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Financial Decision-Making: Skanska PLC Assignment Sample

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Task 1

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Introduction

The evolution in the various aspects of life has brought around a technological developmental scope and thus, the technicalities in every field have developed to their best capacity. Modernization has made it easy to assess and access various information. However, the process of decision-making has remained the same. In this report, the main focus will be on financial decision-making. Here, the report will illustrate the various financial and accounting techniques that are used in the daily course of accounting management.

Financial accounting is the technique of organizing and transmitting an organization’s financial information. Each of the financial details within a company is gathered and estimated in a record called a statement of financial or financial report. Accountants commonly produce this type of document at the end of each year mostly, however, it can be produced at the termination of each quarter, or business period, depending on the company’s method of analysis period. The key functions and roles of financial accounting involve financial planning, strategy development, mergers and acquisition, auditing, reporting, control, internal risk management, etc. It is very important to conduct these functions properly because the owners and the investors of the company should be informed of the functioning and utilization of their money. Moreover, good accounting and financial functions implementation helps the company grow and further, helps to overcome any unexpected financial crisis through effective financial planning.

Skanska Plc is a United Kingdom-based construction and engineering company. The company was founded in 1778 and headquartered in Hertfordshire, UK. The company is one of the largest and most financially efficient construction and development companies.

The company uses various types of management accounting approaches for decision-making purposes. Skanska plans strategically its projects and evaluates data to make effective decisions. Thus, this helps the company track the impacts of decisions including customer satisfaction, financial metrics, environment costs, and physical resource use. In addition, the company uses the technique of budgeting to establish a financial plan to track and adjust each business unit and resource as per requirements.

Role of Accounting Management Technique

Management accounting techniques is very important for companies to monitor the functioning of the business activities and to assess the achievements of the organizational goals. There are various techniques of management accounting that are used by companies to better their operational efficiencies.

Financial Planning

It is the main function of any business organization to assess the requirements of efficiently running daily activities of the business. The managers of the companies use this method to effectively plan the workings of the company and assess the financial assistance it will need in the course of its functioning.

Analysis of Financial Statements

It is a very important task for the company. This is because the financial statement serves as the base to attract investors. This helps to get loans from financial institutions and banks (Bakker, 2021). The financial position of the company discloses the financial position of the company that enables the interested parties to gather the relevant information that is required.

Historical Cost Accounting

It is the method of estimating the values of the assets at their original without considering the depreciation of the assets. This helps to guarantee consistency and retain the quality of the investment (Hirsimäki, 2019). This method records the depreciation in a provision that is considered the liability of the company. 

Standard Costing

Standard costing states the foreordained expenses for items or administrations, authorizing managers to differentiate shifts and proceed with appropriate preferences in regard to control of cost, valuation, etc.

Aspects of Accounting Management Technique

Figure 1: Aspects of Accounting Management Technique

(Source: Self-created in MS Word)

Budgetary Control

This is a traditional method of estimating cost structure. These days modernization has evolved the techniques of budgeting but the main techniques remain to be same (Svensson, 2020). Budgeting helps in the management of cost, and allocation of sources, and facilitates the examination of the performance of the activities in accordance with budgeted goals.

Marginal Costing

This is the technique of estimating the increase in the cost of production when an extra unit has been produced. This measure helps in the recognition of the production cost limit and the units of items to be produced (Russell, 2020). This helps in the waste management of the company.

Funds Flow Statement

This is the statement that shows the sources of receipts and the applications of such receipts. The amount that has been gathered in terms of revenue, loans, converting debtors into cash, etc. is used to gather resources for the company or invest (Rantanen, 2022). This helps the managers of the company to recognize the sources and applications of funds.

Cash Flow Statement

This is the statement that is used to show the company’s net earnings from the various activities of the company. Cash flow statements support planning and managing cash resources, handling functioning capital, and backing decision-making by furnishing details about the inflows and outflows of cash.

Decision-making

The analysis of cost-volume-profit, accumulative analysis, and capital budgeting are a few of the main techniques of decision-making that assist in evaluating the monetary consequences of different alternatives, aligning conclusions with organizational goals, and maximization of profitability.

Revaluation Accounting

Revaluation accounting reviews the value of long-haul resources to reflect their continuing business sector values, backing resource estimation, venture options, and estimating economic effects.

Statistical and Graphical Techniques

Descriptive analysis, regression analysis, and tendency analysis are a few examples of statistical and graphical tactics that support decisions driven by data, prediction of outcomes, and recognition of trends.

