0)0 7--&: $0/4536$50/ 3&1035 · capacity, prequalification capacity and to hold credit limits...

2 0 2 0 O H I O V A L L E Y

C O N S T R U C T I O N R E P O R T

INTRODUCTION For the past four years, Harding, Shymanski & Company has conducted an Ohio Valley Region Construction Market Survey in which we surveyed numerous contractors across varying disciplines and of varying sizes in the Ohio Valley Region. We would then stratify the results and provide the information our along with our own overview of the market. In early 2020, the construction market’s economic outlook in the Ohio Valley did not appear that it had changed much from the previous years. Our Construction Team decided that instead of surveying contractors in the Ohio Valley Region we would partner with LA Surety and Travelers Surety in order to provide robust benchmarking information for contractors. This information would offer a more diverse discipline aggregation and include more construction company participants.

Fast-forward to March of 2020, and the COVID-19 pandemic hit the Ohio Valley Region. This pandemic, which has now swept across the country, has completely changed the economic outlook of every industry nationally and regionally. The following report includes key benchmarking information from various industry disciplines, grouped by 10 different highly-competitive NAICS codes. Each NAICS code focuses on profitability and liquidity by revenue size. The report includes information derived from Sage ProfitCents financial benchmarking data mostly from 2019 and companies in the Midwest. While these data points could be much different from where contractors stand currently in June of 2020, we have provided an Executive Summary in which we share our views of where the market finished in 2019, and more importantly, where we believe things stand now.

If you have questions about this report, please feel free to contact us.

Very truly yours,

Paul Esche, CPA, CCIFP, CCA Aaron Wilzbacher, CPA Vice President Vice President 800.880.7800 ext. 1335 800.880.7800 ext. 1322 [email protected] [email protected]

Brian Ayers Todd Loehnert Senior Partner President LA Surety LA Surety [email protected] [email protected]

Harding, Shymanski & Company, P.S.C. 2

EXECUTIVE SUMMARY Our 2019 benchmarking information focuses on key profit indicators including: gross profit margin, net profit margin and return on equity, as well as key liquidity measures such as: current ratio, debt to equity and debt service ratios. As can be noted in the report, the 2019 key financial information for most companies was fairly strong across the various sectors.

On March 13, 2020, President Trump declared the COVID-19 pandemic a national emergency. Most financial markets around the world saw significant declines. U.S. interest rates approached near all-time lows. Oil markets plummeted. The unemployment rate sky-rocketed, and a significant amount of stimulus has been pumped into the U.S. economy. The pandemic has left most industries in the U.S. economy reeling and wondering how long and deep of a recession the U.S. could fall into.

The FMI U.S. Engineering and Construction Outlook First Quarter 2020 Report noted that total engineering and construction spending for the U.S. was forecast to end down 1 percent in 2020, compared to 0 percent growth in 2019. From a sector standpoint, the major industries expected to stay stable (0%-4% growth) were: Office, Health Care, Education, Transportation, Power, Highway and Street, Sewage and Wastewater. From a sector standpoint, the major industries expected to show a decline (under 0% growth) were: single and multi-family, lodging, commercial, amusement and recreation, and manufacturing. While the COVID-19 pandemic has not negatively affected the overall U.S. construction industry as badly as some industries such as restaurant, hospitality, travel, and retail, the overall construction market has seen numerous challenges which we will discuss further.

Cash and Liquidity

Most construction companies ended 2019 with several years of strong profit and cash flow performance. This, coupled with low tax rates for both corporations and individuals, lead to many companies having a strong cash position and the ability to pay down debt obligations early. Many companies have current ratios north of 2:1 and debt to equity ratios of less than 2:1. As the old adage goes, “Cash is King,” and this will hold very true going forward throughout the pandemic and post-pandemic. As will be discussed further, companies will need strong cash positions to not only brace for potentially lower sales and margins, but also for optimal bonding capacity, prequalification capacity and to hold credit limits steady.

