CFMA and Industry Insights are pleased to present the Executive Summary from CFMA’s 2021 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 2021 Benchmarker Questionnaire was distributed to approximately 9,000 potential respondents including both CFMA members and non-members as well as Construction Industry CPAs/Consultants Association (CICPAC) member firms that represent both member and non-member construction companies (most of which are based in or have significant employment in the U.S. and Canada).1
A total of 1,284 companies submitted data by July 2021. Of those respondents, 1,207 provided detailed and valid financial statements and other required information and thus were included in the financial portion of the results.
CFMA’s Benchmarker Questionnaire is confidential and unique to the industry. All results, accessible through the Benchmarker tool, are presented in composite form, segmented by type of construction work performed, region, revenues, and financial performance.
Each company is classified by type based on the reported percentage of annual construction related revenue derived from a specific grouping of North American Industry Classification (NAICS) codes. The three major segmentations include Industrial & Nonresidential, Heavy/Highway, and Specialty Trade. The criteria for type classification is dependent on an estimated revenue percentage of 50% or more for a particular grouping. Of those that provided NAICS information, 45% of respondents are Specialty Trade, 29% are Industrial & Nonresidential, and 22% are Heavy/Highway. This distribution of respondents by type is consistent with studies conducted in previous years.
The Midwest and Southwest are the most widely represented United States regions (24% and 23%, respectively). There is a fairly even distribution of companies among the remaining regions. Companies that operated outside of the United States during 2020 accounted for less than 1% of the sample.
Nearly 43% of companies primarily acted in a subcontractor role during 2020. A general/prime contractor, or a contractor that self-performs more than 20% of construction work, is the primary role associated with 41% of total respondents. Companies that self-perform less than 20% of construction work accounted for 15% of the sample.
While most companies did not qualify to bid public projects under a Disadvantaged Business Enterprise (DBE) category, the Small Business Enterprise was most commonly cited (11%) by those that qualified. Close to 6% of companies qualified to bid under the Woman-Owned Business Enterprise category and 5% qualified as a Minority Business Enterprise.
Most companies (71%) are registered as an S Corporation and are privately owned within the United States (88%). The legal classifications and ownership structures of reporting companies is in line with the historical results of the study.
Fiscal year 2020 brought both professional and personal challenges for many people, companies, and industries due to the COVID-19 pandemic. The Paycheck Protection Program (PPP) provided monetary relief for those companies that applied for, and received, payment through the program. The results of this study are inclusive of PPP loans, which are reported as other income, if forgiven or recognized using the grant approach accounting method. More than 80% of companies applied for and received PPP loans during 2020. Of those that received loans, 56% collected at least partial forgiveness as of December 31st, 2020.
Despite the negative impact many faced as a result of the global pandemic, profitability measures were strong for most companies during 2020 which is likely attributable in some degree to monetary relief received through the PPP program. The return on assets (ROA), which provides an indication of how well assets are utilized to generate profits, grew to 13% for the typical company during 2020. Perhaps the best measure of a company’s overall performance is its return on equity (ROE). The ROE for the typical company also outperformed historical results, with a reported median return of 36%.
The number of days to collect accounts receivable (AR) improved from 54 days in FY2019 to 53 days in FY2020; the number of days to liquidate trade payables improved to 30 days, which represents a 3-day drop from FY2019 results.
The average respondent achieved a net income before tax margin of over 6% in FY2020, which represents a full percentage point increase over FY2019 results. Loans through the PPP program that were forgiven or recognized using the grant approach accounting method contributed close to 2% of total revenue to the bottom-line profitability of companies during 2020.
Sales were relatively flat in 2020 for the typical company. Those in the smallest total sales grouping reported the heaviest declines in volume (-7%). The typical company experienced a 6% decline in backlog during FY2020 versus the prior year.
Exhibit 1 below provides a detailed look at key ratios for all responding companies and companies by total revenue.
Industrial & Nonresidential
More than 50% responding Industrial & Nonresidential companies indicated they operate as a general/prime contractor (more than 20% of construction work self-performed) and 38% primarily operated in a construction management (20% or less of construction work self-performed) capacity.
