Bm414 Financial Decision Making Case Study

Task 1:Evaluation of the importance of accounting and finance functions, duties, and roles of Skanska Plc

Importance of accounting and finance functions

Record tracking -

The usability of the accounting and finance functions has helped the company to track financial records effectively. It has been mentioned that accounting and Finance functionality mostly helps the company to segregate and categorize all the outgoing and incoming financial activities of the company, for creating financial reporting at the end of the respective financial year. This tracking record of the accounting and Finance of the company helps to create a comparative discussion over the current situation of the company and the past condition. It also helps to include the strategic implication to remove all the financial lack position of the company (Xie et al. 2019). The functionalities of accounting and finance are going to hell SKANSKA plc regarding the better measurement of financial reporting preparation.

Decision-making for management-

The financial decision-making of the company is a major factor that is going to affect the entire business operational situation of the company. Effective decision-making provides the company with a way of achieving better financial learnings and maintaining all the business operations precisely. However, the lack of potential decision-making regarding financial aspects provides a bankruptcy situation for the company in the future aspects. The structural functionalities of accounting and finance have helped the company in making the proper financial decision in the aspect of the currently available financial scenario.

Helps to meet legal requirements-

Accounting and finance functionalities provided the proper maintenance of the business evaluation accountability of the company. In this determination, it has been mentioned that proper accounting and financing functionalities help the company to maintain the business laws and accounting standards that are also being indicated to avoid financial ethical issues. In these preferences, it has been referred that accounting and finance functionalities are being led by the company managers regarding meeting all the business criteria and financial requirements of the company precisely. It has also helped to preferably evaluate the financial segmentations and provide ethical maintenance of the accounting standards.

Financial plan creation-

Accounting and Finance functionalities help to create a brief plan for the future development aspects of the company. Primary justification regarding the availability of accounting factors helps to create a current financial condition of the company. In this aspect, accounting functionalities are precisely indicated to have a compact financial report that is going to provide a justified income statement, financial reporting, and other elements of a financial statement. The financial planning of SKANSKA plc is going to improvise the current situation and financial lab positioning faced in the financial year of 2021. Functionalities of the proper accounting and Finance segmentation are going to help SKANSKA plc regarding preferable financial requirements criteria fulfillment. Accounting and financial functionalities maintenance evaluate the requirements of SKANSKA plc, and provide the situation to meet all business evaluations for future development aspects.

Helps to create financial strategies-

The accounting and financing functions of the company help to create an effective financial strategy. This strategy is going to provide a critical discussion of the financial factors of the company and help to create financial reporting. These financial strategies demonstrated liquidity, efficiency, and profit-earning situations (Tailab et al. 2020). However, accounting and financing functionalities are going to improve the existing financial strategy of SKANSKA plc. This involvement in the financial strategy is going to improve the future financial contribution of the company.

Roles and duties of accounting and finance within the organization

Accounting and financial rules and duties for the organization help to monitor the accounting data and evaluate the proper financial situation discussion. It has helped to segregate the entire company’s financial data into several categorized accounting heads. The company's financial analysis has been briefly discussed by using the available financial discussion proportion. It has helped to forecast the revenue and cost of the company by using forecasting budgeting aspects. Accounting and financing proportions have helped to manage the tax payments and maintain the auditing evaluation of the company. In this determination roles and duties of the accounting and financing prospect provide the proper maintenance of internal and external auditing aspects of the company. The rules and duties of accounting and financing mostly provide a way to analyze financial performance in the long run aspects. It has been guided the good accounting principles and reviewing all the financial records of the company to make a potential financial situation. The main duties of having a good accounting strategy help to improve the existing business strategy and understand the economic condition of the company. This preference, it has been referred to the better understanding and review discussion of the existing financial data. Roles of accounting and financing evaluation have been mentioned that they have the support aspects regarding the development of a good financial strategy that is going to increase the marketing position of the company (Syafii et al. 2020). The developed financial strategy helps to increase the market competition of the company and improves the competitive advantage situation. Hence, it has been referred to as the rules and duties of the accounting functionalities going to improve the competitive advantages of SKANSKA plc. This situation refers to effective accounting and financing functionalities to help the company increase the existing business condition and increase the business potentially to earn more profit in the future (Suvvari and Goyari, 2019). This segmentation situation evaluated that the involvement of a good strategic accounting and financing functionality refers to having the improvised quality of the business operation and managerial aspects that provide a huge business expansion option shortly.