Mergers and Acquisitions

Up through 2019 and into 2020, the merger and acquisition (M&A) market for construction companies was strong. There was a large amount of activity, and market multiples, especially for specialty contractors, were commanding larger numbers than they had historically. In addition, the banking atmosphere was in a position where there was a large amount of liquidity available for financing these transactions. After the pandemic swept across the country, most M&A transactions came to a halt. While we expect to see the market continuing to pick up as the pandemic wears down, the deals may look different. The leverage multiples may shrink, and normalized EBITDA adjustments could look different to account for what transpired during COVID-19. It is also likely that acquirers will look beyond the numbers to the management group, business strategiesand processes in place in order to more closely understand how companies dealt with the crisis.


Backlog

As was noted previously, throughout the pandemic, the construction sector was not hit as hard as other industries. This can be attributable to the fact that most states, including those in the Ohio Valley Region, considered construction companies to be essential businesses, and they were not forced into closure. This allowed many projects to continue. For most contractors, however, the concern lies with future backlog. The Kentucky Transportation cabinet cancelled all May and June of 2020 lettings. While Indiana lettings were not cancelled, the month of June has historically been a month in which there were no lettings. The potential concern for construction companies lies in the question of whether or not potential state budget constraints could limit the amount of state highway work to be funded over the next several years. In addition, many local governments are seeing–and may likely continue to see–a decline in revenues. This could lead to local governments re-evaluating budgets and potential projects. The private sector of the economy has been especially impactful to construction companies during the last couple of years generating a large amount of construction spend. The pandemic has drastically affected many private companies and has already lead to project stoppage or delays on projects in process. It could lead to a further curb in spending over the next several years.

Bonding

We are seeing more bonds being required in the private construction sector. This is mainly due to financing requirements from various lending institutions. LA Surety has met with number of different banks in the Kentuckiana area with each having different metrics for bond requirements (i.e. size, complexity, contractor experience) when lending money for construction projects. At the end of the day, both the bank and owner want a completed project with zero liens.

The subcontractor bond market is also seeing an uptick in required bonds as General Contractors (GCs) are mitigating their risks given the changes in the marketplace. As we have heard from various contractors, there are not enough quality subcontractors to complete all the work. With this in mind, GCs are layering off this financial risk through the use of subcontractor bonds. Some GCs are using their agent to help qualify their subcontractor base as they are forced to use new subcontractors. LA Surety provides Dunn and Bradstreet reports as well as the surety agent network (NASBP) for references. Even though we are based in Kentuckiana, we are seeing this trend all over the United States. It has been very helpful to have other professional surety agents across the country to help aid in the pre-qualification process.

Surety Bonds are a prequalification tool. If all parties are doing their jobs throughout this process, claims should not occur, and jobs SHOULD be built to plans and specifications on time and without liens.

Unemployment

The U.S. jobless claim numbers continue to climb week after week. Through the end of April 2020, the U.S. jobless claims topped 30 million over the six-week span dating back to mid-March of 2020 (cited via CNBC). According to Engineering News Record, the U.S. Construction job losses in the month of April 2020 were 975,000. This represented the steepest drop since the late 1930s. These numbers coincide with project delays and cancellations discussed previously. However, federal programs such as the Paycheck Protection Program (discussed below) have enticed employers to find ways to keep employees on payroll during the crisis. While the Ohio Valley Region has not been impacted to the same extent as other larger markets in the United States, the local economies are still seeing challenges.


Paycheck Protection Program

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted. A significant component within the CARES Act was the Paycheck Protection Program or PPP. The PPP program allowed for small businesses with fewer than 500 employees that were impacted by COVID-19 to obtain an SBA loan. These loans were based on a multiple of payroll and allowed for a potentially significant amount of the loan to be forgiven if the funds were used appropriately. The amount of the loan not forgiven must be repaid–but with a minimal interest rate. A large number of construction companies were able to obtain PPP loans, which was a huge shot in the arm from a liquidity standpoint. Most companies obtaining these loans were able to keep all or a significant number of employees on payroll. Under current guidance, the forgiven portion of the PPP loan is not taxable, and the loan proceeds used to pay for expenses are not deductible for federal tax purposes. The U.S. Department of Treasury and Small Business Administration continue to release additional guidance regarding PPP loan forgiveness.

