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
Office Buildings | Mar 5, 2024
Former McDonald’s headquarters transformed into modern office building for Ace Hardware
In Oak Brook, Ill., about 15 miles west of downtown Chicago, McDonald’s former corporate headquarters has been transformed into a modern office building for its new tenant, Ace Hardware. Now for the first time, Ace Hardware can bring 1,700 employees from three facilities under one roof.
Green | Mar 5, 2024
New York City’s Green Economy Action Plan aims for building decarbonization
New York City’s recently revealed Green Economy Action Plan includes the goals of the decarbonization of buildings and developing a renewable energy system. The ambitious plan includes enabling low-carbon alternatives in the transportation sector and boosting green industries, aiming to create more than 12,000 green economy apprenticeships by 2040.
MFPRO+ News | Mar 1, 2024
Housing affordability, speed of construction are top of mind for multifamily architecture and construction firms
The 2023 Multifamily Giants get creative to solve the affordability crisis, while helping their developer clients build faster and more economically.
K-12 Schools | Feb 29, 2024
Average age of U.S. school buildings is just under 50 years
The average age of a main instructional school building in the United States is 49 years, according to a survey by the National Center for Education Statistics (NCES). About 38% of schools were built before 1970. Roughly half of the schools surveyed have undergone a major building renovation or addition.
MFPRO+ Research | Feb 28, 2024
New download: BD+C's 2023 Multifamily Amenities report
New research from Building Design+Construction and Multifamily Pro+ highlights the 127 top amenities that developers, property owners, architects, contractors, and builders are providing in today’s apartment, condominium, student housing, and senior living communities.
AEC Tech | Feb 28, 2024
How to harness LIDAR and BIM technology for precise building data, equipment needs
By following the Scan to Point Cloud + Point Cloud to BIM process, organizations can leverage the power of LIDAR and BIM technology at the same time. This optimizes the documentation of existing building conditions, functions, and equipment needs as a current condition and as a starting point for future physical plant expansion projects.
Data Centers | Feb 28, 2024
What’s next for data center design in 2024
Nuclear power, direct-to-chip liquid cooling, and data centers as learning destinations are among the emerging design trends in the data center sector, according to Scott Hays, Sector Leader, Sustainable Design, with HED.
Windows and Doors | Feb 28, 2024
DOE launches $2 million prize to advance cost-effective, energy-efficient commercial windows
The U.S. Department of Energy launched the American-Made Building Envelope Innovation Prize—Secondary Glazing Systems. The program will offer up to $2 million to encourage production of high-performance, cost-effective commercial windows.
AEC Innovators | Feb 28, 2024
How Suffolk Construction identifies ConTech and PropTech startups for investment, adoption
Contractor giant Suffolk Construction has invested in 27 ConTech and PropTech companies since 2019 through its Suffolk Technologies venture capital firm. Parker Mundt, Suffolk Technologies’ Vice President–Platforms, recently spoke with Building Design+Construction about his company’s investment strategy.
Performing Arts Centers | Feb 27, 2024
Frank Gehry-designed expansion of the Colburn School performing arts center set to break ground
In April, the Colburn School, an institute for music and dance education and performance, will break ground on a 100,000-sf expansion designed by architect Frank Gehry. Located in downtown Los Angeles, the performing arts center will join the neighboring Walt Disney Concert Hall and The Grand by Gehry, forming the largest concentration of Gehry-designed buildings in the world.