CFMA’s 2018 CONSTRUCTION FINANCIAL BENCHMARKER ONLINE QUESTIONANNAIRE RESULTS
EXECUTIVE SUMMARY

GENERAL INFORMATION

CFMA and Industry Insights are pleased to present the Executive Summary from CFMA’s 2018 Construction Financial Benchmarker Online Questionnaire. The survey results fuel the industry’s only Financial Benchmarker tool (www.financialbenchmarker.com), whereby construction companies can compare their financial performance to others in the industry.

The 2018 Benchmarker Questionnaire was distributed to approximately 8,000 firms including CFMA member construction firms, non-member construction firms as well as member CPA and CICPAC firms who represent both member and non-member construction companies (mostly companies that are based in or have significant employment in the U.S. and Canada).¹ Responses were received in early 2018. In all, 985 companies submitted data for the study. Of those, 955 provided detailed and valid financial statements and other required information and thus were included in the financial portion of the results. Companies that submitted data for other sections of the Online Questionnaire and general information that enabled us to classify the respondents were included in those appropriate sections’ results.

CFMA’s Annual Financial Survey Online Questionnaire is confidential and unique to the industry and all results, accessible through the Benchmarker tool, are presented in composite form, segmented by type of construction work performed, region, revenues, and financial performance.

ALL RESPONDENTS PROFILE

Of those that provided NAICS information, 44% of respondents are Specialty Trade, 30% are Industrial & Nonresidential, 21% are Heavy & Highway, 3% are Residential Construction, and 2% are classified as “Other”. Each company type is determined by the reported percentages of annual construction-related revenue derived from a specific grouping of NAICS codes. The distribution of respondents by type is largely consistent with previous studies.

The Midwest and Far West regions are the most widely represented of those that provided regional information. The remaining companies are relatively equally distributed among the other U.S. regions. Canadian and foreign companies accounted for less than 1% of the sample.

Sixty-seven percent of responding companies indicated they operate as an S-corporation. The next most common form of legal business entity is a regular C-Corporation, accounting for 15% of participating companies.

The typical company reported total annual revenue of $22,648,000 for the 2017 fiscal year. Those with revenue under $10 million represented 25% of responding companies while 5% of respondents reported revenue of over $300 million.

OVERALL RESULTS

Financial Information

The return on assets (ROA) for the typical respondent was 10.2% in FY2017, which was up from 10.1% in FY2016 and 9.0% in FY2015. Return on equity (ROE) decreased slightly in FY2017 to 27.5% when compared to the typical respondent’s reported return for FY2016 (29.4%).

Average days in A/R increased to 54 in FY2017, compared with 53 days reported for FY2016. The slight decline in FY2016 follows a 3-year consecutive increase in fiscal years 2015, 2014, and 2013 (55, 54 and 51, respectively). Average days in A/P fell to 30 days in FY2017, when compared to the reported 32 days in FY2016.

Gross profits for all companies increased in FY2017 for the fourth consecutive year to 17.1%. However, net income before taxes fell slightly from 5.2% in FY2016 to 4.9% in FY2017.

The following table provides a detailed look at key ratios for all responding companies and companies by total revenue.

Key Ratios Detail
    All Companies – By Sales Volume
  All Companies Under $10 Million $10-25 Million $25-50 Million $50-100 Million $100-300 Million Over $300 Million
             
LIQUIDITY RATIOS              
Current Ratio 1.6 2.1 1.7 1.6 1.4 1.3 1.3
Quick Ratio 1.4 1.9 1.5 1.4 1.3 1.2 1.2
Days of Cash 20.0 20.1 19.1 18.1 21.0 16.7 23.8
Working Capital Turnover 8.8 5.5 8.2 8.8 12.9 12.6 16.0
               
PROFITABILITY RATIOS              
Return on Assets 10.2% 10.6% 11.50% 10.60% 9.40% 10.10% 7.70%
Return on Equity 27.5% 19.30% 29.10% 28.20% 27.00% 31.10% 35.30%
Times Interest Earned 26.0 15.0 22.2 28.3 28.9 93.2 44.6
               
LEVERAGE RATIOS              
Debt to Equity 1.4 0.8 1.2 1.6 2.0 2.3 3.3
Revenue to Equity 6.4 4.4 6.0 7.1 8.3 9.8 11.8
Asset Turnover 2.7 2.5 2.7 2.7 2.9 3.0 2.7
Fixed Asset Ratio 30.70% 33.80% 37.60% 30.90% 24.70% 19.80% 24.70%
Equity to SG&A Expenses 1.6 1.5 1.5 1.7 1.8 1.6 1.8
Underbillings to Equity 8.10% 3.40% 7.60%  9.10% 8.50% 14.70% 13.40%
Average Backlog to Equity 5.0 2.3 3.2 4.1 4.8 6.8 10.0
               
