Are your construction company’s financials best in class?
Gross profits, return on equity, liquidity, backlog ratio, revenue per employee. Is your company the best in the business when it comes to these and other key financial indicators? Or do you have some work to do?
One way to improve your company performance is to compare your numbers to your peers.
That’s where the 2017 Construction Financial Benchmarker results come in handy. Just released by the Construction Financial Management Association (CFMA), the latest benchmarking results are packed with detailed analysis of key construction financial and operating data of nearly 1,500 companies from fiscal year 2016.
“Financial results are basically a barometer of how well a firm is managed,” says Jeff Longenecker, chairperson of CFMA’s Benchmarker committee. “If a firm is well run, the financial results will reflect it. If there are areas of improvement, that’s going to be obvious as well.”
Although there weren’t necessarily any surprises in this year’s results, Longenecker points out two particularly strong areas for today’s contractors: level of profitability and leverage ratios. These and other Benchmarker metrics, he says, reflect a very healthy construction industry.
Take, for example, the following year-over-year findings based on all company data:
- Gross profits overall increased 1.7 percentage points
- Return on assets was up 1.1 percentage points
- Return on equity jumped 4.1 percentage points
With the Benchmarker tool, you can also view the data by type of construction work performed, region, revenues, and overall financial performance, so you get a more relevant comparison to your own construction business.
But the icing on the cake is the financial profile of best-in-class construction firms. Here’s a sample: Best-in-class contractors generally report a return on asset of 26.3% and a return on equity of 59%. They also have less debt and a more stable fixed asset ratio. That’s not all. The results also detail best-in-class for metrics such as profit per employee, gross profit margin, and net income before taxes.*
The 2017 Construction Financial Benchmarker results are based on a confidential survey conducted in early 2017. In all, 1,496 companies submitted FY2016 data and provided detailed financial statements and other required information.
The survey’s results, presented in composite form, are accessible through the CFMA Construction Financial Benchmarker. By using this online tool, you can compare your company’s financial performance directly with the survey’s results.
Staying on top of your game
Benchmarking is key to understanding what it takes to be successful in today’s competitive construction industry. “If all you’re doing is looking at your own financial results, you really have no idea if you are doing well or not,” Longenecker stresses. Such tools as the Construction Financial Benchmarker will help you identify what you need to do to keep your business in top form.
* The top performing contractors (top 25%), or best in class, is based on a composite ranking of 5 key performance metrics. Best in class status is determined among all Industrial & Nonresidential contractors.
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