Task 2: Skanska Plc Financial Ratio Analysis and Performance Evaluation

a) Ratio analysis

1. ROCE: The return on capital employed proportion has been evaluated by taking into consideration the earnings before taxation along with the capital employed proportion earned by the company. It has been mentioned that the return on capital employed of SKANSKA plc’s proportion was 35% in 2020 and 28% in 2021. This proportional situation has been mentioned that the return on capital employed by the company increased in 2021 and earnings before taxation also increased in the recent year (Sofyan, 2019). This evaluation has mentioned that companies' returns on earnings proportionally are in a good position. It has been mentioned that investors can get a better return from the company's investment aspect.

Table 1: ROCE ratio

2. NP margin: The net present valuation ratio of the company is calculated by taking considered the net profit proportion divided by revenue valuation. SKANSKA plc's Net margin ratio is mentioned as 11% in 2021 and 12% in 2020. This evaluation proportion has been referred to as the net present valuation margin of the company is in a better situation due to having an increased valuation of revenue in the financial year of 2021. This situation has been referring that, SKANSKA plc’s net earnings proportion is in a good position that indicates the company's better future earning capacity aspects (Shabbir and Wisdom, 2020). It has been mentioned that SKANSKA plc’s financial efficiency was effectively better and improved in 2021 than in 2020.

Table 2: NP ratio

3. Current ratio: The current ratio evaluation has been calculated by considering the proportion of the current assets divided by the current liabilities. This evaluation situation has mentioned that the current ratio of SKANSKA plc assessed as 2.35 for 2020 and 0.93 for 2021. This determination situation indicated that the company’s current assets proportion increased along with the current liabilities (Qing et al. 2022). Due to that, it has been mentioned that the company’s financial health is in a good position but the debt proportion is to increase in 2021. This increased evaluation situation might have affected negatively the future perspective of the company's financial earnings. Increased debt created a financial lack of positioning in future aspects.

Table 3: Current ratio

4. Debtors collection period: The accounts receivable days are evaluated by taking the revenue valuation divided by the trade receivable proportion of the company. This account receivable proportion is demonstrated in terms of days, due to SKANSA plc's trade receivable period mentioned as 73 days in 2021 which was 68 days in 2020. This proportional situation has been mentioned that due to having the increased revenue proportion along with the accounts receivable valuation company’s financial earnings are in a good position that has been identified with this ratio evaluation and discussion (Purba and Bimantara, 2020). It has been mentioned that SKANSA plc’s trade receivable situation is in an effective position as it leads towards having a better financial condition.

Table 4: Debtors collection ratio

5. Creditors collection period: The trade payable turnover ratio has been mentioned as there is consideration of the cost of goods sold divided by the trade payables proportion of the company. This evaluation situation mentions that SKANSA plc's creditor collection period assessed as 176 days in 2021 which was 60 days in 2020. This segmentation and situation mention that SKANSA plc’s accounts payable situation is in a critical position due to the increased proportion of payable valuation in the financial year of 2021.

Table 5: Creditors collection ratio

Additional discussion for ratio analysis:

The financial ratio proportion of the company has been provided the brief reporting regarding the company's profitability earning proportion efficiency and its financial health. It has been mentioned that the company's net earning situation is in a better position due to the increased revenue valuation (Nizam et al. 2019). Additionally, notice that earnings before tax also increased in the financial year 2021 than 2020. This situation indicated that SKANSA plc’s future earning potential is at a good level and it means that the company can recover any financial lack positioning. In this evaluation, it has been also mentioned that the company's cost of goods sold proportion increased from 3450 (000, pounds) to 4350 (000, pounds) in the financial year 2021. This evaluation proportion has been referred to that there is the chance of having a declining proportion of financial health. This assessment of ratio analysis has mentioned that SKANSA plc’s overall financial condition is in a good place however there is a slight risk due to the increased debt proportion and the excessive cost of goods sold evaluation in 2021. It has been referring that, the capital employed proportion of the company increased in 2021 due to the increased total assets (Hoque et al. 2019). This situation shows that SKANSA plc's return proportion is at a good level which means that investors can easily invest in the company's shares. As there are lower financial risks and situations of getting a better return in future aspects.

