CFMA’s Financial Benchmarker allows a construction company or CPA firm to compare financial performance against the rest of the industry. First published by CFMA in 1989 as the “Annual Financial Survey” and continuing every year since, in 2013 the Financial Benchmarker became all-electronic and in 2016 moved to the Financial Benchmarker website, which now houses benchmarker data for the previous three years.
The 2019 Financial Benchmarker was just released and with more than 1,450 respondents, here are a few key findings:
- Typical company reported total annual revenue of $26 million for the 2018 fiscal year and sales growth of 7% versus the prior year.
- Those with revenue under $10 million represented 24% of responding companies while 14% of respondents reported revenue of over $300 million.
- The Return on Assets (ROA) for the typical respondent fell slightly in FY2018 to 9.5%, compared to the 10.2% return reported in FY2017.
- The typical respondent achieved a 27.1% Return on Equity (ROE) in FY2018.
- The typical respondent reportedly needed 56 days to collect accounts receivable and 34 days to liquidate trade payables in FY2018.
- Gross profits fell for the first time in 5 years to 16.6% in FY2018 following a 5-year high of 17.1% as reported in FY2017 by the average respondent.
- The net income before taxes for the average company also fell slightly to 4.4%, dropping from 4.8% in FY2017.
Why You Should Care About Benchmarking
Lord Kelvin, the British scientist said, “You can’t improve something you haven’t measured.” As a construction financial management professional, benchmarking is an important tool to help you make strategic decisions, improve productivity, and reduce cost. A benchmark is only one indicator of performance; but hopefully it gives you insights into where to look for process and quality improvement. A single data point doesn’t tell the whole story and it certainly can’t show you a trend. Here are a couple ways that benchmarking can help your company.
Benchmarking helps to identify what businesses do to increase profit and productivity. Your organization can use the Financial Benchmarker data to adopt those same methods, helping your company become more competitive. If the competitor is getting more bids than you are, pause, identify and study how your competition operates. This could help you increase sales.
By analyzing and comparing your benchmarks to the competition and the industry, you allow your company to meet changing demands and requirements. The end result should be an increase in profits and productivity.
Financial Ratios, Formulas, and Interpretation
One key element in any financial analysis is the comparison of financial ratios. The usefulness of financial ratios is increased as individual ratios are compared with each other over time. For instance, an analysis that explains a change in the current ratio over the past two years will be more useful to the reader than an explanation of the variance between that company's current ratio and a published industry average current ratio. The use of financial ratios can be an excellent tool in financial analysis; however, mere comparison to industry averages may have limited value.
The primary benefit of financial ratio analysis lies in determining the cause of changes in ratios over time. Industry averages of various ratios can be useful as a beginning benchmark for comparison purposes and as an indication of industry competition. The interpretation of financial ratios provided is not intended to represent all possible interpretations and is only an example of how these ratios may be used.
How can your company use the Financial Benchmarker?
CFMA offers three ways in which you can view the Financial Benchmarker data: Excel File, Peer Group Comparison Reports, and Subscription.
The Excel File
The Excel file contains the key ratios, as well as other financial pieces of information – 199 in all. The information is categorized across 90+ columns, breaking the industry down by revenue, region of the country, Best in Class, and the type of business performed: industrial and non-residential, heavy/highway, and specialty trades. Each of those three categories is also broken down by revenue, region of the country, and Best in Class. The specialty trades is further segmented across 22 industry codes, often simply called NAICS codes.
The Financial Benchmarker PDF represents the written portion of the old book. It is approximately 100 pages and includes salary information on 22 construction company positions, provided courtesy of PAS Inc.
Peer Group Comparison Reports
The Peer Group Comparison Reports allow you to take a narrowly focused look at the data. With this option you can build an exportable Excel file that is based on up to five columns of the full Excel file. This allows you to select specific criteria: revenue, region of the country, and the type of business performed. This is one of the Financial Benchmarker’s most powerful tools for a construction company or a CPA firm.
Finally, a subscription gives you the Excel and PDF files, unlimited Peer Group Reports, plus other extras. Keep in mind that a subscription is for unlimited access to a product year and is not based on a calendar-year purchase.
To learn more or purchase the Financial Benchmarker, go to www.cfma.org/benchmarker.