Financial Decision Making Assignment Sample

Exploring Financial Decision Making: Assignment Insights

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Introduction Of Financial Decision Making

The determination-making process is aided by computation procedures, especially in three areas: Investors can use it to designate a comparison for assessing and comparing the economic viability of organizations that administer instruments. It has a duty of care to its stockholders as a trading firm to offer excellent financial oversight and responsibility. The significance of the financial and accounting positions, obligations, and duties within SKANSA PLC will be extensively reviewed in this paper (skanska.com, 2023). A well-known engineering and construction firm with its global headquarters in the Swedish city of Stockholm is SKANSA PLC.

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This tool has been created for use by committees along with leadership teams to facilitate thoughtful discussion concerning the way the business's finance department improves. Additionally, it aids in identifying the most essential fields for potential growth to enhance the value and impact provided by finance in the organization. By monitoring the company's financial information, accounting plays an essential position in the firm. To make wise judgments, managers, creditors, and customers rely on reliable information from accounting records. It aids creditors in assessing a company's solvency, liquidity, and acceptability.

Importance of Accounting and Finance Functions

Keeping tabs on every financial activity

Accounting for finances is the act of compiling economic information using the organization's books of accounts and communicating it to the public in the form of yearly or quarterly accounts for their benefit. By monitoring the organization's financial information, auditors play an important part in the firm (Foltice and Langer, 2018). The earnings and losses account's disclosure of a decline in revenue or lower profit also indicates that the firm as a whole is performing poorly, while the precise reason for that performance is not known. Moreover, to make wise judgments, managers, lenders, and investors rely on reliable accounting records. The balance sheet, thereby granting an explanation outlining the mode of trade for business for a certain time, and the account used for profit and loss, that show trends in the way commercial relationships are traded for a particular length of time, are two significant documents produced by financial accounting. It keeps track of all financial activities, including money from revenues and wages coming in and going out.

The specific cause of inefficiency

To communicate knowledge with others, the particular occurrences and operations that were recorded and performed were given a tangible form. Expenses are not a characteristic in estimation techniques for deciding to price goods, benefits, manufacturing orders, and lines of products (Jurevi?ien? et al. 2020). The numerous organizations that are directly or indirectly associated with or connected to the company operation are meant to use this data on the economy, which was gathered from accounts payable and various reports. Accounting for financial affairs does not show the net earnings or losses of every segment, job, procedure, or contract; rather, it simply causes the net outcome of all of a company's actions as a whole. Given that it provides the net profit of all of what an organization does combine, it does not identify the precise reason for inefficiency or where the shortcoming is. For illustration, it might be contrasted with an outside temperature reading.

Reduce preventable waste

Financial accounting mostly provides historical information and expenditures that have already been committed. Due to the fact that financial data is summarised at the conclusion of the period of accountancy, it is not possible to use it to successfully prepare for the year to come and the one after that if one must be aware of present expenses on a daily basis. It cannot provide a thorough examination of the losses caused by faulty materials, interruptions of idle plants, and idle apparatus. In other words, there is no difference between unwarranted annihilation and preventable waste (Durai and Stella, 2019). It does not offer sufficient info for claiming to external residents including banks, the national government, insurance firms, and trade statuses. Salaries are not a factor in economic accounting for designating pricing for goods, services, manufacturing orders, and lines of commodities.

Upgrading financial information

When creating the company as a whole budget, budgets for divisions, and budgets for initiatives, the accounts payable department may consult with the business's accounting information. Accounting may be utilized in businesses for managing benefits for workers, paying incentive payments to workers, and paying payments using corporate cash. In order to organize and calculate the monetary announcement for the community, the analysis may need to create, sustain, and upgrade a digital accounting system (Harford et al. 2018). A well-known engineering and construction firm with its global headquarters in the Swedish city of Stockholm is SKANSA PLC. For both internal and outside parties, accounting entails preparing thorough weekly and annual financial reports with regard to the enterprise's assets, income, and expenditures. The company can do financial inspections of the business, spot fiscal mistakes, and put remedial measures in place.

