Benchmarking is an essential exercise that management should undertake to gain an understanding of how their company is performing against others in the industry. It provides management with insights into financial performance, identifies areas of opportunity, validates key assumptions, outlines improvement initiatives and establishes performance expectations. Because of the custom nature of each construction project, varying labor, equipment and material costs, this is an especially valuable exercise. To help construction companies benchmark their financial performance, the Construction Financial Management Association (CFMA) recently published the 2016 Construction Financial Benchmarker which is a compilation of an industry wide survey that requested detailed financial information from industry companies. The published results and insights will provide management with essential comparative financial data. To help clients, prospects and others, JLK Rosenberger has provided a summary of the benchmark survey below.
About the Survey
The 2016 survey was distributed to 8,000 companies including CFMA member companies, nonmember companies and certified public accounting (CPA) firms that work with construction companies. All companies surveyed are in the United States or Canada only. CFMA received replies from 869 companies including detailed information on financial statements and other essential financial data. Other information provided helps classify the data per region, type of construction services offered, revenues and overall financial performance. The information was collected anonymously through an online survey tool.
Respondent Profile Summary
The following is a breakdown of the types of construction companies that participated in the survey. Thirty seven percent were industrial and nonresidential contractors, 10% were heavy and highway contractors, 43% were specialty trade contractors and less than 1% were classified as other. Geographically, 27% were headquartered in the Midwest, 24% in the far west and the remaining were equally distributed across the remaining parts of the US. Less than 1% of respondents were in Canada.
Key Financial Details
The following is a breakdown of key financial details uncovered in the survey, including:
- Return on Assets – The is an indication of how profitable a company is relative to its total assets. It helps management understand how effectively they are managing resources to generate earnings. The survey shows that return on assets was 9%. This represents a 2.1% increase over the prior year.
- Return on Equity – This is an indication of efficiency that determines how effective management was at generating profit for every dollar of shareholder equity. The survey shows that return on equity was 25.3% which represents a 6.3% increase over the prior year and a 8% increase over the past two years.
- Average Days in A/R – This is an indication of how long it takes a company to collect on an outstanding invoice. The longer it takes to collect, the more challenging it can be for a company to manage cash flow. The survey shows that the average days in A/R was 55.2 days. This represents an increase over the prior year which was 53.8 days.
- Gross Profit – This is a measure of a company’s total revenue after the cost of goods sold have been removed. The survey shows that gross profits for all company types increased by 1.9% to 15% over the prior year.
- Key Ratios – The survey also provides detailed information about key financial statement ratios including the quick ratio, current ratio, days of cash, and working capital turnover by company type.
Benchmarking is an essential exercise that management should undertake on a routine basis. The financial and other comparative information provided in the 2016 Construction Financial Benchmarker can help companies understand how their financial performance compares to others in the industry. If you have questions about benchmarking or need assistance analyzing the survey results, JLK Rosenberger can help. For additional information please call us at 949-860-9902, or click here to contact us. We look forward to speaking with you soon.