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Financial Decision Making Assignment sample

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Financial Decision Making Assignment sample

Task 1

Introduction

This report is pointed toward examining the significance of Accounting and Finance capacities, obligations and functions inside SKANSKA PLC. In order to have a superior comprehension of the assessment, first and front generally the structure of Financial Statements of an organization will be uncovered and the various key drivers that are related with it will be referenced. The manner by which organizations, for example, Skanska Plc. utilizes monetary data to plan, control and settle on choices will likewise be brought up. In this report, a detailed discussion of the roles and obligations of management accounting along with financial functions in regards to Skanska Plc is stated. Furthermore, the global development of the organization through various methods and techniques are also discussed.

The various elements of financial statements

The annual financial statements are consists of four parts namely, statement of shareholder's equity, income statements, cash flow statements and balance sheet.

Income statement: Income statement consists of net revenues earned by the company which is comparable to distinct expenses and revenues. Furthermore, the revenue includes earnings from the operating activities of the organization along with the non-operating activities such as rent earned from properties, earnings from interest. Costs incorporate general expenses, Cost of Goods Sold and administrative expenses, deterioration and amortization just as regular utility costs, for instance, transport, power, compensation, lease and others (Warzocha, 2018).

Cash flow statements: This financial statement is prepared to measure the cash and cash equivalents before entering and dissolving a company. Furthermore, it helps the managers of the organization in decision making through determining the cash position of the business (Soboleva et al. 2018). In addition to that, it depicts the accumulation of funds and measures the operating expenses based on which further decisions are made by the authorities.Moreover, it tends to be perceived with respect to how an organization is having the option to create money, store speculations just as pay off its liabilities and costs. Income is comprised of investing exercises, operating exercises and financing exercises.

Balance sheet: It depicts the financial statements constituting the assets, shareholder's equity and liabilities of the organization. Furthermore, it summarizes the cash flow and income statement to evaluate the annual financial statements of the organization (Kumhof and Noone, 2018). It supports the investors, stakeholders and others to have a transparent acknowledgement about the financial of the organization.

Shareholder's equity fund: Shareholder equity is an element of the balance sheet which is created to determine the cash invested by shareholders as the only assets and it is further balanced through the share capital in addition to retained earnings. Moreover, in shareholder's equity consists of treasury stock, outstanding shares, and retained earnings and outstanding paid in capital (Cioca, 2020). It also determines whether organization such as Skanska Plc has enough assets to run its business activities or not.

Roles and obligations of management accounting in planning, controlling, and decision making

The bookkeeping procedures of management help the authority body of an association to detect the response and expand overall revenues and furthermore cut down overhead expenses. In the context of Skanska Plc, it is the primary objective for the association to have an effective administration accounting strategy that will help in expanding its productivity. This segment will examine the impact of the procedures led by management accounting on controlling decision making and planning as for Skanska Plc:

Controlling: Plans can never emerge in the event that they are not given appropriate bearings while they are not being executed. In a reasonable circumstance, different possibilities can emerge that may require the requirement for additional mediation with respect to the administrative body. The administration should rush to survey the appraisals and issue authorisations for a specific strategy to address a crisis circumstance. For instance, it very well may be said that a circumstance may emerge in Skanska where a specific venture may require the portion of more labour. The administration structure of the association will be arranged in advance for such circumstances in which fast correspondence among different branches of the association can be guaranteed. Subsequently, a progressing plan must be fruitful on the off chance that it is exposed to legitimate controlling measures concerning commonsense issues.

Decision making: It would be perilous for an association to exclusively depend on instinct while making choices. Great choices must be the result of a thorough exploration of applicable data. Concerning a model, if there should be an occurrence of the board bookkeeping the different divisions of the administration will need to at the same time gather data and assess it to detail the most ideal activity for the association for the particular exigency.

Planning: Planning supports the authorities to make a proper decision within a framework which further helps in delivering the services smoothly. It is the obligation of the CFO to look after the reports regarding the analysing, accounting and monitoring of the financial statements and further report it to the board members of the organization (Skanska Group, 2017). The arrangement that will at that point appear would need to be actualized in all degrees of the association. It will require the cooperation of the Human Resources work with the goal that the part of the representatives and their individual groups can be doled out to add to the satisfaction of the arrangement. Accordingly, for instance, it tends to be expressed that while contriving the arrangement the CFO of Skanska will need to talk with the head of HR to affirm if a specific game-plan is practical.

