Table of Contents

Introduction...........................................................................................................................................3

Task 1.....................................................................................................................................................4

Company overview............................................................................................................................4

Works of finance and accounting department of Skanska Plc...........................................................4

Task 2.....................................................................................................................................................9

Ratio calculation and analysis............................................................................................................9

Two years performance and position of the Skanska PLC...............................................................10

Conclusion...........................................................................................................................................15

References...........................................................................................................................................16
Introduction
For balancing economic situation and decision-making process of the organisation, managing
finance and accounting sector are essential. It helps an organisation to properly allocate all
the resources that they have and make decisions regarding investment as well as resource
acquisition. The finance and accounting department takes the responsibility of collecting all
the information related to this section and arranging them in a presentable way to help all the
stakeholders of the company. Organisations use the system of ratio analysis to measure the
financial situation of the organisation. In this paper, the roles and duties of the finance and
accounting department of a company have been presented with an explanation. This paper
has focused on SKANSKA PLC’s financial statement. Using information related to finance
and accounting of the company, the computation of financial ratio has been performed for
assessing the current financial condition of the company. This assessment is helpful for
presenting the position of the company to the potential investors so that the company can
raise enough cash investment for supporting its development and expansion plan.
Task 1

Company overview

SKANSKA PLC is UK based business of construction that was created in 1984. Later on, a
Swedish engineer and businessman established this company again in 1887. SKANSKA PLC
has provided employment opportunities to approximately 33000 people that belong to more
than ten countries. The company has generated a revenue amount of 158606 during 2020.
SKANSKA PLC is getting a considerable amount of opportunity because of the Rapid
development, increasing demand, attractive demographic characteristics, and the Rapid
increase in technology in UK and USA. But because of the political issues regarding the
hyper-competitive market in the USA and the Britain Brexit issue, the company is facing a
number of difficulties. The company is trying to adopt different strategies so that all the
operational processes can perform without complexities. The department of account and
finance in the company works for recording, measuring evaluating all the financial activities
of the company to handle all the necessary issues and decision-making processes that are
connected with these departments.

Works of finance and accounting department of Skanska Plc

Skanska Plc has two departments of accounting and finance that contribute to the operational
management of the company. The accounting department works regarding designing the
policies of finance, cost management, fraud prevention, development of a monetary plan,
employee assessment, and provides assistance to policymakers. Different aspects of
accounting that provides significant contribution for maintaining the sustainability are
provided here.

Accounting operations

Financial Accounting

The type of accounting that uses the method of documentation summary and preparation of
the report of transactions that arises as a result of business operations for a period of time is
generally referred to as financial accounting (Kemp and Waybright, 2018). In the case of
Skanska Plc, the goal of performing financial accounting activities is to present an accurate
and valid overview of business performance in front of investors. It is also very probable that
if the company fits with the International Financial Reporting Standards (IFRS) or the United
States generally accepted accounting principles (GAAP), the potential stakeholders of the
company can also make decisions regarding the purchase of shares of the company with the
help of the financial statements (Rees,2020). Like all other organisations, Skanska Plc’s also
have three major statements that provide financial information, and those are a statement of
profit loss, balance sheet, and statement of cash flow. Corporations may provide yearly or
quarterly financials that aids in presenting the firm’s financial performance to external
stakeholders, determining the company’s intrinsic worth, and generating efficient resource
allocation inside the organisation. All the information and statements allow the users to
clearly understand and analyse the overall financial situation of the firm, including the annual
growth of the firm, market share, and earnings (Rees. 2020). The financial management of
the company reviews, compares, and provides relevant financial information. This
information is used by the internal management for designing the strategies and programs for
the company, auditing all the necessary financial information, and designing a strong money
management system.

Management Accounting

The practice of identification measurement analysation interpretation, and communication of

the financial information of an organisation to the internal management of that organisation
for achieving the ultimate objective of that organisation is the role of management accounting
(Ewert, Wagenhofer and Schuster, 2011). The management accounting section of Skanska
Plc works for updating and maintaining all the internal accounts and documents related to
transactions, providing clear ideas from translating complicated financial information that
helps the organisational leaders to make informative decisions that are helpful for the short-
term and development and operations of the organisation (Hansen and Mowen, 2019). The
work process of this department involves a number of approaches that are helpful for the
managers to select, arrange and maintain the proper allocation of resources. One of the most
important responsibilities of this section is to measure and analyse the expense section of the
company for making a useful decision for managing the cost level and providing a suggestion
for future spending activities in Skanska Plc. The accountant assesses the firm’s income
sources, sales channels, and product portfolios to determine which has the highest profit
margin. Accountability involves setting the firm’s budget based on past performance and
selecting investments to support future operations.

