In a recent survey, nearly 900 construction firms reported gains in profitability last year, especially among the top 25% whose financial performances significantly outpaced the respondents as a whole.
The Construction Financial Management Association (CFMA), headquartered in Princeton, N.J., emailed its annual questionnaire to about 8,000 member and nonmember construction firms, as well as member CPA firms that represent construction companies. CFMA received data from 869 companies, which submitted detailed financial statements and other required information.
Thirty-seven percent of the respondents were Industrial & Nonresidential contractors, 19% Heavy & Highway contractors, 43% Specialty Trade contractors, and less than 1% classified as “Other.” The typical company reported total annual sales of $39,710,000 for the 2015 fiscal year. Those with sales under $10 million comprised 16% of responding companies, and 8% of respondents reported sales of over $300 million.
Smaller contracting companies showed stronger earnings last year. Chart: Construction Financial Management Association.
On average, the respondents’ returns on assets and equity rose last year. Returns on Assets was 9%, versus 6.9% in 2014. Returns on equity jumped to 25.3% in 2015, from 19% the previous year.
On the whole, getting paid for services rendered remains a struggle. The respondents’ invoices were in accounts receivable for an average of 55.2 days last year, an increase over the previous two years. As for their accounts payable, the contractors reported a decline to 33.4 days last year, from 35.6 days in 2014.
Gross profits as a percentage of revenue increased to 15%, from 13.1% in 2014. And net income last year stood a 4.4% of sales, versus 3.1% the previous year.
CFMA broke out the financial data by sales volume, and found that companies generating under $10 million in revenue generally had higher profitability ratios than other cohorts. Perhaps coincidentally, the smaller companies had lower debt-to-equity ratios, and significantly lower “underbillings-to-equity” ratios (4.4%, compared to 15.6% for companies with $300 million or more in annual revenue).
Conversely, the largest companies by revenue were more productive, reporting sales per employee of $751,348 ($276,000 more per employee than companies with between $100 million and $300 million in sales, and even higher compared to the other groups), and gross profit per employee of $71,851.
The top-performing contractors—based on a composite ranking of five performance metrics (ROA, ROE, debt to equity, fixed-asset ratios, and gross profit per employee)—were head and shoulders above respondent averages.
The highest achievers reported a 24% Return on Assets and 58.5% Return on Equity, substantively higher on both counts than the survey’s averages noted above.
Best in Class companies also reported less debt (1.2 times debt-to-equity versus 1.8 times for all respondents) and a more stable fixed asset ratio (16.6% versus 25.1% for all respondents). All respondents averaged a 15% gross profit margin, while the Best in Class companies achieved an 18.4% margin. Further, all respondents earned a 4.4% net income before taxes, compared with the highest achievers, which averaged 8.4% margin.
The CFMA survey was compiled and analyzed by Industry Insights and the organization’s Financial Survey & Benchmarker Committee. It did not provide explanations about why some contractors performed better than others.
Related Stories
Contractors | May 1, 2015
Construction workers among top U.S. drug users: study
Construction workers are topped only by miners when it comes to heavy drinking, according to a new study by the Substance Abuse and Mental Health Services Administration.
Multifamily Housing | May 1, 2015
Trade groups extend campaign to promote apartment living
The groups claim that there are more than 37 million Americans—12% of the population—living in just under 20 million apartment units nationwide. Apartments and their residents contribute $1.3 trillion annually to the economy.
Contractors | May 1, 2015
Nonresidential fixed investments fall in latest Construction Economic Update
This is the first time that nonresidential fixed investment declined since the first quarter of 2011, ABC reported. Nonresidential fixed investment had been rising by more than 4% on an annualized basis during five of the previous six quarters.
Contractors | Apr 29, 2015
Construction costs are expected to remain soft through fall of 2015
Labor and materials haven’t appreciated this year through April, according to market analyst IHS.
Contractors | Apr 23, 2015
Leopardo releases 2015 Construction Economics Outlook
Low oil prices have reduced the cost of construction, but not enough to offset the rise in labor costs, according to Leopardo's new outlook report.
High-rise Construction | Apr 23, 2015
Size matters in NYC, where several projects vie for the city’s tallest building honor
The latest renderings of 217 West 57th Street show a tower that would rise higher than the World Trade Center’s pinnacle, when elevations are included.
Multifamily Housing | Apr 22, 2015
Condo developers covet churches for conversions
Former churches, many of which are sitting on prime urban real estate, are being converted into libraries, restaurants, and with greater frequency condominiums.
Green | Apr 22, 2015
AIA Committee on the Environment recognizes Top 10 Green Projects
Seattle's Bullitt Center and the University Center at The New School are among AIA's top 10 green buildings for 2015.
BIM and Information Technology | Apr 21, 2015
Software tools shouldn't dictate the AEC process
With over 200 solutions on the market, construction software is one of the most complex and fragmented markets, writes Gensler's Mark Thole.
Contractors | Apr 20, 2015
Too many construction projects don’t meet owners’ expectations: KPMG report
Causes for delays, overruns, and underperformance include project management talent shortages, distrust between owners and contractors, and the lack of fully integrated project management systems.
