Report on Financial Decision Making and Analysis of Skanska PLC

This report examines financial decision-making within Skanska PLC, focusing on the roles and functions of the accounting and finance departments. It details how the accounting department records financial transactions and manages financial tools, while the finance department manages cash flow and ensures sufficient funds for daily operations. The report also includes a financial analysis of Skanska PLC using ratio analysis for the years 2018 and 2019, evaluating the company's financial performance and position. Key ratios such as Return on Capital Employed (ROCE) are calculated and analyzed to assess the firm's profitability and capital efficiency, providing insights into how well Skanska PLC utilizes its capital to generate profits. The analysis reveals a decrease in ROCE from 2018 to 2019, prompting further investigation into the factors affecting the company's financial performance.

Financial
Decision
Making

EXECUTIVE SUMMARY
This report is about financial decision-making in an organisation that leads to how
managers makes strategic decisions for its daily activities. Accounting department records
income and expenses, accounts payables and receivables, inventory, fixed assets and other
financial tools. The finance department is responsible for managing cash flow that ensures a firm
that it has enough funds to meet the day to day activities within the organisation. Firm uses ratio
analysis in order to know its financial performance and financial position.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Importance of accounting and finance functions, duties and roles within the organisation:.......1
TASK 2............................................................................................................................................5
Financial analysis of SKANSKA PLC with the appropriate ratios:............................................5
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Financial decision making Is the process of making decisions related to the finance,
liabilities and shareholders equity within the organisation. It the process of decision making
which is related to the working capital, investment, dividends and financing which makes a firm
healthy. Its provides an organisation to understanding of balance sheet, profit and loss and cash
flow statements so that firm can compare its results from expected before. It is important in a
firm to make wise decisions that when and how business acquire or manage its funds. A healthy
financial decisions helps firm to grow and effects these types of decisions are concerned with
long term assets (Bouzguenda, 2018). The company which is selected for this report is Skanska
plc. It is a public limited company that engaged in construction. This report covers topic such as
functions, duties an roles of accounting and finance department and ratio analysis of the firm in
year 2018 and 2019.
TASK 1
Importance of accounting and finance functions, duties and roles within the organisation:
Overview of the firm: The firm SKANSKA PLC is a public limited company which is
working as construction. The firm uses financial accounting for its decision making related to
financing, investing and managing accounting.
Accounting department: An accounting department is which provides accounting and
managing financial support to an organisation. Accounting department records income and
expenses, accounts payables and receivables, inventory, fixed assets and other financial tools.
The accounting department managing the overall organisation's department to assess financial
position of the firm. In SKANSKA PLC, firm's accounting management team manages all
records of finance for every department and makes statements so that they can know about the
financial performance of the company and liabilities and assets of the firm. To run a business
firm needs to data, records, analysis, reports and proper information about its liabilities, assets
and profits (Florendo and Estelami, 2019). This information is very important for management to
take better decision-making. Accounting prevents the misuse of finance, assets and helps firm to
increase the efficiency of overall organisations activities. The functions of management such as
0planning, controlling, organising, motivating and budgeting all functions depends on an
efficient accounting system. Accounting helps managers for decision-making by providing
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information such as profit percentage, capital investment position and efficiency of management
in controlling activities (Guastello, 2016).
Functions and duties of accounting department:
 Accounting payable: In order to managing relation with sellers it is important that
everyone should gets paid on time. Accounting payment ensures that minimum amount
of money has to go out for payment.
 Account receivables: Accounting receivables is accounting for to track all receivables,
including outstanding and required collections. Accounting receivables is responsible for
tracking and making invoice for collection of payment.
 Reporting and financial statements: This the primary duty of accounting department to
manage all the information and make reports on this in order to know financial position
of the firm. It helps SKANSKA PLC to budgeting, forecasting and decision-making
processes (Hohn, 2020).
Roles of accounting department in SKANSKA PLC:
 Financial accounting: It is the process of accounting that helps in recording,
summarizing and reporting all business transactions through some financial statements.
These financial statements includes balance sheet, profit and loss account and cash flows.
 Management accounting: Management accounting is the process of managing and
preparing reports about the business activities that helps firm's mangers to take short term
and long term decisions. It helps in identify the business goals by analysing, measuring,
interpreting and communicating change information to managers. In SKANSKA PLC its
helps managers to analysing and communication of financial information. It is essential
to build picture of financial records for planning and controlling of the company.