EFFICIENCY RATIOS              
Average Backlog to Working Capital 7.0 1.6 4.4 6.0 7.5 10.5 13.3
Average Months in Backlog 7.5 7.2 6.2 6.0 7.2 8.3 11.4
Days in Accounts Receivable 54.0 52.1 53.7 55.3 54.0 53.6 54.9
Days in Inventory 3.8 5.0 4.3 4.1 3.0 1.5 1.8
Days in Accounts Payable 29.8 22.0 27.7 32.4 35.3 35.5 40.5
Operating Cycle 45.7 58.1 48.0 42.9 39.8 35.2 30.7
               
PRODUCTIVITY RATIOS              
Revenue per FTE Employee $388,874 $185,426 $315,042 $374,113 $475,106 $464,755 $801,626
Gross Profit per FTE Employee $53,523 $46,865 $55,146 $49,155 $48,592 $57,925 $62,788
               
Revenue per Production FTE Employee $527,744 $268,871 $426,590 $463,231 $664,298 $565,968 $974,663
Gross Profit per Production FTE Employee $70,551 $47,012 $74,020 $70,018 $66,756 $71,299 $79,815

Best in Class (BIC) Information

The top performing contractors (top 25%), or Best in Class (BIC), is based on a composite ranking of five key performance metrics. The Best in Class companies outperformed the typical respondent’s performance for essentially all financial metrics. The highest achievers reported a 27.0% Return on Assets figure and 56.7% Return on Equity, compared against all respondents who reported 10.2% and 27.5% rates of return on Assets and Equity, respectively. Best in Class companies also reported less debt (1.0x debt to equity for BIC companies versus 1.4x for all respondents) and a more stable fixed asset ratio (16.4% for BIC companies versus 30.7% for all respondents).

The typical Best in Class company also outperformed the typical respondent in terms of employee productivity with a reported $571,992 in revenue per FTE employee versus just $388,874 for all respondents. The gross profit per employee figure for Best in Class exceeded the typical respondent by nearly $30,000 ($82,513 vs. $53,523).

The Best in Class companies particularly excelled in the margins they achieved. While all respondents averaged a 17.1% gross profit margin, Best in Class companies reached a 21.0% margin. Further, all respondents earned a 4.8% net income before taxes on average, compared with the 10.5% figure for the average Best in Class company.

INDUSTRIAL & NONRESIDENTIAL

Profile

The largest grouping of Industrial & Nonresidential respondents reported revenue between $50 and $100 million (21%) followed by the $10 to $25 million group which represented 20% of the sample. The typical company reported total annual revenue of $44,712,000 for the 2017 fiscal year.

The predominant legal form of business entity for Industrial & Nonresidential companies is an S Corporation (62%) followed by a limited liability company (LLC) (21%).

A large majority of Industrial & Nonresidential respondents reported private – domestic ownership (93%) followed by 5% indicating an employee stock ownership plan (ESOP).

Of the Industrial & Nonresidential companies that provided regional information, 33% were headquartered in the Far West. The Midwest was the 2nd best represented region, with 24% of respondents. The remaining companies were relatively equally distributed among the rest of the U.S. regions. Canadian and Foreign companies accounted for less than 1% of respondents.

Of the Industrial & Nonresidential companies that provided regional information, 30.8% were headquartered in the Far West. The Midwest was the 2nd best represented region, with 20.4% of respondents. The remaining companies were relatively equally distributed among the rest of the U.S. regions. Canadian and Foreign companies accounted less than 1% of total companies.

Profit Model Ratios

An analysis of profits reveals that Industrial & Nonresidential companies overall experienced a 3.0% net income before taxes, which decreased from 3.4% in FY2016. Return on Assets (ROA) also declined in FY2017 to 7.8%, when compared to FY2016 (8.1%). The Industrial & Nonresidential respondents used their assets to generate 3.3 times more sales than assets, maintained a leverage ratio (total assets / net worth) of 3.6 and achieved a return on equity of 30.5%.