Communicating

Effective correspondence of financial information through economic announcing, dashboards, and instability analysis documents operates with navigation and promotes confidence among partners.

Thus, the aspects of management are all very important for the companies to develop strategies to attain the organizational goals to the best of their capacity.

Critical Analysis

The board bookkeeping techniques can extraordinarily work on the preparation, controlling, and dynamic strategies of SKANSKA PLC, a main development and improvement organization. By effectively implementing these strategies, Skanska Plc is able to enhance its financial management, resource allocation, and overall performance (Hagéus, and Nyhrén, 2021). This section will demonstrate and explain Skanska Plc's research and comprehension of administration accounting methods' function.

As a crucial management accounting strategy, SKANSKA PLC should implement budgetary control to improve its procedures. By comparing actual performance to budgeted targets, the company is able to monitor and evaluate its performance, spot deviations, and take corrective measures (Matijaš, 2020). Money-related control will uphold cost organization, resource task, and execution evaluation. SKANSKA PLC will be able to use it to assess the financial impact of budget deviations and make any necessary adjustments to keep the company on course to meet its financial goals.

Using dynamic procedures like "Cost volume benefit" examination, "Gradual investigation", and "Capital planning" can likewise be advantageous to SKANSKA PLC. Using these procedures, SKANSKA PLC will be able to evaluate the financial implications of various strategies and make well-informed decisions that are consistent with its primary objectives. In capital planning, for instance, the company can look at factors like net present value, compensation period, and profit from the venture to determine whether or not potential investments are financially viable (Igorevna, 2021). SKANSKA PLC is able to improve its dynamic interaction, concentrate on projects, and increase productivity by employing such strategies.

Benefits of Management Accounting

Figure 2: Benefits of Management Accounting

(Source: Self-created in MS Word)

The ability to effectively communicate financial information is critical to both decision-making and an organization's success. The company should focus on improving its financial reporting methods in order to ensure that stakeholders receive financial information in a manner that is both clear and concise. SKANSKA PLC is able to provide partners with a comprehensive understanding of its financial position, execution, and opportunities by utilizing execution dashboards, fluctuation investigation reports, and other viable communication methods (Tidlund, et al 2022). Transparency will improve decision-making, build trust with stakeholders, and strengthen relationships.

Conclusion

The investigation of the bookkeeping and financial aspects of Skanska Plc features the importance of the wide bookkeeping techniques to support the company’s turn of affairs and action plans. The company is able to enhance its monetary control, resource distribution, and overall implementation through the communication of adequate financial information, budgetary management, and monetary planning. Decision-making, expenditure control, risk governance, and implementation evaluation benefit significantly from these procedures. Skanska Plc is able to accomplish endurable success, by aligning financial goals and strategic goals and making decisions driven by knowledge by effective operation of management accounting tools. It is advised that Skanska Plc sets help in preparing their staff to promote areas of stability for in-administration bookkeeping measures and processes and coordinate these systems into its existing frameworks and rotations for invariant performance and viability. Thus, the company can elevate its bookkeeping and finances and accomplish its planned targets.

Task 2

Introduction

Financial analysis is a very essential factor in the evaluation of a company’s financial position. There are many techniques of financial analysis but from the investor’s point, ratio analysis is the best technique. Here, the various types of ratios have been obtained considering the financial statements of Skanska Plc for the financial years 2020 and 2021. The ratios that have been calculated to evaluate the company’s financial position are “return on capital employed”, “current ratio”, “creditor’s collection period”, “net profit margin”, and “debtor’s collection period”. These are a few ratios that have been obtained and will be illustrated in the report to evaluate the financial position of the company and to suggest investment plans considering the company.

Estimation of Financial Ratios

For the purpose of calculation of ratios for the analysis of financial statements to enable an investor to make effective decisions regarding investments in the company. The investor plans to invest more than one million in the company. Thus, it is very important to analyze the financial company’s efficiency to bring in good returns on investment (Ebert, and Hurth, 2022). Thus, the following ratios are obtained.