Examples within the company

As an example, SKANSA PLC was complicit in the most serious accounting scam and its earnings were artificially exaggerated for several years. Keeping an accurate and contemporaneous record of operations and occurrences is a key responsibility of accounting since it serves as a foundation for future procedures and as evidence for checks and verifications. The chief executive of SKANSA PLC immediately tendered his resignation from the company after acknowledging inflating the company's revenue and profit numbers as well as falsifying business accounting (Grohmann, 2018). The scam was also blamed on the corporation's auditors, which were Price Waterhouse Coopers. It includes creating the trial embrace and ultimate accounts, providing the registry, writing primary and supplementary books of arrival, and more.

This comes about through both fiscal and other than financial objectives, which are directly related to the organization's plan and the company's long-term sustainability agenda and affect the end result of the changeable cash incentive (Hasibuan et al. 2018). The capacity of the Company to attract and retain talented employees is a requirement for the successful implementation of its company's strategy and for the defence of its long-term desires, including its continued functioning agenda. The following elements of the income may be included: a set cash wage, an unpredictable cash salary, pensions and health coverage, and additional benefits. The unpredictable cash compensation will work to further the corporation's objectives over time, including its environmental agenda, and the company's direction.

The overall objective is to guarantee that risk can be handled methodically, as effectively, and in keeping with the correct order of priority to help achieve corporate targets and objectives. The document was created in accordance with 53 billion of the Swedish Company Act, as well as the Swedish Corporate Governance Board's Regulations on Payment of the Board and Executive Management and on Incentive Programme. Skanska's Enterprise Risk Management Policy (ERMP), which has been adopted by the Board, provides the structure and roles for the management of risks across the whole organization. In order to estimate potential company development and growth, budgeting requires analyzing a business's current cash reserves, anticipated revenues, and business objectives.

Conclusion

Based on the above discussion it can be concluded that The Board has approved Skanska's Enterprise Risk Management Policy (ERMP), which defines the framework and descriptions of duties for risk management throughout the whole company. Accounting for financial transactions is the process of gathering economic data from the business's book of accounts and disseminating it to the wider community in the form of annual or quarter accounts for the benefit of the public. It also assists in determining the most important areas for future expansion in order to increase the contribution and effect that financially makes to the organization. Auditing plays a crucial role in the business by keeping track of the financial data. The firm Price Waterhouse Coopers, the company's inspectors, were also held accountable for the fraud. Accountancy for financial affairs essentially determines the net result of all of a company's operations in their entirety rather than showing the overall profits or losses of each section, job, method, or contract.

Task 2

a) Ratio Analysis

  1. Return on capital employed
Year Formula Amount Ratio Growth
2021 Profit Before Tax (Profit Before Taxes/ Capital Employed)*100 8188 56.86% -11.33%
Capital Employed 14400
2020 Profit Before Tax 9274 68.19%
Capital Employed 13600

Table 1: ROCE

(Source: Self-created)

ROCE of SKANSA PLC has been calculated for the financial years of 2020 and 2021 with the percentage of growth rate. The growth rate of ROCE for SKANSA PLC is almost 11.33% respectively in the financial year of 2020 and 2021.

  1. Net profit margin
Year Formula Amount Ratio Growth
2021 Net Profit (Net Profit/Sales)*100 600 94.49% -7.78%
Sales 635
2020 Net Profit 675 102.27%
Sales 660

Table 2: NP Margin

(Source: Self-created)

The growth of the NP Margin is computed as -7.78% respectively while the ratios are 94.49% and 102.27% in the recent two financial years of SKANSA PLC.