The average Industrial & Nonresidential company reported that 85% of revenues were derived from NAICS 236220 (Commercial and Institutional Building Construction) followed by 13% from NAICS 236210 (Industrial Building Construction).
An S Corporation is the legal form of entity for 71% of responding companies in the Industrial & Nonresidential segment. Nearly 90% of companies indicated they operate as a privately owned business within the United States. An Employee Stock Ownership Plan (ESOP) was the second most commonly cited structure at 7% of all respondents.
Of the Industrial & Nonresidential companies that provided regional information, 27% are headquartered in the Southwest region of the United States. The Midwest was the next largest represented region, with 22% of respondents. The remaining companies are relatively equally distributed across the remaining U.S. regions.
More than 80% of Industrial & Nonresidential companies received PPP loans during the course of 2020. Of the companies that applied for and received funding, 61% indicated at least partial forgiveness was received as of December 31st, 2020.
An analysis of profits reveals that Industrial & Nonresidential companies overall experienced a 5% net income before taxes during 2020. ROA increased to 10% in FY2020, up from 8% in FY2019. The Industrial & Nonresidential respondents used their assets to generate 2.9 times more sales than assets, maintained a leverage ratio (total assets/net worth) of 3.5, and achieved an ROE of 39%.
Responding Heavy/Highway companies mostly operated as general/prime contractors during 2020 with 77% indicating this role is primary. Slightly more than 23% operated as a subcontractor.
The average Heavy/Highway company reported that 49% of revenues were derived from NAICS 237310 (Highway, Street, and Bridge Construction) followed by 28% of revenues from NAICS 237990 (Other Heavy and Civil Engineering Construction).
An S Corporation is the legal form of entity for 72% of responding companies in the Heavy/Highway segment. More than 90% of companies indicated they operate a privately owned business within the United States. An ESOP was the second most commonly cited structure at 9% of all respondents.
Of the Heavy/Highway companies that provided regional information, 23% are headquartered in the Southwest U.S. Another 23% of respondents are headquartered in the Midwest region of the U.S. Foreign and Canadian companies accounted for less than 1% of the full sample.
Close to 75% of Heavy/Highway companies received PPP loans during the course of 2020. Of the companies that applied for and received funding, 55% indicated at least partial forgiveness was received as of December 31st, 2020.
An analysis of profits reveals that Heavy/Highway companies overall experienced a 8% net income before taxes, which is up from 6% reported in FY2019. ROAs rose from 10% in FY2019 to 13% in FY2020. The typical Heavy/Highway respondent used its assets to generate 2.0 times more sales than assets, maintained a leverage ratio of 2.0, and achieved a ROE of 26%.
A large majority (88%) of Specialty Trade respondents primarily act in a role of subcontractor. General/prime contracting as a primary role was the second most commonly selected response among participants at 12% of all Specialty Trade respondents.
An S Corporation is the legal form of entity for 70% of responding companies in the Specialty Trade segment. More than 80% of companies indicated they operate a privately owned business within the United States and 14% are owned under an ESOP.
Close to 25% of Specialty Trade respondents are headquartered in the Midwest U.S. The Southwest U.S. was the next best represented region, with 21% of respondents.
Close to 85% of Specialty Trade companies received PPP loans during the course of 2020. Of the companies that applied for and received funding, 53% indicated at least partial forgiveness was received as of December 31st, 2020.
Specialty Trade companies overall achieved an 8% net income before taxes and an ROA of 16%. The typical Specialty Trade company used its assets to generate 2.2 times more sales than assets and maintained a leverage ratio of 2.1. The typical respondent reported a 38% ROE.
About the Results
The results of CFMA’s 2021 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 (firstname.lastname@example.org or 609-452-8000).
CFMA’s 2021 Annual Financial Survey Online Questionnaire was conducted and analyzed by Industry Insights2 and CFMA’s 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.
1 Results of CFMA’s 2021 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 1,207 CFMA General Members and Non-Members that 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.