Banking Environment

Prior to COVID-19, the banking industry overall was experiencing significant growth. The economy was in a boom period. Many companies were seeking expansion and acquisition. Credit facilities were available, and there was a significant, but good, competition in the banking market. While most banks across the country were hit with significant demand related to the PPP loans, they have had to grapple with unprecedented interest rate declines, clients’ inability to make loan payments, and how to handle credit renewals and covenants. Most banks were so well-capitalized prior to the pandemic that the expectation would be these headwinds will not turn out to be drastic, as in 2008. However, banking relationships could change in the future; therefore, companies that maintain good solid balance sheets, cash positions, and are able to maintain profitability will be best suited moving forward.

Summary

While the COVID-19 pandemic has tremendously impacted the construction environment, the economy is starting to re-open with hopes that the worst is behind us. The stock market has rebounded significantly from the lows, and with the large amount of stimulus being pumped into the economy, there are hopes for much brighter days ahead. Companies should continue to utilize best practices throughout these unprecedented times by properly managing cash, continue to keep a good pulse on risk management for their company, utilize strategic and trusted advisors, keep good processes and controls in place, and properly manage their employee base which is so crucial to future profits.


REPORT INFORMATION This report includes information derived from Sage ProfitCents financial benchmarking from 2019 and companies in the Midwest. Sage ProfitCents is a program Harding Shymanski uses for insights into different industries and helps identify industry-specific financial metrics. We can compare financials to different industries to help identify strengths and weaknesses.

The following reports include key benchmarking information across various industry disciplines, grouped by 10 different highly competitive NAICS codes. Each NAICS code focuses on profitability and liquidity by revenue size. While these data points could be much different from where contractors stand currently in June of 2020, the list of NAICS codes and revenue sizes from the Midwest region that were included are listed below.

NAICS Codes:

1. 236220 Commercial and Institutional Building Construction2. 237110 Water and Sewer Line and Related Structures Construction3. 237310 Highway, Street, and Bridge Construction4. 238910 Site Preparation Contractors5. 237990 Other Heavy and Civil Engineering Construction6. 238160 Roofing Contractors7. 238210 Electrical Contractors and Other Wiring Installation Contractors8. 238220 Plumbing, Heating, and Air Conditioning Contractors9. 238310 Drywall and Insulation Contractors10. 238990 All Other Specialty Trade Contractors

Revenue Size

1. $1M - $10M2. $10M - $25M3. 25M - $50M4. $50M - $150M5. $150M - $250M

©2020 Harding, Shymanski & Company, P.S.C. All rights reserved. No part of this report may be reproduced in any way, or by any means without written permission.


236220 - Commercial and Institutional Building Construction

3.02

1.65 1.721.32 1.20

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

1 - 10Million(125)

10 - 25Million

(67)

25 - 50Million

(48)

50 - 150Million

(46)

150 - 250Million

(6)

2019 Current Ratio22.87%

11.10% 10.75% 10.58%7.80%

0%

5%

10%

15%

20%

25%

1 - 10Million(125)

10 - 25Million

(67)

25 - 50Million

(48)

50 - 150Million

(46)

150 - 250Million (6)

2019 Gross Profit Margin

5.78%

2.33%

3.89%

2.29% 2.21%

0%

1%

2%

3%

4%

5%

6%

7%

1 - 10Million(125)

10 - 25Million

(67)

25 - 50Million

(48)

50 - 150Million

(46)

150 - 250Million (6)

2019 Net Profit Margin

1.74

2.55 2.50

3.86

5.01

0.00

1.00

2.00

3.00

4.00

5.00

6.00

1 - 10Million(125)

10 - 25Million

(67)

25 - 50Million

(48)

50 - 150Million

(46)

150 - 250Million

(6)

2019 Debt-to-Equity Ratio

8.35

3.58

10.118.93

13.72

0.002.004.006.008.00

10.0012.0014.0016.00

1 - 10Million(125)

10 - 25Million

(67)

25 - 50Million

(48)

50 - 150Million

(46)

150 - 250Million

(6)

