Skanska Plc Financial Performance Analysis: BM414 Decision Making

This report provides a comprehensive financial analysis of Skanska Plc, a UK-based construction company, focusing on its financial decision-making processes. Task A delves into the roles and duties of the accounting and finance department, emphasizing its importance in managing financial resources, recording transactions, and ensuring data security. Task B evaluates Skanska Plc's performance using various accounting ratios, including Return on Capital Employed, Net Profit Margin, Current Ratio, and Average Receivable Period, for the years 2018 and 2019. The analysis interprets these ratios to assess the company's profitability, liquidity, and efficiency, ultimately providing insights for potential investors considering a £1 million investment. The report concludes with an overall judgment on Skanska Plc's financial health and investment viability based on the ratio analysis.

Financial Decision
Making

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK A...........................................................................................................................................3
Discuss the roles and duties of accounting function and the importance of same in relation to
Skanska Plc.................................................................................................................................3
TASK B ..........................................................................................................................................5
Evaluation of the performance of Skanska plc using the different accounting ratios.................5
Pass judgement about the performance of Skanska plc from the view of an Investor having
willingness in investing £ 1 million............................................................................................9
CONCLUSION ...............................................................................................................................9
REFERENCES..............................................................................................................................11

INTRODUCTION
Financial statements refers to the group of different report that are prepared in a business which
determines the financial performance of the business over a period of time. The three main
reports which are prepared in the financial statements are, the income statement, the balance
sheet, and the statement of cash flows. These above mentioned statements help the different
stakeholders of business to determine the position of the business (Bazley, Bonaparte, and
Korniotis, 2021). These activities are controlled by the finance and accounts section of the
company. This sole department handles the financing of the business. This report is divided into
two tasks. The company that will be discussed in this report is Skanska plc. It is a construction
company based in the UK. It was established in 1984 and has grown vastly in the current times.
The first task in this report talks about the roles and duties of the accounts and financing
department of the business with the importance of same. The second part of the report gives a
detailed analysis of the financial position of Skanska Plc while calculating different accounting
ratios used in the accountancy theory.
TASK A
Discuss the roles and duties of accounting function and the importance of same in relation to
Skanska Plc.
The accounting and finance department at Skanska plc is that part of administration
which is responsible for managing the accountancy work and preparation of the financial
statements of the business. The department is responsible for collection of all the important
monetary data from the transactions happening in the business and the putting this raw data into
good use for the different users of the financial information (Geng, Xu, and Metawa, 2020).
These users have higher stakes of taking a decision that is related to the business in question.
This department of the business provides value to Skanska by preparation of different budgets
then calculating the variances and taking corrective measures to ensure that the financial
resources of the business are put to correct use. Following are the detailed importance of having
a financial section in regards to Skanska.
 To record all the transactions and financial events of the business properly- This is
the main importance of having a finance department in the business as recording of

financial events is crucial for the business to determine the progress of business over a
period of time.
 To ensure the resources are put to efficient use- They analyse all the expenditure
obtain by the firm from time period and tries to appreciate the decrement of resources in
it on with determination measures to powerfulness them. The finance division of the
institution analysis the assorted investing opportunities and propose the direction in
fetching various in vestm ent and withdrawal judgements.
 To take different accounting decisions- This department of the company requires in
taking different decisions related to accounting like what principles and conecpts of
accounting will be followed by the business (Sekścińska, Jaworska, and Rudzinska-
Wojciechowska, 2021).
The financial roles that are taken up by the accounting department in relation to Skanska plc are:
 Strategically prepares the budget- The accounts and finance department are obligated
to formulate the budgeting plans for Skanska. The department first ensures how much
amount of funds are needed to smooth functioning of the business and then raises the
funds required from available sources. These funds are then allocated to different
operational activities and the budgets of the same are prepared by them. The expected
impact or the changes in currency rate and inflation is taken into consideration as well
while formulating these.
 Preparation of financial statements- The managers of finance department at Skanska
are required to prepare the financial statements. Financial data is not easy to understand if
it is not presented in an understandable way. This is the role of department that they have
to first collect, then critically prepare and finally present the accounting information to
the different stakeholders of the accounting information of Skanska. The division is also
obligated for set up reports for the administration team and the committee of directors in
relation to the presentation of the institution yearly, half yearly and quarterly (Konchak,
and et.al., 2021).
 Making sure the accounts of the business are secured- The employees I the accounts
department of Skanska are required to ensure the safety of all the financial information.
Financial data is a crucial part of management and if this piece of information gets in evil
hands then the business may suffer huge losses. At Skanska, they have to safeguard this