The essential roles and responsibilities of financial and accounting functions in the context of SKANSKA Plc

As per the above analysis, it can be determined that Accounting and Finance have various types of roles and responsibilities which it needs to perform in order to run the business regularly, smoothly and ethically. Furthermore, Skanska Plc. Demonstrates a well-maintained accounting system which helps the administration to perform the functions effectively within the framework, for example, streets, emergency clinics, and air terminals (Group.skanska.com, 2019). It intends to take up new possible undertakings in the business sectors where it has been as of now working. Since the everyday tasks of the organization length around an alternate sort of action identified with development and improvement around the globe, it causes the bearing of colossal obligations and productive administration inside and outside the organization. For instance, this never really uses its assets, deal with its labour force, deal with the partners of the organization, following morals, rules, and guidelines just as keep up legitimate monetary records of its activities, income, misfortunes, benefits, resources, and liabilities (Skanska, 2020). The organization has certain obligations towards the networks for creating, financing, assembling, working, and keeping up open offices, and thusly, it has a very much organized administration body with all around characterized jobs who utilize fiscal summaries as an apparatus to direct, work and manage different capabilities depicting both the internal and external forces. The Board of Directors of the organization are considered as the highest administrative and leader which oversees the way where management accounting is done in the associations. The Board comprises of different advisory groups, for example, Compensation Committee, the Audit Committee, and Project Review Committee. The role of the auditors is to monitor the financial statement by analysing the annual reports and further questioning for any type of unauthorised practice incurred in the business.Furthermore, they help the company to measure the success rate and profit margin along with the future decision making for the enhancement of the business proceedings (Skanska, 2020). They additionally direct inward inspecting, hazard the executives, survey of reports, and suppositions set by the outside reviewers of the associations. The board further sees and guarantees consistency with the principles of review turn just as the working of the outside inspectors in regards to their freedom and fair-mindedness while checking on the books of records of the organization. The Compensation Committee is basically connected with giving arrangements according to the choices that are taken by the board for the growth and stable position of the business by the President or CEO just as the other leaders of various groups (Group.skanska.com, 2019). This board additionally takes choices with respect to the compensation and pay rates that are to be offered to the previously mentioned individuals. To do such, the board needs to utilize the budget reports to choose the compensation structure that will be advertised. All the choices identified with the planning of every one of the tasks just as inquisitive into the benefits that each undertaking will make are chosen by this advisory group by examining intently the Financial Reports of the organization.

Tasks 2

Accounting ratio's is been proposed to analyse the financial report of the organisation in the form of percentage. Thus, the main use of this accounting ratio is been accomplished to analyse the profitability and efficiency of the organisation. Thus, in this section the accounting ratio of SKANSKA plc is been calculated to analyse the annual result of the organisation and boost the emerging points. Thus, it provides an in-depth knowledge regarding the calculation of financial analysis form the income statement of the organisation and positioning the performance of the organisation accordingly.

Calculating ratio analysis of SKANSA plc

Return on capital employed

The concept of return from capital employed is been analysed from the accounting ratio. Therefore, this ratio analysis is been used to analysed the return of income from capital invested by the organisation to process the organisational activities(AKINTOLA and COLE, 2020). Thus, ROCE is been used to figure out the profitability and efficiency margin of the organisation to determine the return form the invested capital. It is very much essential determine the performance of the organisation in the global and local context.

Formula: EBIT (Earnings before interest and tax)/Capital employed

Particulars

Amounts in pounds (2019)

Amounts in pounds (2018)

EBIT

675

600

Divided by capital employed

-150

870

ROCE

-4.5

0.68

Table1: Calculation of ROCE

(Source: Self-created)

2018

EBIT= 600 pounds

Capital employed= Current assets- current liabilities= 1515-645=870 pounds

2019

EBIT= 675

Capital employed= Current assets- Current liabilities= 2070-2220= -150

Analysis: The above calculation is been extracted from the income statement of SKANSKA plc to figure out the ROCE of the organisation. Thus, the result showcases a decreases in ROCE for the year 2019 as the overall operation of the organisation have faced huge loses which has increase the liability segments of the organisation. The performance in the year 2018 is much better and profitable than 2019. Thusinvestment of 1 million pounds will only result in decrease the liability structure of the organisation in the year 2019 to accumulate a positive balance for the organisation.

