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
| Jan 20, 2015
Daring hotel design scheme takes the shape of cut amethyst stone
The Dutch practice NL Architects designed a proposal for a chain of hotels shaped like a rock cut in half to reveal a gemstone inside.
| Jan 20, 2015
Avery Associates unveils plans for London's second-tallest tower
The 270-meter tower, dubbed the No. 1 Undershaft, will stand next to the city's "Cheesegrater" building.
| Jan 19, 2015
HAO unveils designs for a 3D movie museum in China
New York-based HAO has released designs for the proposed Bolong 3D Movie Museum & Mediatek in Tianjin.
| Jan 19, 2015
Gaudi’s first work outside Spain will be a chapel in Chile
Nearly 100 years after Antoni Gaudí’s death, Chile will begin constructing a chapel using his designs.
| Jan 19, 2015
Architecture for Humanity closes office, plans to file for bankruptcy
After more than 15 years of work, the nonprofit design group Architecture for Humanity has closed its San Francisco office and plans to file for Chapter 7 bankruptcy protection.
| Jan 17, 2015
When is a train station not a train station? When it’s a performance venue
You can catch a train at Minneapolis’s new Target Field Station. You can also share in an experience. That’s what ‘Open Transit’ is all about.
| Jan 16, 2015
Artsy lifeguard stations will brighten Toronto’s snowy beach
Five winning designs have been unveiled for lifeguard stands that will double as public space art installations on Toronto's beach.
| Jan 16, 2015
New York City construction costs continue to climb
A study released by the New York Building Congress shows that construction costs in Manhattan have risen 5% in each of the last two years.
| Jan 15, 2015
A reconstructed Taliesin West is the largest Frank Lloyd Wright LEGO Model [slideshow]
Artist Adam Reed Tucker used 180,000 LEGO pieces and 420 hours of work to recreate Frank Lloyd Wright's Taliesin West campus.
| Jan 15, 2015
Construction materials prices fall in November
Construction input prices dipped 1.4% during the final month of 2014 and are down nearly 1% on a year-over-year basis, according to the Jan. 15 producer price index release from the U.S. Department of Labor.