 Tax function: Tax Accounting is related to transactions those are deals with the
preparations of tax returns and tax payments. Tax accounting is used by businesses,
corporations and various entities. It helps in income, deductions, donations, gifts and any
other investment losses and gains (Northwood and Rhine, 2018). An an construction
business, it is important to record or maintain all tax related information because it effects
firm's profitability directly. Under this, managers of the company refers to some methods
and rules for preparation of tax returns and some other statements required for tax
compliance.
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 Auditing function: Auditing refers to assessing the all financial statements and
performance of any company for assuring that firm's financial statements are truthful and
accurate. Audit is done to identify the financial statements of the company for checking
accuracy that is done by an organisation. In SKANSKA PLC, firm's managers uses this
tool for assessing its financial performance that given data is accurate or not and to
identify actual profitability of the company (Oehler, Horn and Wedlich, 2018).
Finance department: Finance department refers to that which is managing fund,
responsible for acquiring fund and investing it on organisations activities. The finance
department is responsible for managing cash flow that ensures a firm that it has enough funds to
meet the day to day activities within the organisation. In context to SKANSA PLC, firm's
finance managers are managing the fund how and where it has to use and where the firm has to
invest. Finance management concerned with effective planning, organizing, analysing,
controlling and budgeting within the company (Ross III and Coambs, 2018). The finance
department provides company for financial management that necessary to make strategic
decisions. This helps firm to know investment options which are beneficial for it, operating life
cycle and its portfolio management. In every firm the finance department plays a vital role in
order to measuring performance, formulating some solutions for risk management and evaluate
return on investment.
Functions and duties of finance department in SKANSKA PLC:
 To prepare the budget: Finance department plays vital role in preparing the budget
before actual providing money to other departments that helps every department to
manage their cost. Finance department uses past records for preparing better budget.
Through budget they are assessing expected budget from actual performance.
 Financial management: In this function finance department managing fund from capital
market at a very low cost. Finance department analysing the all resources of funds and
makes a better financial composition of the company. In this structure, it helps firm to
decrease overall cost of capital of the organisation.
 Management of investments of company: After creating financial structure, finance
managers invest money in debenture holders and shares money in best projects that is
beneficial for the company which gives highest return on investments (Shtudiner, 2018).
For this activity managers has to take decisions, these decisions can be taken by the
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assessment of capital budgeting and investment analysis techniques. Capital budgeting
techniques includes payback period, average rate of return, internal rate of return etc.
 Management of taxes: managers of finance department plays vital role in managing
taxes. Tax can be direct or indirect. Finance department is looking towards amendments
and changes in laws of tax and also creates better corporate relations with the government
by paying tax on the time.
 Management of financial risk: It helps in firm to measuring the financial risks that can
be happen in the company. For decreasing losses of funds finance managers makes good
plan and also takes helps from debt collectors and insurance companies for decreasing
financial risk.
 Merger and Acquisition decisions: for creating brand value finance department take
helps of marketing department for merger and acquisition actions. Merger and acquisition
helps firm to reducing competition and creating better brand value. Finance department
provides money for acquisition that can help firm in long run profitability (Walter, 2016).
Roles of finance department in SKANSKA PLC:
 Investment function: In this function it helps finance team to making corrective
decisions regarding investment means it helps managers in making higher profits.
Finance department working with risk management and in order to decrease cost of
capital so that it can help firm to increase profits. Managers assessing better investment
option which gives high return at minimum time by some investment techniques and
capital budgeting.
 financing function: It is a part of finance department the activity refers to planning and
controlling of financial resources. In any business financing function managing the funds
for acquiring and utilization of fund within the organisations activities. It locates decision
making for strategic planning in organisation. It is the process of funding in business,
making purchase and investments. It the function used by businesses for acquiring fund
and managing it in firm's operations. In SKASNKA PLC, firms managers manage the
fund for business activities so that it can help in production and make profitable to
company.
 Dividend function: Financial managers are responsible to decide a specific dividend
policy which helps firm to maximise its value. Dividend Is paying on the shares as a
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profitability to shareholders in order to issue bonus shares. Dividend decision considers
the percentage of earning which firm has to pay to its shareholders in cash term known as
dividends.
 Working capital function: Working capital management is the set of activities
performed by firm in order to manage its day to day expenses. Working capital term
refers to difference between firm's current assets and current liabilities. Firm's financial
team helps it to manage its assets and liabilities so that it can evaluate business financial
position. To manage working capital leads to managing liquidity, managing account
receivables, managing inventory, short term debt, account payables etc. Managers
oversee its working capital for assessing its short term financial health and liquidity of the
company.