2019 Debt Service Coverage Ratio46.49%

34.17%

43.53% 43.49%

31.60%

0%5%

10%15%20%25%30%35%40%45%50%

1 - 10Million(125)

10 - 25Million

(67)

25 - 50Million

(48)

50 - 150Million

(46)

150 - 250Million (6)

2019 Return on Equity

$1,125,052

$1,111,751

$1,124,336

$1,105,000

$1,110,000

$1,115,000

$1,120,000

$1,125,000

$1,130,000

1 - 10Million(125)

10 - 25Million

(67)

25 - 50Million

(48)

50 - 150Million

(46)

150 - 250Million (6)

Sales per Employee


237110 - Water and Sewer Line and Related Structures Construction

3.35

1.41 1.23

0.000.501.001.502.002.503.003.504.00

1 - 10Million

(97)

10 - 25Million

(17)

25 - 50Million

(5)

50 - 150Million

(2)

150 - 250Million ()

2019 Current Ratio

34.38%

19.21%

11.54%

0%5%

10%15%20%25%30%35%40%

1 - 10Million

(97)

10 - 25Million

(17)

25 - 50Million (5)

50 - 150Million (2)

150 - 250Million ()

2019 Gross Profit Margin11.36%

4.72%

0.59%

0%

2%

4%

6%

8%

10%

12%

1 - 10Million

(97)

10 - 25Million

(17)

25 - 50Million (5)

50 - 150Million (2)

150 - 250Million ()


1.48

2.02

1.22

0.00

0.50

1.00

1.50

2.00

2.50

1 - 10Million

(97)

10 - 25Million

(17)

25 - 50Million

(5)

50 - 150Million

(2)

150 - 250Million ()


6.77

1.70

3.23

0.001.002.003.004.005.006.007.008.00

1 - 10Million

(97)

10 - 25Million

(17)

25 - 50Million

(5)

50 - 150Million

(2)

150 - 250Million ()

2019 Debt Service Coverage Ratio

34.05%

40.11%

7.80%

0%5%

10%15%20%25%30%35%40%45%

1 - 10Million

(97)

10 - 25Million

(17)

25 - 50Million (5)

50 - 150Million (2)

150 - 250Million ()


$198,013

$468,097

$0$50,000

$100,000$150,000$200,000$250,000$300,000$350,000$400,000$450,000$500,000

1 - 10Million

(97)

10 - 25Million

(17)

25 - 50Million (5)

50 - 150Million (2)

150 - 250Million ()

Sales per Employee


237310 - Highway, Street, and Bridge Construction

3.59

1.98

2.76

2.21

1.24

0.000.501.001.502.002.503.003.504.00

1 - 10Million

(51)

10 - 25Million

(30)

25 - 50Million

(24)

50 - 150Million

(12)

150 - 250Million

(7)

2019 Current Ratio

29.58%

17.32%19.19%

12.36%8.12%

0%

5%

10%

15%

20%

25%

30%

35%

1 - 10Million

(51)

10 - 25Million

(30)

25 - 50Million

(24)

50 - 150Million

(12)

150 - 250Million (7)

2019 Gross Profit Margin 11.22%

4.40%

7.09%

2.26%

-1.32%-2%

0%

2%

4%

6%

8%

10%

12%

1 - 10Million

(51)

10 - 25Million

(30)

25 - 50Million

(24)

50 - 150Million

(12)

150 - 250Million (7)


1.281.57

1.41

2.20 2.19

0.00

0.50

1.00

1.50

2.00

2.50

1 - 10Million

(51)

10 - 25Million

(30)

25 - 50Million

(24)

50 - 150Million

(12)

150 - 250Million

(7)


5.30

6.715.79

6.68

1.76

0.001.002.003.004.005.006.007.008.00

1 - 10Million

(51)

10 - 25Million

(30)

25 - 50Million

(24)

50 - 150Million

(12)

150 - 250Million

(7)


32.76%

17.30%

34.44%

-2.93%-6.58%-10%

-5%0%5%

10%15%20%25%30%35%40%

1 - 10Million

(51)

10 - 25Million

(30)