  1. Current ratio
Year Formula Amount Ratio Growth
2021 Current asset (Current Assets /Current Liabilities) 115791 14.35 -9.14
Current liability 8070
2020 Current asset 104979 23.49
Current liability 4470

Table 3: Current ratio

(Source: Self-created)

Find out the position of current assets and current liability, current ratio has been calculated for SKANSA PLC which is 14.35 and 23.49 respectively while its growth rate is -9.14% respectively.

  1. Average Receivable days
Year Formula Amount Ratio Growth
2021 Average Accounts receivable (Average Accounts receivable/Sales Revenue)*365 1200 0.20 0.01
Sales Revenue 6000
2020 Average Accounts receivable 900 0.19
Sales Revenue 4800

Table 4: Average receivable days

(Source: Self-created)

The company performed design-build technique services for this US$172 million project, which included two new Air Train publications. Costs are not an aspect of estimating procedures used to determine how much to charge for goods, benefits, production orders, and lines of products. The ARD for SKANSA PLC has been computed for the two years while its growth rate is calculated as 0.01% respectively while the ratios are approximately 0.20 and 0.19.

  1. Average Payable days
Year Formula Amount Ratio Growth
2021 Average Accounts payable (Average Accounts payable/COGS)*365 2100 0.22 0.14
COGS 9600
2020 Average Accounts payable 570 0.08
COGS 7350

Table 5: Average payable days

(Source: Self-created)

The APS also calculated for SKANSA PLC while the ratios are 0.22 and 0.8 respectively while the growth rate is 0.14 respectively that considered after computed ratio analysis of the company. For submitting claims to outdoor residents, such as banks, the government of the United States, insurance companies, and trade classifications, it does not provide enough information.

b) Financial performance of the company

The financial statements were created in line with IFRS, covering a declaration of financial performance and cash flow. As per Skanska's dividend arrangement, stockholders get from forty to seventy percent of the company's annual revenue as payment of dividends as long as the business's broad terms economic health is stable and favourable. SFS's centralized banking operations and capabilities increase scale efficiencies and risk administration capabilities. At year's end, the total value of the central debt portfolio was SEK 3.3 billion. The company is blessed with enough cash resources thanks to unspent financing at SEK 6.6 billion in amount and accessible liquidity worth SEK 10.9 trillion. All of the remaining corporate bonds, worth SEK 0.5 billion, were ecologically friendly. Skanska's finance demands are supported by a revolving loan facility of EUR 600 M due in 2024. In 2018, several kinds of efforts were put forward to increase competitiveness and update the structure of governance.

In 2021, refined the plan and towards the conclusion of the year, we introduced a new strategic direction. With revenue from operations and free working capital from the construction business stream, as well as a chance to get outside investment, the company is able to provide funding for its own project expansion efforts and, as a result, create an excellent return on its capital invested. SFO demands to increase and improve ground connectivity among the airport's busy sections in order to provide greater convenience for its millions of travellers. As a result of this cooperation, there is a sizable photovoltaic solar array with 2,700 PV panels that generate about 40% of the annual electricity needed for the Air Train stations on-site, new moisture-efficient fittings and equipment that decrease water use by about 40% and reuse and recycling of more than 75% of the demolition and building debris.

For this US$172 million project, which comprised two brand-new Air Train media outlets, the business supplied the design-build method services. Working closely with SFO, gave green building and design principles top priority throughout the whole development. Together, these actions stabilized the building business and strengthened both the organizational structure of an organization and the health of the balance sheet (Smolka et al. 2018). The technique of acquiring fiscal data from a company's book of accounting and publishing it to the general public in the form of yearly or quarterly statements is known as accounting for monetary transactions. The division of accounts payable may engage with the firm's accounting data while developing spending plans for the entire company, budgeting for sections, and budgets for programs. Corporations can use bookkeeping to manage benefits for workers, give employees incentive compensation, and make payments with company funds. In other words, there is no distinction between waste that may be avoided and unjustified destruction.