information from any type of misrepresentation, theft of the information or frauds. All the
information should be kept confidential until it is approved by the CEO to publish this
information.
This department of the business has distinguished duties to be taken well care of. These are
discussed further in relation to Skanska plc.
 Critical analysis of various financial statements- The finance and accountancy
department involves different experts that have the deep knowledge and understanding of
the finance and accounting theory. These experts analyse the different financial
information provided in the statements of financial position (Lu, 2021). This analysis
helps the management and the owners of the business take important and related
decisions which will be beneficial for the business. They use ratio analysis and
comparative statements for the same.
 Formulating long term financial plans- The finance department make plans about the
allocation of the monetary funds to the different sources where these funds can be utilised
efficiently and effectively. The plans are related to capturing, and allocation of monetary
funds. They also focuses on the investment scheme and trends in the market.
 Prevention from committing any fraud- The accounts and finance department of
Skanska is responsible to safeguard the financial data of the business form any kind of
fraudulent activities. The department is required to maintain the quality of the financial
statements and there should be no misrepresentation, stealing of the information in and
from the books of accounts (Williams, and et.al. 2021). Accounting is done to provide the
monetary information about the working of the business to the different stakeholders,
hence it is the duty of the finance department that the information which is provided is
valid and with full disclosure whatsoever which will aid the decision makers in taking
decision.
TASK B
Evaluation of the performance of Skanska plc using the different accounting ratios
Accounting ratios refers to a tool in the theory of accounting which is used by the
different interpreters of the financial information. It is an analytical tool used in the accounting
where the relation between two exclusive elements of the financial statements is done. This

relation between the elements is then compared to the same of last years or previous period
figures. These comparisons help the business determine their future course of action and how the
business can do better (Fiedler, and et.al. 2021). These figures not just help the management but
also provides guidance to the different stakeholders of the business. In the following segment,
the report will now show the calculations of the different accounting ratios of Skanska plc. that
have been asked for and provide a detailed interpretation of same.
 Return on Capital Employed is a fiscal ratio which ascertains the return that the
business has the ability to earn taking in consideration the earnings and the capital
employed of the business. The ideal R O C E is considered to be 20 which is efficiently
used.
Return on capital employed = Earnings before interest and tax ( E B I T ) / Capital
Employed
Calculation for the year ending December 31, 2018
= 750 / 3825 * 100
= 19.61 %
Calculation for the year ending December 31, 2019
= 975 / 5850 * 100
= 16.67 %
Interpretation: In the year 2018, the return on capital was good with nearly 20 % but it has
decreased by nearly 3% in the next year. This shows that the performance of the business has
decreased and they are not making use of the resources with optimum efficiency. The business
has raised more loans from the market but even after having greater resources the business is not
able to not just increase but also maintain the profits earned (Yang, and et.al. 2021). Due to the
raised loan the interest expense for the firm have increased making it more harder for the
business to increase the profitability. Due to decreasing ratio, the investors will try to safeguard
their funds and might not invest in the business.
 Net Profit Margin is the percentage ratio which show how much profit is earned by the
business in response to its net sales of the year. The ideal margin is considered to be 10
%. This tool helps the stakeholders compare the profitability of the business time to time.
Net Profit Margin = Net profit earned / Net sales * 100
Calculation for the year ending December 31, 2018

