No AI Generated Content
Introduction: Financial Decision Making
Get Free Samples Written by our Top-Notch Subject Expert Writers known for providing the Best Assignment Help Services in Australia
Financial decision-making is a key process that helps to make realistic and suitable decisions for a business. The study is going to figure out the financial performing capacity of Skansa PLC, which is a construction company in the UK market. The company has critically aimed to expand its operating market to several countries in the Europe zone. The study will critically measure the key financial position of this business for the last two years which can help to interpret the future potential of this business in terms of expanding the market. The analysis of financial ratios such as ROCE, net profit margin, current ratio, receivable days, and table turnovers can help to measure whether the company can create profits or losses.
Task 1: Critical evaluation of the managerial portion of SKANSKA plc
Discussion regarding the importance of accounting and finance functionalities
Accounting and financing is an important part of controlling and maintaining the business base for an organization. As it is going to provide a way of creating a better business and expanding it for the future. Accounting Finance functionalities are going to provide the organization with extensive potential growth. It has provided a way to maintain the financial record of the organization systematically. Additionally, it has been provided a way to track and monitor all the historical data of the organization along with the current up to dated business data.
Financial decision-making:
Accounting and financial functions are being provided the data related to the future business situation by using various financial tools. However, these accounting and financing functionalities are providing the details to take a profitable investment decision. In the financial decision-making aspect, it is important to take all the business transactions and clarify the internal situation of the organization(Gotthardtet al. 2020). Hence, financial decision-making has been guided by segregating the accounting and financing factors.
Record tracking
In accounting and financing involvement organizations are being required to track down all the business data. This functionality has been provided by the organization referring to the current year along with the previous year. It has also helped the company to create a comparison between the previous year's and the present year's financial proportion acquisition.
Financial strategy
Accounting and financing proportion provides suitable financial strategies after analyzing the financial statements. Financial strategies are going to help the company to mitigate all the previous years’ issues in the financialstatementevaluation aspects.
However, in terms of SKANSKA plc, accounting, and financing functionalities are important to improvise the current financial gap. However, this accounting and financing proportion is going to help the company in reducing the financial risk and increase the scope of earning proportion in future aspects. It has been also going to provide SKANSKA plc with tracking down all the accounting and financing details (Högerleet al. 2020). Moreover, accounting and financing functionalities proportion has helped SKANSKA plc for maintaining the significant link between the revenue, expenses, and other income from sources.
Discuss duties and roles of accounting and finance
Duties and roles of accounting and Finance of an organization have been guided through forecast the financing position of the organization in respect of the current situation. It has been mostly related to highlighting financial conditions in respect of the current year and providing a measurement of the change notice from the previous year to the current year.
Forecasting
Financial data forecasting is going to help SKANSKA plc for analyzing the current financial stability. The duty and role of fainting and accounting terminology are finding out the financial gap of the organization.
Measurement
Financial data measurement is the most important part of the maintenance of the accounting proportion of SKANSKA plc. The duty and role of accounting and finance determination have been segregating each of the accounting transactions for the organizataion's available business data measurement aspects.
Sources of finance:
Financial sources can be referred to as a key process that helps a business to conduct its overall required tasks and other execution of business activities. It can be gathered from “Construction Loans” that are helpful aspects for providing the required level of finances in the form of "long-term loans and “Short term loans” and so on factors. These aspects are crucial for the business in terms of determining the short-term operating activities and achieving the long-term goals in the business execution process (Nikolov et al. 2021). However, it can be measured that the financial resources can also help the construction business in terms of serving finances for equipment working capital loans, and other factors.
It can also be utilized for purchasing man-made materials such as concrete, Steel, bricks, and other aspects that are crucial for executing construction business operations. Additionally, these factors can be utilized in SKANSA PLC, which can help to execute its overall construction activities in the respective markets. Other than that, it can also provide beneficial aspects in terms of reducing the efforts of the business workforce and gaining a better return from the operating activities (Khan, 2022). Hence, these aspects can be effectively determined as a key factor for the oral business market and can create better growth in a shorter time.
TASK 2:
A. Analysis of ratio margins:
|
The ratio of SKANSA PLC |
(000, pounds) |
(000, pounds) |
|
ROCE |
2020 |
2021 |
|
operating profit |
1,350 |
1,650 |
|
Capital employed |
3,825.0 |
5,850.0 |
|
ROCE = |
19.61 |
16.67 |
|
Net profit margin |
600 |
675 |
|
Revenue |
4,800.00 |
6,000 |
|
NP ratio = Net profit / Revenue |
12.50% |
11.25% |
|
CA |
1,515.00 |
2,070.00 |
|
CL |
645 |
2,220 |
|
Current ratio = CA/ CL |
2.35 |
0.93 |
|
Accounts receivables |
900 |
1200 |
|
Revenue |
4,800.00 |
6,000.00 |
|
Trade receivable Days = receivables / sales*365 |
68 |
73.00 |
|
Payable |
570 |
2100 |
|
COGS |
3450 |
4350 |
|
Trade payables turnover ratio = payable / COGS *365 |
60 |
176 |
Table 1: Analysis of the SKANSA PLC
(Source: Created by the learner)
Return on capital employed
The ROCE can critically determine the business product activity and its efficiency range in terms of investing capital and gaining a huge return. It can be effectively helpful for enhancing the business's productivity and determining suitable business execution for the business future year (Olarewaju and Msomi, 2021). Therefore, this business has gained a ROCE of 19.61% for the business year 2020, which decreased in the next year 2021 to 16.67%. This reduction of the ratio margin critically signifies that the overall productivity of the company has decreased for this factor and it has also reduced its capital employed and its ROCE margin.