25 - 50Million

(24)

50 - 150Million

(12)

150 - 250Million

(7)


$442,128

$270,360

$0$50,000

$100,000$150,000$200,000$250,000$300,000$350,000$400,000$450,000$500,000

1 - 10Million

(51)

10 - 25Million

(30)

25 - 50Million

(24)

50 -150

Million(12)

150 -250

Million(7)

Sales per Employee


238910 - Site Preparation Contractors

3.21

2.54

1.80 1.97

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

1 - 10Million(147)

10 - 25Million

(26)

25 - 50Million

(14)

50 - 150Million

(5)

150 - 250Million ()

2019 Current Ratio

49.24%

32.77%

20.84%14.34%

0%

10%

20%

30%

40%

50%

60%

1 - 10Million(147)

10 - 25Million

(26)

25 - 50Million

(14)

50 - 150Million

(5)

150 - 250Million ()


7.48%

13.48%

3.20%5.11%

0%2%4%6%8%

10%12%14%16%

1 - 10Million(147)

10 - 25Million

(26)

25 - 50Million

(14)

50 - 150Million

(5)

150 - 250Million ()


1.98

2.56

1.52

2.23

0.00

0.50

1.00

1.50

2.00

2.50

3.00

1 - 10Million(147)

10 - 25Million

(26)

25 - 50Million

(14)

50 - 150Million

(5)

150 - 250Million ()


7.848.69

5.924.72

0.001.002.003.004.005.006.007.008.009.00

10.00

1 - 10Million(147)

10 - 25Million

(26)

25 - 50Million

(14)

50 - 150Million

(5)

150 - 250Million ()


52.08%

71.13%

16.05%25.48%

0%10%20%30%40%50%60%70%80%

1 - 10Million(147)

10 - 25Million

(26)

25 - 50Million

(14)

50 - 150Million

(5)

150 - 250Million ()



237990 - Other Heavy and Civil Engineering Construction

2.36

2.86

1.62 1.62

0

0.5

1

1.5

2

2.5

3

3.5

1 - 10Million ()

10 - 25Million (18)

25 - 50Million (8)

50 - 150Million (11)

150 - 250Million (2)

2019 Current Ratio

30.38%28.08%

19.94% 21.48%

0%

5%

10%

15%

20%

25%

30%

35%

1 - 10Million ()

10 - 25Million (18)

25 - 50Million (8)

50 - 150Million (11)

150 - 250Million (2)


5.53%

8.14%

6.31%

4.63%

0%1%2%3%4%5%6%7%8%9%

1 - 10Million ()

10 - 25Million (18)

25 - 50Million (8)

50 - 150Million (11)

150 - 250Million (2)


2.07

1.331.21

1.42

0.00

0.50

1.00

1.50

2.00

2.50

1 - 10Million ()

10 - 25Million (18)

25 - 50Million (8)

50 - 150Million (11)

150 - 250Million (2)


4.00 4.38

2.28

14.20

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

1 - 10Million ()

10 - 25Million (18)

25 - 50Million (8)

50 - 150Million (11)

150 - 250Million (2)

2019 Debt Service Coverage Ratio41.67%

26.45%21.87%

6.96%

0%5%

10%15%20%25%30%35%40%45%

1 - 10Million ()

10 - 25Million (18)

25 - 50Million (8)

50 - 150Million (11)

150 - 250Million (2)



238160 - Roofing Contractors

3.32

1.47

2.23

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

1 - 10Million

(55)

10 - 25Million

(19)

25 - 50Million

(3)

50 - 150Million

(1)

150 - 250Million ()

2019 Current Ratio

34.04%

25.44% 26.87%

0%5%

10%15%20%25%30%35%40%

1 - 10Million

(55)

10 - 25Million

(19)

25 - 50Million (3)

50 - 150Million (1)

150 - 250Million ()


6.86%

4.60%

6.25%

0%1%2%3%4%5%6%7%8%

1 - 10Million

(55)

10 - 25Million

(19)

25 - 50Million (3)

50 - 150Million (1)

150 - 250Million ()