Net profit margin ratio

The net profit ratio is been calculate to analyse the profit margin of the organisation from the revenue earned from the business operation(Nuryani and Sunarsi, 2020). Thus it is very much important to analyse the net profit margin to provide a comparative knowledge to the management of the organisation in earning profit from the operative area of the organisation.

Formula:Net income/Revenue*100

Particulars

Amounts in pounds (2019)

Amounts in pounds (2018)

Net income

675

600

Divided by Revenue

6000

4800

Multiplied by 100

100

100

Net profit margin

11.25%

12.5%

Table 2: Calculation of net profit margin

(Source: Self-created)

Analysis: The above calculation is been accumulated to the income statement of the organisation which is to be measured in pounds. Therefore, the net profit margin of 2019 has been decreased to 11.25% whereas the net profit margin of 2018 has been figured out to be excess from 2019. Therefore, it is been analysed that the organisation has earned a less net profit margin in 2019 than 2018 which has decreased the overall operation of the organisation. Thus, the investment of 1 million pounds will only be used to fix the existing bad debts and liabilities of the organisation to continue the business operation.

Current ratio

Current ratio is been analysed to calculate the liquidity capacity of the organisation in performing the organisational activity(Nariswari and Nugraha, 2020). Thus, the current ratio analysis is very much essential to figure out the liquidity capacity of the organisation and accelerates the potential growth in different effective area. The current ratio analysis plays a vital role in determining the capacity of the organisation for performing the organisational activity.

Formula: Current ratio/Current liabilities

Particulars

Amount in pounds (2019)

Amount in pounds (2018)

Current assets

1515

2070

Divided by Current liabilities

645

2220

Current ratio

2.34

0.92

Table 3: Calculation of the current ratio

(Source: Self-created)

Analysis:The overall information of current assets and current liabilities is been accumulated from the balance statement of the respective organisation. The liquidity ratio of the organisation in 2018 is 2.34 which means the company is able to recover all the liquid and short-term debts of the organisation. Thus, the organisation has decreased its business operation and gained huge losses in 2019 which has a impact on the liquidity ratio of the organisation. The investment amount of 1 million pounds will provide a opportunity to the organisation to boost the existing operation and increase the amount of liquidity.

Debtors collection period

The debtor's collection period refers to the time observed of accessed for collecting the trade debts of the organisation(AMARAMIRO, 2020). Therefore, this debt is very much essential to analyse the time period of collecting all the funds from the debtors to figure out the organisational techniques and performance towards collection. Thus, it also plays a crucial role in determining the period of collecting funds and used them for further processing.

Formula: Debtors/365

Particulars

Amounts in pounds (2019)

Amounts in pounds (2018)

Trade receivables

1200

900

Divided by Period

365

365

Debtors collection period

2.4

3.2

Table 4: Calculation of debtor's collection period

(Source: Self-created)

Analysis: It is been analysed from the calculation that SKANSKA plc is been selling goods to the debtors for a lower credit period than the average market period. Still the overall operation of the organisation has demolished and the organisation has faced different types of difficulties in executing proper plan. However, the investment of 1 million pounds for will help in funding the organisation in the effective area to promote the organisational activity and achieve the growth segments.

Creditors collection period

The method and motive of calculating creditors collection period is same as the debtor's collection period(Nainggolan, 2020). Therefore, in this calculation only the value of trade payable is been taken into account instead of the trade receivables to figure out the value of funds required for paying off the creditors. Thus, it is very much essential to track the required timely paying amount and the credit rate provided by the supplier.

Formula: Trade payable/365 days

Particulars

Amount in pounds (2019)

Amounts in pounds (2018)

Trade payables

2100

570

Time period

365

365

Creditors collection period

5.7

1.5

Table 5: Calculation of creditors collection period

(Source: Self-created)

Analysis: It is been analysed from the above calculation that the respective organisation operates all its business activities on the basis of credit funding. Thus it purchase all the goods on the basis of credit which increases the due capacity of the organisation and ultimately affects the business activities. Therefore it is been showcased that the operational acti9vity of the organisation has been mostly affected due to the credit lending. However, the investment of 1 million pound will only be seen in reducing the credit amounts for continuing the business operation.