Taxation
For maintaining business in any country, companies must follow the legal rules and
requirements of that particular region (Nothhelfer, 2017). It’s a mask for corporations to pay
taxes on time to the government for maintaining their company operations smoothly. The
taxation department of the organisation work to analyse the financial situation of the
company to calculate the amount of tax they need to pay to the government. Proper utilisation
of financial information of the company can help the organisation to enjoy some tax benefits
when they go through difficult financial situations. Skanska Plc is required to pay the biscuit
set proportion of its periodic revenue in the form of state income tax. Every business on the
planet must pay the necessary tax in order for Skanska Plc to comply with the applicable tax
laws. As a business, it is required to follow the laws of the state in which it operates.
Managers must consider the financial ramifications of every choice and seek tax shelters in
order to keep the company’s yearly tax burden to a bare minimum. They must also make
prudent expenditure and sufficient amounts exclusively with the goal of reducing the
company’s tax burden in mind.

Auditing

The management of financial transactions, performance analysis, risk assessment, report

preparation designing effective financial strategies is the activities of the financial transaction
section of the accounting department (Nothhelfer, 2017). Skanska Plc has an internal and
external auditing team for performing all the necessary tasks of the audit. Consequently, to
ensure the compliance of all the operations with the rules and regulations provided by the
government, the department of accounting needs support (Hansen and Mowen, 2019).
Auditing also monitors program Strategies and objectives to match them with the legal
obligations provided by the government. Internal audit within the organisation provides
regular instructions that are helpful for improving the financial condition.
Financial operations

Investments

Investment generally refers to the acquired asset or item that generates further income or
appreciation. It requires the outlay of some present capital, including time, effort, or money,
that will generate output in the future with a predictable income. In the case of an
organisation, investment involves the selection of a combination of assets it invests the funds
for operation. The primary investment functions are identification of potential investment
opportunities, evaluation of scopes for investing, duration, assessment of risk, assessment of
potential cost, and the earning. Capital budgeting and Working Capital Management are also
included in the responsibility of this section. The evaluation of the future asset return of
Skanska Plc’s is extremely risky. The company needs to consider the expected return on
investment and the level of risk associated with the investment at the time of evaluating the
investment plan (Levy and Sarnat, 2018). The company uses different types of methods,
NPV, PBP, IRR, cash flow, etc., for evaluating different projects.

Financing

Financing ensures the management of funds for performing investment and operations of the
company. Developing an equity structure is one of the main functions of this department.
Equity structure can be prepared using the debt-to-equity ratio, describing the requirements of
funding of the organisation, finding out the availability of internal and external funds,
evaluating the risk level, associated cost, and other important features of the sources of
funding (Elliott and Elliott, 2019). In case of selecting every source of funding, the manager
needs to focus on payment of dividends, bank loan payments, lenders repayment, listing
agreement regardless of the fact that the fund is going to earn money from the bond or not.
Skanska Plc uses both outside sources and domestic sources for or acquiring money. As an
outside source, the company considered shares, loans, advance payment, and account
receivables; on the other hand, as inside sources, the company generates income from holding
and selling of assets. With the help of this function, Skanska Plc is a daily operational activity
in a manageable working capital position that helps the company to maintain smart long-term
assets management.
Dividend management

The deception works for the management of the distribution regarding dividend, net income,
and management of the shares of shareholders. The main responsibility of this section is to
decide the amount of money that the shareholders will get from the net profit of the
organisation and also ensure the amount of money that the company will retain for further use
after the dividends are paid (Kieso, Weygandt and Warfield, 2015). Some other functions of
this section are the development of dividend policy, development of a satisfactory optimum
pay-out ratio in compliance with the expected market value. The dividend management
system of Skanska Plc is not in a good position. There is mismanagement in dividend
declaration as the stock prices rise before the payment of the difference. So, it’s a difficult
call for Skanska Plc as their main goal is to maximise profits while minimising opportunity
costs.
Task 2