Net profit margin
The net profit margin effectively signifies the net profit after deducting the taxes and other payables. The company has effectively determined 12.5% for the financial year 2020 which has been decreased to 11.25% in 2021. Relying on this factor, the business has critically indicated a reduction in net profit margin for this business in the financial year 2021 (Aminah et al. 2021). It has also highlighted that the business has decreased its productive capacity in terms of measuring the net profit margin of the operating activities.
Current ratio
The current ratio signifies the current asset valuation and liability margins of a business. It can also indicate a better or a constantly decreasing nature of a business in its current operating position. Therefore, Skansa PLC has effectively highlighted the 2.35% current ratio in the business year 2020, which has immensely decreased to 0.93% in the business year 2021. This identification of the current ratio margin has indicated a reduction of the current trading position of this business in the current year 2021. Other than that, the company can effectively implement new strategies for developing the current position of the business in a short time (Batubara and Ramadani, 2021). The company can effectively be targeted to develop the current asset margin by trading with new businesses across the global market and influencing the companies to engage in Skansa PLC.
This evaluation can create a huge change in the overall business by restructuring the asset margins and developing its productive nature.
Average Receivable days/ Debtors collection period
The ratio margin measured trade receivable days 68 days in 2020 which has developed to 73 days in the next year 2021. This change has also signified that the business has increased its receivable days from 900 to 1200 in the last year. It has also measured that the accounting receivable days have been increased in the current year which can affect the entire company in terms of executing its further business trades.
Based on this, the effective measurements have generated A reduction of the receivable capacity of this business in the current market in 2021. The internal investors and operators can face issues in terms of investing business finances and having losses potential (Listiadi, 2022). It can also create a conflict amongst these operators and financial investors due to a huge potential for loss in the next operating year.
Average Payable days/ Creditors collection period
The payable days can be referred to as measuring companies paying capacity or capability to repay the payable values from the market. The business has critically determined 60 days for the business year 2020 which has immensely evolved to 176 days in 2021. This measurement has also determined that the company has reduced its payable capacity which has affected its capital strength in the current market (Hussain et al. 2021). Additionally, this business execution process has also created issues for the traders and the investors in terms of having a less return.
These analyses have effectively helped to identify the underlying issues and their potential development which can positively or negatively influence its business in future markets. However, SKANSA PLC has generated that it has dealt with issues in the current market. It has also measured that the current asset margin, liabilities, paying capacity, and other essential factors have been decreased in the current business year 2021 which can affect the company's capital structure and other aspects. Concerning this factor, the overall measurement of the business financial ratios critically implemented its underlying reasons for having a huge change in the last year (Rey-Ares et al. 2021). However, the ratio analysis has effectively mentioned that the current asset evolutions have been increased along with the liability margins.
This aspect has led to generate a reduction of current performing capacity due to having a greater liability margin in comparison with asset valuation. On the other hand, differential payable days have critically improved from 570 to 2100 which has indicated that the receivable value of the companies has been increased. This factor has resulted in a reduction of capital and financial strength of this business in the last year 2021.
Additionally, the critical aspects of this business have been decreased and it has also negatively impacted the entire performing capacity of the business (Sensini and Vazquez, 2021). This construction company gained a stable valuation in the business year 2020 which has decreased in the current year 2021 by reducing its capital aspects and strength and increasing its payable valuations.
B. Analysis of the company’s performance
Skansa Plc’s financial interpretation and ratio analysis has effectively highlighted the financial ratio margins which have also indicated its productivity and its performing nature for the business in the last 2 years. It could potentially be really useful in terms of improving business productivity and deciding the right company performance for the remainder of the year. As an outcome, this company produced a ROCE of 19.61% in fiscal year 2020, which reduced to 16.67% in fiscal year 2021. On the other hand, the evaluation of the net profitable scenario has generated A reduction in its performing capacity.
This factor generated 12.5% in 2020 which has decreased to 11.25% in 2021. The reduction of the performing capacity has critically indicated that the performing aspects have been reduced in the current market due to issues in trades or the expenditures of the business have been increased. On the other hand, these aspects have also evaluated the reduction of its revenue margin for the upcoming business years (Folger Laronde et al. 2022). It also indicated that the organization's productive capacity has dropped when figuring out the net profit margin of its operational activities. These characteristics have also been analyzed in the decrease of its revenue margin for the following company years.