b) Comment on the company’s performance

SKANSA plc's Financial situation is in a good position that has been described with the help of ratio analysis. It has been found that the company’s capital employee proportion increased along with the increased earnings valuation. This determination proportion mentions that future earnings capacity is being effectively improvised by the company. This proportional situation connects that there is an increased net earnings ratio valuation earned by the company in the same period. It is also indicated that SKANSA plc's assets valuation is in the increased position. Increased asset proportion leads towards having financial efficiency that helps the company to recover any financial risk in the future aspect (Hasanudin, 2020). On the other hand, the debt proportion increases not showing the good financial health situation of the company in terms of future financial condition. Increased debt proportion has been referred to due to the further development of the business operational aspects of the company. This further development helped the company to increase its earnings along with the production situation and that directly affected on net earning proportion.

This evaluation situation refers that the company's net earnings increased from the financial year of 2020 to 2021. However, it indicated that the business operation aspects of SKANSA plc are being respectively good position, which helps the company to increase its total earnings in future aspects (Anthony et al. 2019). A better liquidity position of the company provides better business operations and also helps to improvise the financial lack positions. SKANSA plc’s return proportion, financial efficiency, financial condition, and health effectively improved in 2021 than 2020. Due to that, it has been suggested to the investors to invest in company shares, amounting to 1 million pounds. It has been recommended to the investors to invest in SKANSA plc’s shares due to having the scope of better financial return in future aspects with having the lower risk. Investing in SKANSA plc’s shares is leading the investors towards the potential investment. The segmentations of having a potential investment refers that there should have a lower risk and increased scope of earnings proportion (Ahmad et al. 2021). These mentioned criteria regarding potential investment can be only possible if the company has a continuous increase in earnings proportion along with having better asset allocation within the financial factors. A detailed discussion of these financial factors available within the income statement and financial positioning report of the company helps to segregate the justification regarding potential investment aspects for the investors.

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Ratio analysis is being worked as an investor decision-making aspect by providing the detailed financial situation scenario of the company. However, in the brief analysis of SKANSA plc’s financial performances, it has been mentioned that financial condition indicated the potential investment for the investors. This 2 years of financial statement analysis, provides that the company continuously tries to improve its financial positioning by developing the current assets, trade receivables, and other factors of the financial reporting. On the other hand, this continuous improvement affected the company’s overall earnings proportion (Abou-Foul et al. 2021). However, if there are continuous increase situations noticed within the company’s net earnings proportion, it provides the idea of potential investment for the investors' aspect. Increased earnings history of the company provided satisfaction and confidence regarding not having to face the financial risk after the investment in future aspects. Hence financial reporting discussion and having an effectively better financial factors situation of SKANSA plc, going to increase the investors’ confidence in the aspect of investment amounting to 1 million pounds.

Recommendation

In the brief discussion of the financial performances of SKANSA plc, it has been found that the company’s recent business operations and performances are in a good position due to having an effectively good quality of profit turning situation and having an efficient accounting position. The ratio analysis discussion helps to mention the lack point of the company which is increased debt and additional cost proportion. It has been recommended to the company regarding the debt control strategy to resolve the issue. However, due to having good financial earnings and less financial risk for the investors, it has been recommended that investors invest in SKANSKA plc's shares.

References:

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Anthony, P., Behnoee, B., Hassanpour, M. and Pamucar, D., 2019. Financial performance evaluation of seven Indian chemical companies. Decision Making: Applications in Management and Engineering, 2(2), pp.81-99.

Hasanudin, H., 2020. The effect of ownership and financial performance on firm value of oil and gas mining companies in Indonesia. International Journal of Energy Economics and Policy.

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Sofyan, M., 2019. Analysis of Financial Performance of Rural Banks in Indonesia. International Journal of Economics, Business and Accounting Research (IJEBAR), 3(03).

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