Return on Capital Employed (ROCE)

ROCE

(Net profit/Capital Employed)*100

Year

2020

2021

Net profit

 £ 600.00

 £ 675.00

Total Assets

 £ 4,470.00

 £ 8,070.00

Current Liabilities

 £ 645.00

 £ 2,220.00

Capital Employed

 £ 3,825.00

 £ 5,850.00

Year

2020

2021

Return On Capital Employed

15.68627451

11.53846154

Table 1: Calculation of ROCE

(Source: MS Excel)

The table that has been projected above shows the method of obtaining the return on the capital that is employed. Here, the results show that ratio for 2020 was 15.686 and that for 2021 was 11.5384. A fall in the ratio in 2021 has been observed.

Net Profit Margin

Net Profit Margin

(Net Profit/Revenue)*100

Year

2020

2021

Net Profit

 £ 600.00

 £ 675.00

Revenue

 £ 4,800.00

 £ 6,000.00

Year

2020

2021

Net Profit Margin

12.5

11.25

Table 2: Calculation of “Net Profit Margin”

(Source: MS Excel)

The table that has been attached above illustrates the results of the “net profit margin” calculation. This ratio displays the profitability condition of the company. The results obtained are 12.5 for 2020 and 11.25 for 2021. Here, the results show a drop in the ratio of 2021 from 2020.

Current Ratio

Current Ratio

Current Assets/Current Liabilities

Year

2020

2021

Current Assets

 £ 1,515.00

 £ 2,070.00

Current Liabilities

 £ 645.00

 £ 2,220.00

Year

2020

2021

Current Ratio

2.348837209

0.932432432

Table 3: Calculation of “Current Ratio”

(Source: MS Excel)

The table displayed above shows the liquidity condition of the company. The outcome of the ratios states that the ratio was 2.348 in 2020 and 0.932 in 2021. It is evident that the company’s liquidity condition has declined. It is not in a good state.

Debtors Collection Period

Debtors Collection Period

(Trade Receivables/Average Daily Sales)

Year

2020

2021

Trade Receivables

 £ 900.00

 £ 1,200.00

Sales

 £ 4,800.00

 £ 6,000.00

Daily Sales

 £ 13.15

 £ 16.44

Year

2020

2021

Debtors Collection Period

68.4375

73

Table 4: Calculation of “Debtors Collection Period”

(Source: MS Excel)

The table that has been depicted above shows the results of the average collection period for debtors of the company. Here, the ratio for 2020 was 68.43, that is, 69 days, and for 2021 it was 73 days. Here, the outcomes are to be obtained considering the number of days. Thus, the condition in 2021 is not as good as 2020.

Creditors Collection Period

Creditors Collection Period

(Trade Payables/Average Daily Purchases)

Year

2020

2021

Trade Payables

 £ 570.00

 £ 2,100.00

Purchases

 £ 2,700.00

 £ 4,800.00

Daily Purchases

 £ 7.40

 £ 13.15

Year

2020

2021

Creditors Collection Period

77.05555556

159.6875

Table 5: Calculation of “Creditors Collection Period”

(Source: MS Excel)

The table that has been attached above shows the results of the ratio for 2020 and 2021. The calculation is to determine the average collection period for the creditors. Here, the ratio was 77.055, that is, 77 days for 2020, and 159.68, that is, 160 days for 2021 (Grundström, and Miedel, 2021). For this as well, the condition has deteriorated in 2021.

Comment

The ratio analysis technique of financial analysis has evidently disclosed Skanska Plc’s condition regarding its financial position. The ratios have revealed the company’s ability to provide a return on investments, the ability to pay the debts the company on time, the capability of the company to collect payments from its debtors, etc. Thus, the overall financial capabilities of the company have been assessed through financial analysis techniques (Lindeborg, and Vögeli, 2021). It is observed that the company’s ability to bring a return on investment has decreased by quite a margin. The profitability condition of the company has also declined. The liquidity condition of the company has worsened. The conversion of debtors into liquid cash has become difficult for the company and thus, the ability to make payments on time to the creditors has also gone down.

In such a situation of the company, an investor planning to invest more than one million should invest in the company. This is because the company is a reputed entity having business in a wide range. The company is considered to be one of the most financially stable construction companies in the world (Kartika, and Kappel, 2019). Thus, the price of the shares may be lower due to the decline in the overall financial position of the company. The investor can purchase more shares and thus, can achieve more return on investments.

Conclusion

Skanska Plc is a financially stable construction company. The company is been considered for investments purpose by investors. Thus, the ratio analysis technique of financial analysis has evidently provided some significant insights into the company’s financial position. The ratios have been obtained to provide a beneficial suggestion for the investor. The overall aim of the ratio analysis has been achieved. Thus, the project has been concluded successfully.

References

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