These valuations have also indicated that the productivity of the business have been decreased in the current year which can also create issues in terms of executing the productivity in the future market. The construction company has also dealt with the issues after the covid-19 period. The restrictions of the local government have also created a major fall in its productivity and executions (Kyere and Ausloos, 2022). The Covid-19 after-effects have also affected this business in several ways which have also decreased its ratio margin in the current market. The business has also created a reduction of its receivable days which has also created issues for gaining their values that are borrowed by other companies or from debtors. These factors have affected the company's productivity and performance capacity.
It has also indicated that the construction company can face financial losses or it may create a huge fluctuation in the business revenue margin for the future market. Therefore, these evaluations have also affected negatively the entire business and created a critical overview for determining a better performing capacity of the business in the next few years. In addition, the business has reduced its productivity which also indicates that expansion of the business can lead to generating issues and financial losses. The operators have aimed to expand their market and the current position of the business indicates instability of the business.
Interpretation of the results:
It has also been determined that the accounting receivable days have increased in the past financial year. It could potentially have a consequence on the entire organization's capacity for carrying out subsequent business transactions. Based on this, the successful strategies have culminated in a reduction of this business's receivable capacity in the current market in the year 2021. The Internal traders along with operators might experience obstacles concerning comes to managing money from the company while potentially experiencing losses (Nasrallah and El Khoury, 2022). It could additionally lead to interaction between these operators and financial investors due to their considerable possibility for loss in the next fiscal year. This evaluation has created a bitter productive nature of the business which has led to generating issues in the current operating areas in the business market.
Conclusion
The financial decision-making process of a business can also be determined by having a stable financial position in the market. The study has critically focused on determining the financial performance measurement of SKANSA PLC. It has also created a financial performance measurement for the periods of 2020 and 2021. Concerning the key aspects, it has determined a reduction in its financial performance in the last year 2021. It has also generated that the productivity of the business has immensely decreased in the last year 2021 which can create issues and further decrease in its financial position. Hence, this construction company can face issues in future execution.
References
- Aminah, L.S., 2021. The Effect Of Current Ratio, Net Profit Margin, And Return On Assets On Stock Return:(Study On Food And Beverages Companies Listed On The Indonesia Stock Exchange 2015-2017 Period). Journal of Management, Accounting, General Finance and International Economic Issues (Marginal), 1(1), pp.1-9.
- Folger Laronde, Z., Pashang, S., Feor, L. and ElAlfy, A., 2022. ESG ratings and financial performance of exchange-traded funds during the COVID-19 pandemic. Journal of Sustainable Finance & Investment, 12(2), pp.490-496.
- Hussain, S., Nguyen, V.C., Nguyen, Q.M., Nguyen, H.T. and Nguyen, T.T., 2021. Macroeconomic factors, working capital management, and firm performance—A static and dynamic panel analysis. Humanities and Social Sciences Communications, 8(1), pp.1-14.
- Khan, S.U., 2022. Financing constraints and firm-level responses to the COVID-19 pandemic: International evidence. Research in international business and finance, 59, p.101545.
- Kyere, M. and Ausloos, M., 2021. Corporate governance and firms financial performance in the United Kingdom. International Journal of Finance & Economics, 26(2), pp.1871-1885.
- Listiadi, A., 2022. The Acceptance Effectiveness Through Accounts Receivable Billing Period Average. IJEBD (International Journal of Entrepreneurship and Business Development), 5(4), pp.699-707.
- Nasrallah, N. and El Khoury, R., 2022. Is corporate governance a good predictor of SMEs financial performance? Evidence from developing countries (the case of Lebanon). Journal of Sustainable Finance & Investment, 12(1), pp.13-43.
- Nikolov, B., Schmid, L. and Steri, R., 2021. The sources of financing constraints. Journal of Financial Economics, 139(2), pp.478-501.
- Olarewaju, O.M. and Msomi, T.S., 2021. Intellectual capital and financial performance of South African development community’s general insurance companies. Heliyon, 7(4), p.e06712.
- Rey-Ares, L., Fernández-López, S. and Rodeiro-Pazos, D., 2021. Impact of working capital management on profitability for Spanish fish canning companies. Marine Policy, 130, p.104583.
- Sensini, L. and Vazquez, M., 2021. Effects of Working Capital Management on SME Profitability: Evidence from an emergent economy. International Journal of Business and Management, 16(4), pp.85-95.
- Gotthardt, M., Koivulaakso, D., Paksoy, O., Saramo, C., Martikainen, M. and Lehner, O., 2020. Current state and challenges in the implementation of smart robotic process automation in accounting and auditing. ACRN Journal of Finance and Risk Perspectives.
- Högerle, B., Charifzadeh, M., Ferencz, M. and Kostin, K.B., 2020. The development of working capital management and its impact on profitability and shareholder value: evidence from Germany. Strategic management, 25(2), pp.27-39.
- Batubara, H.C. and Ramadani, R., 2021, August. Current Ratio, Return On Equity And Price Earning Ratio Of Manufacturing Companies In IDX. In Annual Conference of Ihtifaz: Islamic Economics, Finance, and Banking (Vol. 2, No. 2, pp. 163-175).
