period.
CONCLUSION
From the above analysis it has been concluded that business organization to successfully
run their activities with the market need to assess with accounting and finance department. Both
department contribute in effective way for organization. Accounting and Finance department by
collecting and representing information, help in decision making and represent information in
effective manner. They also useful in communicate with stakeholders. Finance as well as
Accounting department play major role in maintain position of organization by managing their
finance resources. Apart from that in the second task of this report financial performance of
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SKANSKA PLC has been measure. On the basis of that it has been recognized that this
organization's financial performance as compare to 2018 has been decline. The main reason
behind this reduction is that organization not able to manage their cash as well as other resource.
And due to unwanted creditors their current liabilities has been increase. By applying tools of
financial management and formulate effect policies to reduce cash outflow activities SKANSKA
PLC able to maintain their position.
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