what is decision making and steps in decision making
Decision making is the process of choosing between two or more options. It is a
complex process that involves gathering information, evaluating alternatives, and
making a choice.
There are many different decision-making models and techniques. The best model
or technique for you will depend on the specific situation and your own pReferences.
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
[Link], 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 ([Link], 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 ([Link], 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 - Financial Decision-Making
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
Amounts in pounds Amounts in pounds
Particulars (2019) (2018)
EBIT 675 600
Divided by capital
employed -150 870
ROCE -4.5 0.68
Table1: Calculation of ROCE
2018
600 pounds
Capital, Current assets- current pounds
2019
Capital assets- Current -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
Particular Amounts in pounds
s Amounts in pounds (2019) (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
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
Amount in pounds Amount in pounds
Particulars (2019) (2018)
Current assets 1515 2070
Divided by Current
liabilities 645 2220
Current ratio 2.34 0.92
Table 3: Calculation of the current ratio
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
Amounts in pounds Amounts in pounds
Particulars (2019) (2018)
Trade receivables 1200 900
Divided by Period 365 365
Debtors collection 2.4 3.2
period
Table 4: Calculation of debtor's collection period
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
Amount in pounds Amounts in pounds
Particulars (2019) (2018)
Trade payables 2100 570
Time period 365 365
Creditors
collection period 5.7 1.5
Table 5: Calculation of creditors collection period
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
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Employed Of Selected Listed Manufacturing Firms in Nigeria.
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PROFITABILITY.
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