Analysing the performance of the organisation according to the result of the accounting ratio

The performance of SKANSKA plc has been reduced due to the ineffective irregularities of appropriate profitability and efficiency functioning. Thus, the accumulated result from the ratio analysis has been resulted that the organisation has faced huge loss in 2019 compared to 2018 which has demolished the overall business operation. Therefore the all the calculation has been accomplished with the help of the exacted data of the profit and loss statement and balance sheet of the organisation. Thus, the organisation also faces different types of liquidity problems in p-performing the organisation activities as the current ratio is diminishing in the year 2019. The decrease in organisational accounting ratio calculation will affect the overall business activities of the company in performing the organisational activity. The investment of 1 million pounds in the operational activity of the organisation will only result in zero return in terms of capital invested. Therefore, the organisation can gain the opportunity by convincing the client to investment in the required area to mitigate the general issues and accumulate the operational activity of the organisation. Thus, the performance of the organisation in different required area will result in achieving the organisational goals in comfortable manner and removable of all the obstacle of the organisation.

Conclusion

It is been concluded from the above assignment that SKANSKA plc has to boost their existing operation of the business to promote the business activities. Thus, the structure of the organisation defines the working culture and the major roles played by the major bodies of the company in performing the organisational activities. Thus, the organisation promotes different valuable areas by achieving the short terms goals. SKANSHA plc has to promote the business operation in different effective area to achieving the goals of the organisation and removing the obstacles to promote the growth of the organisation. The given case study contributes towards an understanding of how business might organise its functions in its day to day activities. Thus the overall performance of the organisation can be accelerated after reducing the existing debts of the company and performing the organisational activities in a systematic and organised manner.

Reference list

AKINTOLA, A.F. and COLE, A.A. 2020. Impact of Combined Leverage on Capital Employed Of Selected Listed Manufacturing Firms in Nigeria.

AMARAMIRO, F.N. 2020, CORPORATE LIQUIDITY MANAGEMENT AND ITS IMPACT ON PROFITABILITY.

Cioca, I.C., 2020. The Importance Of Financial Statements In The Decision-Making Process. Annales Universitatis Apulensis Series Oeconomica1(22), pp.73-83.

Group.skanska.com, 2019. Annual and Sustainability Report 2019. [online] Group.skanska.com. Available at: <https://group.skanska.com/496a54/siteassets/investors/reports-publications/annual-reports/2019/annual-and-sustainability-report-2019.pdf> [Accessed 6 December 2020]

Kumhof, M. and Noone, C., 2018. Central bank digital currencies-design principles and balance sheet implications. https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2018/central-bank-digital-currencies-design-principles-and-balance-sheet-implications.pdf

Nainggolan, B., 2020. BALANCED LEGAL PROTECTION, DEBTORS, CREDITORS, AND INTERESTED PARTIES IN BANKRUPTCY. PalArch's Journal of Archaeology of Egypt/Egyptology17(4), pp.1799-1808.

Nariswari, T.N. and Nugraha, N.M., 2020. Profit Growth: Impact of Net Profit Margin, Gross Profit Margin and Total Assests Turnover. International Journal of Finance & Banking Studies (2147-4486)9(4), pp.87-96.

Nuryani, Y. and Sunarsi, D., 2020. The Effect of Current Ratio and Debt to Equity Ratio on Deviding Growth. JASa (JurnalAkuntansi, Audit dan SistemInformasiAkuntansi)4(2), pp.304-312.

Skanska Group, 2017. Annual Report Of Skanska 2017. [online] Worldreginfo.com. Available at: <http://www.worldreginfo.com/wdoc.aspx?file=Skanska/2/C2D5A20B-4F5F-4F0F-9623-AF5D7AEF43E4/392067_rfa_2017_en_se0000113250.pdf> [Accessed 6 December 2020].

Skanska, 2020. Our History | Skanska - Global Corporate Website. [online] Skanska - global corporate website. Available at: <https://group.skanska.com/about-us/our-history/> [Accessed 6 December 2020].

Soboleva, Y.P., Matveev, V.V., Ilminskaya, S.A., Efimenko, I.S., Rezvyakova, I.V. and Mazur, L.V., 2018. Monitoring of businesses operations with cash flow analysis. International Journal of Civil Engineering and Technology9(11), p.2034.

Warzocha, G., 2018. Annual financial statements, the importance of other comprehensive income. Financial Sciences. Nauki o Finansach23(2), pp.90-101.

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