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
| Apr 26, 2013
Solving the parking dilemma in U.S. cities
ArchDaily's Rory Stott yesterday posted an interesting exploration of progressive parking strategies being employed by cities and designers. The lack of curbside and lot parking exacerbates traffic congestion, discourages visitors, and leads to increased vehicles emissions.
| Apr 26, 2013
Decaying city: Exhibit demonstrates the fragility of the man-made world
Theater set designer Johanna Mårtensson built a model cityscape out of bread only to watch it decay.
| Apr 25, 2013
Colorado State University, DLR Group team to study 12 high-performance schools
DLR Group and the Institute for the Built Environment at Colorado State University have collaborated on a research project to evaluate the effect of green school design on occupants and long-term building performance.
| Apr 24, 2013
More positive momentum for Architecture Billings Index
All regions and building sectors continue to report positive business conditions
| Apr 24, 2013
North Carolina bill would ban green rating systems that put state lumber industry at disadvantage
North Carolina lawmakers have introduced state legislation that would restrict the use of national green building rating programs, including LEED, on public projects.
| Apr 24, 2013
Los Angeles may add cool roofs to its building code
Los Angeles Mayor Antonio Villaraigosa wants cool roofs added to the city’s building code. He is also asking the Department of Water and Power (LADWP) to create incentives that make it financially attractive for homeowners to install cool roofs.
| Apr 23, 2013
Building material innovation: Concrete cloth simplifies difficult pours
Milliken recently debuted a flexible fabric that allows for concrete installations on slopes, in water, and in other hard to reach places—without the need for molds or mixing.
| Apr 22, 2013
Top 10 green building projects for 2013 [slideshow]
The AIA's Committee on the Environment selected its top ten examples of sustainable architecture and green design solutions that protect and enhance the environment.
| Apr 19, 2013
DPR Construction acquires Hardin Construction
DPR Construction has purchased Atlanta-based Hardin Construction Company. The companies are combining operations in the Southeast and Texas markets, including Atlanta, Austin, Texas, Houston, and Raleigh, N.C.
| Apr 19, 2013
Must see: Shell of gutted church on stilts, 40 feet off the ground
Construction crews are going to extremes to save the ornate brick façade of the Provo (Utah) Tabernacle temple, which was ravaged by a fire in December 2010.