Ratio calculation and analysis

Organisations use ratio analysis as a mathematical Technology for providing insights over the
organisation financial situation that involves profitability management efficiency and
insolvency with the help of the financial statement that is prepared using the financial
information of the organisation Accounting, and financial functions provide insight into the
outcomes of a business’s financial actions (Hansen and Mowen, 2019). The evaluation of the
financial account of an organisation is necessary for finding out the financial problems,
operational efficiency, profit loss calculation, liquidity profitability issues. Investors always
make an assessment of the financial situation of a company using different measurement
methods before making any financial decisions (Morley, 2019). for explaining the current
situation of Skanska Plc, five ratios are assessed for explaining the current situation of the
company in front of the investors.

Ratio The formula of the ratio Outcome

2018 2019

Current Ratio Current Assets/ Current 2.35 0.93

Liabilities

Formula of Net Profit (Net Profit/Sales) *100 13% 11%

Margin

Formula of Debtor’s (Accounts Receivable/ Sales) 68 73

Collection Period *365

Formula of Return on (Operating Profit/ (Total assets- 20% 17%

Capital Employed (ROCE) Current Liabilities)) *100

Formula of Creditor’s (Accounts Purchase/ Sales) 77 160

Collection Period *365
Two years performance and position of the Skanska PLC

Analysis of Current ratio

The analysis of the current ratio helps in demonstrating the capacity of a business in terms of
satisfying necessary obligations using the proper allocation of temporary assets that
represents the validity of the business. For calculating this ratio, organisations need to divide
the current asset of the company by the current liabilities. Current ratio analysis helps the
stakeholders of a company to understand the strength and weaknesses of that business
(Davies, Paterson, and Wilson, 2020). The result of the formula represents a business’s
ability to pay short-term interest.

Current ratio
The current
ideal 2019

2018

0 0.5 1 1.5 2 2.5

standard of the current ratio is 2:1. In 2018, the current ratio of Skanska Plc was closer to the
standard amount, which was 2.35:1. That means in the year 2018; the company has sufficient
capital assets to cover the current liabilities. But in the year 2019, the current ratio of the
company was 0.93:1. It represents that Skanska Plc is not in a reasonable position regarding
liquidity. The reason behind this situation in 2019 is the increase in current liabilities them
the increase in the current asset. Consequently, the company is having difficulties in
satisfying current obligations regarding short-term payments as well, as they are facing
challenges in maintaining their daily operations. However, the situation represents in negative
email in front of the investors regarding the creditworthiness of the company (Elliott and
Elliott, 2019). For improving the current situation of the company, they can take some
effective measures like capital expenditure boosting on their assets and avoiding taking short-
term loans looking at the company’s condition. They need to take Strategies for minimising
their current liabilities and improving the current ratio. For example, Skanska Plc should
utilise existing assets for generating additional revenue and paying off a high rate of interest.

Calculation of net profit margin

The formula of net profit margin calculation is the division of net income by sales. The data
of a certain accounting period is used for risk calculation. It shows the net profit of the
business as a percentage of the sales that represents the success of business functions. The
investors are able to understand the cash flow sources of revenue and the overall earning
situation of the company using the analysis of net profit margin.

Net profit margin

2019

2018

10% 12% 14%

The profit margin of Skanska Plc was around 13% in the year 2018. But during 2019, the
profit margin decreased to 11%. The net profit margin is Steel about the industry average.
There is a decrease from 2018 to 2019 (Annual reports | Skanska - Global corporate website,
2021). So, It can be said that so the is Managing the revenue stream and expenditure
properly. The profit margin decline in 2019 is the reason for higher sales that required
additional operating costs. But the scenario is still giving a negative insight to the investors
that the firm is Losing its efficiency in terms of draw more profit from the revenue.
Consequently, they are having difficulties in finding outsources for acquiring funds for the
company’s growth. This situation can be avoided if the firm can diversify the revenue sources
using new projects, cost-effective operations and minimising expenditure over Returns.
Return on employed capital

Assessment of feasibility and productivity of the capital of an organisation this financial

matrix is used widely. The formula of calculating return on employed capital is the division
of earnings before interest and Taxes by the capital used. Using this ratio, the company can
assess the revenue that it has earned through selling the goods that are produced by the
company. It also represents the efficiency of money management of a company for prophet
generation.