TASK 2
Financial analysis of SKANSKA PLC with the appropriate ratios:
Financial analysis is the process of evaluating business performance, projects, budgets
and other financial transactions in order to determine firms performance. Financial analysis used
to know that whether the entity is liquid, solvent, profitable or not. In SKANSKA PLC, it is done
by its finance professionals by ratio analysis technique and other methods that makes by using of
financial statements or reports (Warmath, Piehlmaier and Robb, 2019). Financial analysis is
used to determined economic trends and build long term plans for business activities and helps
company to identify the investment. It helps investors to deciding on investing their funds in a
specific company. Ratio analysis is the comparison of terms which is mentioned in the financial
statements of a business.
 Return on capital employed: Return on capital employed (ROCE) refers to financial
ratio that is used in assessing firm's profitability and capital efficiency. In other words,
this ratio helps firm to understand how well it is render profits from its capital. In context
to SKANSKA PLC, it is uses when the managers analysing financial profitability
performance. It is an indicator use ton know company's efficiency because it helps to
measure profitability after factoring resources in order to achieve profitability. It shows
firm's return on their investments in order to increase its capital profit.
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Return on capital
employed
Particulars 2018 2019
Net profit 600 675
Capital employed 3825 5850
Result 15.69 11.54
As per above calculation its shows that return on capital in year 2018 that was 15.69 % that is
decrease by 11.54 % in 2019. this ratio shows how the firm efficiently using its capital in order
to generate profits. But in year 2019 firm has decreases its return percentage than 2018 that
shows company's less efficiency to manage its capital in the year. Firm has generated 15.69 %
operated income in 2018 but in 2019 it was 11.54 % that is not enough because higher the profits
means favourable to the firm in order to its capital efficiency.
 Net profit margin: The net profit margin concerned with to firm how much net income
is generated in the percentage of revenues. It is the ratio of net profits to revenues for a
company or business (Zopounidis, Doumpos and Niklis, 2018). Net profit is generally
expressed in percentage but sometimes it refers in decimals also. In context to
SKANSKA PLC, firm uses this ratio to know its profits on its overall sales that helps
firm to know its actual performance. In order to net profit margin firm compare its
current year profit from its last year profits that helps it to know whether firm has done
decline or growth.
Net profit margin
Particulars 2018 2019
Net profit 600 675
Sales 4800 6000
Result 12.5 11.25
According to the above calculation of SKANSKA PLC, it shows firm's net profit margin
of two years that is 12.5 % in the year 2018 but in 2019 it was decreased by 11.25 %. it shows
relationship between net profit after tax and net sales. Higher the ratio means higher the profit
firm gains. But in 2019 firm gains less profit then 2018 that can be reason for less sale or more
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cost in the year. Generally, profit exceeds of 10% is considered as excellent and firm has gain
11.25% that is not bad but it is less than its past performance. So, firm has to take care of its
resources in order to achieve better sales.
 Current ratio: It is used to determined the firm's ability to pay its short term debts that
includes account payables and wages of employees. Current ratio in the firm calculated
by dividing current assets by current liabilities. It tells higher the result has stronger the
financial position of the business. Mainly small business owners should focus on this in
order to pay daily wages or liabilities. It also called as working capital ratio because
working capital also refers by current assets and current liabilities.
Current ratio
Particulars 2018 2019
Current assets 1515 2070
Current liabilities 645 2220
Result 2.35 0.93
As per the above calculation of current ratio of the company it shows 2.35 in year 2018
and 0.93 in 2019 that is less than last year. This helps investors to know about firms liquidity and
how easily it will able to pay its liabilities. The higher the ratio shows stronger position of the
company or vice versa. Ideal current ratio shows 2:1 that means 2 assets available over the 1
liability. In 2018 it has 2.35:1 that shows firms better financial position but in 2019 it shows
0.93:1 in this liabilities are more than assets that means firm has less liquidity to pay its
liabilities.
 Average receivable days / Debtors collection period: In accounting debtors collection
period is indicates the average time which is taken to collect the payment of debts. A
minimum period of time shows more efficiency of the firm. It shows the number of days
in which business receivables converts into cash. It is calculated by dividing the average
debtors by total net credit sales period and multiply by the days in the year. It is important
for companies that heavily on receivables for cash flows. It gives firms specific financial
gain if its getting payments in more fast manner. Debtors are those, who are owes money
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from the business. It is important for organisation to assess the debtors collection period
because it affects the working capital directly.