On the other side, bookkeeping is in charge of prompt and correct reporting of financial information, which involves producing statements of finances and keeping track of the consolidated ledger and accounting files. Along with tax and accounting regulations, taking into account is crucial for regulation and legal compliance (Hastings and Mitchell, 2020). The performance of SKANSA PLC as a whole depends on the accounting and financial operations of the business in question. Establishing a budget prediction, and economic evaluation are all part of the finance operation's responsibilities for managing an organization's money. This activity makes certain that the business has the resources needed to finance operations, expansion, and investments that are to come. The subsequent purchase of Atkins, a design and engineering company headquartered in the UK, serves as an illustration of the import of accounting and budgeting duties within SKANSA PLC. Along with tax and accounting regulations, accounting is crucial for regulatory and legal compliance.

The performance of SKANSA PLC as a whole depends on how accounting and financial operations of the company. It had to be done to do a thorough statistical examination of the transaction, comprising due diligence, to make sure that the cost of purchasing was fair and that the purchase of assets would improve the bottom line (Gomes et al. 2021). The purchase required money, including both loan and financing through equity, which the finance unit in order had to execute. The finance and accounting groups of SKANSA PLC are crucial to the company's development and growth as well as its capacity to handle the challenges of the worldwide business climate, as shown by the instances mentioned above. In conclusion, SKANSA PLC's accounting and financial operations are crucial to the business's overall performance. In controlling the organization's finances, guaranteeing precise and on-time reports on finances, and adhering to regulatory requirements, these activities are essential.

References

  • Durai, T. and Stella, G., 2019. Digital finance and its impact on financial inclusion. Journal of Emerging Technologies and Innovative Research, 6(1), pp.122-127.
  • Foltice, B. and Langer, T., 2018. Exponential growth bias matters: Evidence and implications for financial decision making of college students in the USA. Journal of Behavioral and Experimental Finance, 19, pp.56-63.
  • Gomes, F., Haliassos, M. and Ramadorai, T., 2021. Household finance. Journal of Economic Literature, 59(3), pp.919-1000.
  • Gomez-Mejia, L.R., Patel, P.C. and Zellweger, T.M., 2018. In the horns of the dilemma: Socioemotional wealth, financial wealth, and acquisitions in family firms. Journal of management, 44(4), pp.1369-1397.
  • Grohmann, A., 2018. Financial literacy and financial behavior: Evidence from the emerging Asian middle class. Pacific-Basin Finance Journal, 48, pp.129-143.
  • Harford, J., Kecskés, A. and Mansi, S., 2018. Do long-term investors improve corporate decision making?. Journal of Corporate Finance, 50, pp.424-452.
  • Hasibuan, B.K., Lubis, Y.M. and HR, W.A., 2018, January. Financial literacy and financial behavior as a measure of financial satisfaction. In 1st Economics and Business International Conference 2017 (EBIC 2017) (pp. 503-507). Atlantis Press.
  • Hastings, J. and Mitchell, O.S., 2020. How financial literacy and impatience shape retirement wealth and investment behaviors. Journal of Pension Economics & Finance, 19(1), pp.1-20.
  • Jurevi?ien?, D., Skvarciany, V. and Lagunavi?i?t?, A., 2020. Factors influencing individuals' decision-making and causing financial crisis. Journal of Business Economics and Management, 21, pp.1149-1164.
  • Roychowdhury, S., Shroff, N. and Verdi, R.S., 2019. The effects of financial reporting and disclosure on corporate investment: A review. Journal of Accounting and Economics, 68(2-3), p.101246.
  • Smolka, K.M., Verheul, I., Burmeister–Lamp, K. and Heugens, P.P., 2018. Get it together! Synergistic effects of causal and effectual decision–making logic on venture performance. Entrepreneurship

Website

  • skanska.com, 2023, Annual report. Available at: https://www.skanska.com/ [Accessed on: 01st May, 2023]
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