ROCE

2019

2018

14% 16% 18% 20% 22%

Skanska Plc generated around 20% of return on the invested capital during 2018, but during
2019 the return on capital investment is dropped and reached 17%. Within one year, the
ROCE of the company dropped by 3%, but it managed to produce an acceptable amount of
return on its capital. But in a General view, because of the smaller growth in the operational
profit than the use capital made, it looks that the situation has declined proportionally. This
situation also gives a negative signal to the investors, indicating that the company lacks the
ability in case of using capital for increasing profitability (Annual reports | Skanska - Global
corporate website, 2021). To make the situation better, the company need to take some
improvement steps, for example monitoring expenditure to boost the profitability of
operations, breaking down the current as a structure to minimise the idle capital, investing the
extra capital into profitable sources, and designing a strategy for making a higher income.
Debt collection period

The Asset Management ratio is generally considered as the debt collection duration that
provides an overview of the management of account receivables by an organisation. This
analysis is performed by multiplying the average receivables with the number of days and the
total credit sales. The requirement of time to accumulate the receivables from the debtors and
the management of accounts receivables are being demonstrated by this ratio analysis. It also
helps in calculating the number of days required for collecting and closing the receivables
from all the debtor’s accounts.

Average receivable days

2019

2018

66 67 68 69 70 71 72 73 74

From the statistics regarding the debit collection period, it can be seen that Skanska Plc
requires around 68 days to handle all the accounts receivable during the year 2018. During
2019 the debt collection duration expanded 273 days. In comparison to the industry average,
the situation is favourable in both ears, but as in 2019, the duration expanded for five more
days provides a negative view of the situation in front of the investors. Credit sales increased
in 2019. the company’s claim management capability has lapsed. Based on the 2019 survey
results, the business promises to improve for many years. Moreover, Skanska’s existing
debtors are late in repaying payments. The company’s financial procedures should be
improved and loan terms clarified. (Annual reports | Skanska- Global corporate
website,2021).
Creditor collection analysis period

It sets the number of days that suppliers, dealers, and creditors must pay for goods purchased
on credit and shows how long it takes for a company to fulfil its obligations for products
acquired on credit (Morley, 2019). The analysis is calculated using the division of the average
amount owed by the total amount purchased and then multiplied by the number of days.
When the payment days are low, it represents that the business has solvency for paying the
obligations on time. On the other hand, when the payable days are long enough, that
represents that the relationship of the business with the suppliers and dealers are good
enough. When the business is used for an extended period for paying off the obligations,
sometimes the situation is considered as the insufficiency of cash solvency.

Average payable days

2019

2018

0 20 40 60 80 100 120 140 160 180

In 2018 the credit collection period of Skanska Plc 77 days was. However, during the year
2019, the credit collection. Extends to 160 days. This situation represents the failure of
Skanska Plc’s in the case of making payment to their suppliers on time (Skanska UK |
www.skanska.co.uk, 2021). The significant variation of the percentage of credit collection
period represents the incapability of paying the invoices of creditors as well as the interest on
time. The situation also questions the credibility of the organisation. Investors make get a
negative signal because of the expansion in payable days that the company may face
difficulties in liquidity that can be resulted in delaying the procurement liabilities payment. It
can also confuse the investors regarding the development programs of the company. To
reverse the situation, the company needs to spend some additional money on current assets as
well as satisfy the suppliers using different strategies. The companies need to be careful about
future credit purchases before the situation of the company improves.
Conclusion
The functions of accounting and finance help every organisation to have an overall inside
regarding the financial situation of that company. For developing realistic strategies that are
functional as well as easily achievable for ensuring the success of an organisation, the
contribution of accounting and finance is undeniable. For examining a company’s financial
situation to provide constructive comments on the financial report’s ratio analysis is essential.
This paper has focused on issues related to financial management that are necessary for
reporting the ratio and components of financial accounting. Skanska Plc’s is the company that
has been a focus in this paper for performing all the evaluations. After examining all the
financial accounts and ratio analysis, it can be said that the overall condition of the company
is not up to the expectation. Consequently, this form will not be a viable investment
opportunity for the investors. The farmer needs to improve its overall situation before having
the credibility of being presented as a viable opportunity for investment.
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