Average receivable days
Particulars 2018 2019
Account receivables 900 1200
Annual total sale 4800 6000
Result 68.44 days 73 days
According to this calculation it is about firms collection period from its debtors. In 2019 firm has
average collection period of 68.44 days but in 2019 it has 73 days that means payment was made
late. Lower the period shows firms efficiency in order to collect payments from its customers and
convert its debtors into cash or vice versa. In 2019 firm receives its payment from customers by
exceeding days that shows firm's less efficiency to maintain its debtors and its loose collection
policies and less cash for the regular business activities.
 Average payable days / Creditors collection period: Creditors collection period refers
to average numbers of days business takes in order to pay suppliers for goods or services.
It is calculated by dividing creditors from number of payment days and multiply by total
number of days in the year. Creditors are shown in balance sheet by account payables or
trade creditors in liabilities side. If creditors collection period increasing by normal
trading that means the business is not paying to suppliers as efficiently that should
happen. It can be reason of less liquidity available in business. If days ratio lower an
usually it shows suppliers are being paid early and reducing the cash amount or liquidity
quickly manner (Eroğlu, 2020).
Average payable days
Particulars 2018 2019
Account payables 570 2100
Cost of goods sales 3900 5250
Result 53.35 days 146 days
According to the above calculation of SKANSKA PLC, this is about firms average payable
period that shows in year 2018 it has 53.35 days and that was increased by 146 days in 2019.
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higher the payment period means firm was not paid its liabilities on the time. This can be reason
for firm has manages its debts and cash flows in effective manner and firm has plenty of cash to
pay its short term liabilities.
CONCLUSION
From the above report it has been concluded that financial decision-making is the process
that is related to the working capital, investment, dividends and financing which makes a firm
healthy. For financial decision- making firm using financial statements, balance sheet and cash
flows as an element. Every firm has accounting department and finance department in order to
managing its different activities. Accounting department helps firm to record and manage its
financial statements for operating its daily activities. And finance department helps firm to
manage its funds for better investment decision and strategic decisions. To know about the
company's financial position it uses ratio analysis for comparing its current performance from its
past performance. Financial analysis used to know that whether the entity is liquid, solvent,
profitable.
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REFERENCES
Books and journals:
Bouzguenda, K., 2018. Emotional intelligence and financial decision making: Are we talking
about a paradigmatic shift or a change in practices?. Research in International Business
and Finance. 44. pp.273-284.
Eroğlu, Ş., 2020. Are Movers More Egalitarian than Stayers? An Intergenerational Perspective
on Intra-Household Financial Decision-Making. International Migration Review. 54(1).
pp.120-146.
Florendo, J. and Estelami, H., 2019. The role of cognitive style, gullibility, and demographics on
the use of social media for financial decision making. Journal of Financial Services
Marketing. 24(1-2). pp.1-10.
Guastello, S. J. ed., 2016. Cognitive workload and fatigue in financial decision making. Springer
Japan.
Hohn, S., 2020. Financial decision making in late adulthood (Doctoral dissertation, Queensland
University of Technology).
Northwood, J. M. and Rhine, S. L., 2018. Use of bank and nonbank financial services: Financial
decision making by immigrants and native born. Journal of Consumer Affairs. 52(2).
pp.317-348.
Oehler, A., Horn, M. and Wedlich, F., 2018. Young adults’ subjective and objective risk attitude
in financial decision making. Review of Behavioral Finance.
Ross III, D. B. and Coambs, E., 2018. The impact of psychological trauma on finance: narrative
financial therapy considerations in exploring complex trauma and impaired financial
decision making. Journal of Financial Therapy. 9(2). p.4.
Shtudiner, Z. E., 2018. Risk Tolerance, Time Preference and Financial Decision-Making:
Differences between Self-employed People and Employees. Time Preference and
Financial Decision-Making: Differences between Self-employed People and Employees
(October 19, 2018).
Walter, C., 2016. The financial Logos: The framing of financial decision-making by
mathematical modelling. Research in International Business and Finance. 37. pp.597-
604.
Warmath, D., Piehlmaier, D. and Robb, C., 2019. The impact of shared financial decision
making on overconfidence for married adults. Financial Planning Review. 2(1).
p.e1032.
Zopounidis, C., Doumpos, M. and Niklis, D., 2018. Financial decision support: an overview of
developments and recent trends. EURO Journal on Decision Processes. 6(1-2). pp.63-
76.
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