= 600 / 4800 * 100
= 12.5 %
Calculation for the year ending December 31, 2019
= 675 / 6000 * 100
= 11.25 %
Interpretation: Skanska plc is having a good margin of earning profits in the two
periods. The profit margin is greater than 10 % which is considered moderate but it can
be seen that this margin has decreased in the two periods. The financial statements shows
that the sales of the business have increased but even than the profit has decreased (Ozili,
2021). The reason for this decrease can be the amount of interest that is required by the
company to pay for loan has increased which in turn reduced the net profits of the
business with huge amount. This can create a bad impact into the minds of potential
investors as it shows that profit is decreasing.
 Current Ratio is one of the liquidity ratio which helps the business analyse the ability of
the business to pay back its short term payment requirements (Zehra, and et.al. 2021). It
compares the current assets to current liabilities and the ideal ratio is considered as 2:1.
Anything less than this is considered bad for the liquidity of the business.
Current Ratio = Current assets / current liabilities
Calculation for the year ending December 31, 2018
= 1515 / 645
= 2.35
Calculation for the year ending December 31, 2019
= 2070 / 2220
= 0.93
Interpretation: The above ratios shows the liquidity position of Skanska. The year 2018
was good for the company as the current ratio of that year was greater than the ideal ratio
which is considered fine. The company had 2.35 : 1 which is a good enough liquidity
position. But in the next year of 2019, the liquidity ratio fell down too badly that it went
less than the ideal ratio. This shows that the business is having lack of sufficient funds in
the short term to meet their short term payment obligations.

 Average Receivable period refers to the time it will be taken by the debtors of a firm to
pay back the amount they owe to the business (Lyons, and Kass‐Hanna, 2021). This
shows the inflow of cash in the business in the short term. The more the time is, the bad
the liquidity position is for the business. The analysis is done with the help of average
payment period.
Average Receivable Period = Debtors * 365 / Net Sales
Calculation for the year ending December 31, 2018
= 900 * 365 / 4800
= 68 Days
Calculation for the year ending December 31, 2019
= 1200 * 365 / 6000
= 73 Days
Interpretation: The collection period from debtors has been seen increasing which
creates burdens for the short term liquidity. The comparison shows the debtor takes 5
days extra to return the amount obligated towards the business.
 Average payable Period refers to the time period taken by the business to pay back the
payment obligations to the creditors of the business. This ratio calculates the days taken
by the creditors to receive the amount (Kilicoglu, Cetin, Aricak, and Sevik, 2021). Lower
the time, better is the management of short term liabilities of the business by the
management. This is analysed taking into account the average receivable time of the
business.
Average payable period = Creditors * 365 / Cost of goods sold
Calculation for the year ending December 31, 2018
= 570 * 365 / 3450
= 60 Days
Calculation for the year ending December 31, 2019
= 2100 * 365 / 4350
= 176 Days
Interpretation: The collection period of creditors of Skanska has been seen with an
increasing trend in the two years. This increase is of around 3 times this means that the
business is free to hold the monetary funds of business and try to put them to beneficial

events. The time for the investment has to be 6 months as the company will require to pay
the creditors after 6 months. Even though the business is not able to maintain their short
term funds, it is good view for the investors looking to invest in long term as the business
will leverage the market share.
Pass judgement about the performance of Skanska plc from the view of an Investor having
willingness in investing £ 1 million.
The investor who is looking to invest £ 1 Million into the business, the performance of Skanska
is not really up to the mark. While looking at the above calculations of the different ratios it can
be seen that mostly all the ratios are showing a downfall trend which is not a mark for the
business and its profitability. From the above calculation it can be seen that the return on capital
employed and profitability ratios of the business are reducing (Weston, and Nnadi, 2021). The
liquidity condition of the business is not in a good state due to poor management of the business
operations. The time period required by the company to pay off its obligations is 6 months but
this does not reason with the availability of funds to prove its liquidity. The year of 2018 was
good for the business as the performance of the business was upto the mark but after 2018 the
performance started to went down. The increase in the amount of interest on loan has not yet had
any positive impact on these funds the investor want to invest, this is because the interest
payments have severely tarnished the ability of the firm to be called liquid. Hence, it is
recommended to the investor to kindly wait before making an investment in the business and
duly analyse the performance of the company till the period of at least half year. The further
decision should be made after proper analysing.
CONCLUSION
The above mentioned report can be concluded by saying that Accounts and finance department is
very important for any business. This department in one of the important pillar for the firm in
managing its day to day activities. This helps the business in managing its cash and funds. The
experts in this department holds a vast knowledge on how the accounting is done and how rules
and regulations of the state are to be followed in compilation with the needs and wants of the
different users of financial information. The department helps the business better analyse its
working and use various tools like ratios and comparative statements to get insights as to how the
business is actually performing keeping aside the profits of the business. The report has

highlighted calculation of different accounting ratios for Skanska plc. These ratios are duly
interpreted keeping in mind the main focus of the users of this information.

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