Net Income before Taxes Industrial Nonresidential Net Income Before Taxes

HEAVY & HIGHWAY

Profile

 

The largest grouping of Heavy & Highway respondents reported revenue between $10 and $25 million (29%) followed by the $25 to $50 million group which represents 21% of the total Heavy & Highway respondents. The typical company reported total annual revenue of $26,675,000 for the 2017 fiscal year.

The predominant legal form of business entity is an S Corporation (69%) while limited liability companies (LLC) represent 16% of responding Heavy & Highway companies.

Nearly 80% of Heavy & Highway companies reported private – domestic ownership followed by 12% indicating an employee stock ownership plan (ESOP).

Of the Heavy & Highway companies that provided regional information, 26% were headquartered in the Far West. The Midwest was the 2nd best represented region, with 25% of respondents. The remaining companies were relatively equally distributed among the rest of the U.S. regions. Canadian and Foreign companies accounted for less than 1% of total companies.

Profit Model Ratios

An analysis of profits reveals that Heavy & Highway companies overall experienced a 5.8% net income before taxes, which remained flat when compared with FY2016 results. Return on Assets (ROE) increased to 10.7%, compared with 9.6% reported for FY2016. The typical Heavy & Highway respondent used their assets to generate 2.0 times more sales than assets, maintained a leverage ratio (total assets / net worth) of 2.1 and achieved a return on equity of 20.9%.

Net Income before Taxes Heavy and Highway Net Income Before Taxes

SPECIALTY TRADE

Profile

The largest grouping of Specialty Trade respondents reported revenue under $10 million (32%) followed by the $10 to $25 million group which represented 30% of respondents. The typical Specialty Trade company reported total annual revenue of $17,863,000 for the 2017 fiscal year.

S-corporation is the legal business entity of 69% of responding organizations. The next most common form of legal business entity was a regular C-Corporation, accounting for 18% of total participating companies.

Ninety-two percent of Specialty Trade respondents reported private – domestic ownership followed by 6% reporting an employee stock ownership plan (ESOP).

A large majority (91%) of Specialty Trade respondents stated that they primarily act as a subcontractor. General/prime contracting as a primary role was the second most selected response among participants at 8%.

Of the Specialty Trade companies that provided regional information, 31% were headquartered in the Midwest. The Far West was the 2nd best represented region, with 28% of respondents.

Profit Model Ratios

Specialty Trade companies overall experienced a 5.8% net income before taxes, which decreased from 6.2% in FY2016, and a 12.1% return on assets figure. The typical Specialty Trade company used their assets to generate 2.7 times more sales than assets and maintained a leverage ratio (total assets / net worth) of 2.0. Return on equity declined slightly in FY2017 to 29.5%, when compared to 31.5% reported for FY2016.Net Income before Taxes Specialty Trade Net Income Before Taxes

ABOUT THE RESULTS

The results of CFMA’s 2018 Annual Financial Survey Online Questionnaire provide critical benchmarking data and financial information about the construction industry. To remain competitive, contractors should review these results in their entirety, with particular focus on company classification, geographic region, and annual revenue data.

The Construction Financial Benchmarker at www.financialbenchmarker.com is CFMA’s online tool that allows users to compare their companies’ financial performance with the Annual Financial Survey Online Questionnaire results. With flexibility in selecting benchmarks and easy data entry, the financial results include graphic presentations of key financial data going back to 2010. For more information on CFMA’s Construction Financial Benchmarker tool, contact Mike Elek (melek@cfma.org or 609-452-8000).

CFMA’s 2018 Annual Financial Survey Online Questionnaire was conducted and analyzed by Industry Insights² and the Financial Survey & Benchmarker Committee. The Committee wishes to thank all respondents and encourages CFMA General Members, CPA Firms, and all other construction companies to participate in future Online Questionnaire data collection efforts.

Endnotes

  1. Results of CFMA’s 2018 Construction Industry Annual Financial Survey Online Questionnaire are not intended to be, nor do they provide, a statistically valid representation of the construction industry as a whole. Rather, it’s representative of 955 CFMA General Members and non-members who provided detailed and valid financial statements and other required information. The level of participant overlap from year to year can impact the financial results. Differences in the financial statements between years are due in part to market influences and individual company performance, as well as to the different participant makeup each year.
  2. Industry Insights was not engaged to and did not audit this information, and accordingly, does not express an opinion or any other form of assurance on it.


If you have any questions, contact Mike Elek at melek@cfma.org or 609-945-2412, ext. 232.

For technical questions, please contact Matthew Chaffin at mchaffin@industryinsights.com or 614.389.2100, ext. 115.

©2018 CFMA