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
Energy Efficiency | Aug 11, 2022
Commercial Energy Efficiency: Finally “In-the-Money!”
By now, many business leaders are out in front of policymakers on prioritizing the energy transition.
High-rise Construction | Aug 11, 2022
Saudi Arabia unveils plans for a one-building city stretching over 100 miles long
Saudi Arabia recently announced plans for an ambitious urban project called The Line—a one-building city in the desert that will stretch 170 kilometers (106 miles) long and only 200 meters (656 feet) wide.
| Aug 10, 2022
U.S. needs more than four million new apartments by 2035
Roughly 4.3 million new apartments will be necessary by 2035 to meet rising demand, according to research from the National Multifamily Housing Council (NMHC) and National Apartment Association.
| Aug 10, 2022
Gresham Smith Founder, Batey M. Gresham Jr., passes at Age 88
It is with deep sadness that Gresham Smith announces the passing of Batey M. Gresham Jr., AIA—one of the firm’s founders.
| Aug 9, 2022
Work-from-home trend could result in $500 billion of lost value in office real estate
Researchers find major changes in lease revenues, office occupancy, lease renewal rates.
| Aug 9, 2022
5 Lean principles of design-build
Simply put, lean is the practice of creating more value with fewer resources.
| Aug 9, 2022
Designing healthy learning environments
Studies confirm healthy environments can improve learning outcomes and student success.
Legislation | Aug 8, 2022
Inflation Reduction Act includes over $5 billion for low carbon procurement
The Inflation Reduction Act of 2022, recently passed by the U.S. Senate, sets aside over $5 billion for low carbon procurement in the built environment.
| Aug 8, 2022
Mass timber and net zero design for higher education and lab buildings
When sourced from sustainably managed forests, the use of wood as a replacement for concrete and steel on larger scale construction projects has myriad economic and environmental benefits that have been thoroughly outlined in everything from academic journals to the pages of Newsweek.
AEC Tech | Aug 8, 2022
The technology balancing act
As our world reopens from COVID isolation, we are entering back into undefined territory – a form of hybrid existence.