1.40

2.74

0.64

0.00

0.50

1.00

1.50

2.00

2.50

3.00

1 - 10Million

(55)

10 - 25Million

(19)

25 - 50Million

(3)

50 - 150Million

(1)

150 - 250Million ()


8.725.72

22.47

0.00

5.00

10.00

15.00

20.00

25.00

1 - 10Million

(55)

10 - 25Million

(19)

25 - 50Million

(3)

50 - 150Million

(1)

150 - 250Million ()


44.91%

55.16%

34.95%

0%

10%

20%

30%

40%

50%

60%

1 - 10Million

(55)

10 - 25Million

(19)

25 - 50Million (3)

50 - 150Million (1)

150 - 250Million ()



238210 - Electrical Contractors and Other Wiring Installation Contractors

2.73

1.90 2.02

1.55

0.00

0.50

1.00

1.50

2.00

2.50

3.00

1 - 10Million(144)

10 - 25Million

(53)

25 - 50Million

(22)

50 - 150Million

(12)

150 - 250Million ()


20.90% 19.00% 19.34%

0%5%

10%15%20%25%30%35%40%

1 - 10Million(144)

10 - 25Million

(53)

25 - 50Million

(22)

50 - 150Million

(12)

150 - 250Million ()

2019 Gross Profit Margin6.47%

5.12%

2.53%

4.47%

0%

1%

2%

3%

4%

5%

6%

7%

1 - 10Million(144)

10 - 25Million

(53)

25 - 50Million

(22)

50 - 150Million

(12)

150 - 250Million ()


1.76 1.65 1.76

2.09

0.00

0.50

1.00

1.50

2.00

2.50

1 - 10Million(144)

10 - 25Million

(53)

25 - 50Million

(22)

50 - 150Million

(12)

150 - 250Million ()


4.45

8.22

13.28

4.81

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

1 - 10Million(144)

10 - 25Million

(53)

25 - 50Million

(22)

50 - 150Million

(12)

150 - 250Million ()


41.44%

29.97%

50.83%

29.97%

0%

10%

20%

30%

40%

50%

60%

1 - 10Million(144)

10 - 25Million

(53)

25 - 50Million

(22)

50 - 150Million

(12)

150 - 250Million ()


$176,550

$270,091

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

1 - 10Million(144)

10 - 25Million

(53)

25 - 50Million

(22)

50 - 150Million

(12)

150 - 250Million ()

Sales per Employee


238220 - Plumbing, Heating, and Air-Conditioning Contractors

3.06

1.891.53

1.74

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

1 - 10Million(200)

10 - 25Million

(66)

25 - 50Million

(23)

50 - 150Million

(4)

150 - 250Million

(1)


28.63%

19.51%24.46%

0%5%

10%15%20%25%30%35%40%

1 - 10Million(200)

10 - 25Million

(66)

25 - 50Million

(23)

50 - 150Million

(4)

150 - 250Million

(1)


4.79%5.40% 5.36%

6.14%

0%

1%

2%

3%

4%

5%

6%

7%

1 - 10Million(200)

10 - 25Million

(66)

25 - 50Million

(23)

50 - 150Million (4)

150 - 250Million (1)


1.992.22

2.042.40

0.00

0.50

1.00

1.50

2.00

2.50

3.00

1 - 10Million(200)

10 - 25Million

(66)

25 - 50Million

(23)

50 - 150Million

(4)

150 - 250Million

(1)


6.75

4.835.51

8.64

0.001.002.003.004.005.006.007.008.009.00

10.00

1 - 10Million(200)

10 - 25Million

(66)

25 - 50Million

(23)

50 - 150Million

(4)

150 - 250Million

(1)


58.59%

46.27% 48.41%

66.51%

0%

10%

20%

30%

40%

50%

60%

70%

1 - 10Million(200)

10 - 25Million

(66)

25 - 50Million

(23)

50 - 150Million

(4)

150 - 250Million

(1)


$176,208

$335,415

$0$50,000

$100,000$150,000$200,000$250,000$300,000$350,000$400,000

1 - 10Million(200)

10 - 25Million

(66)

25 - 50Million

(23)

50 - 150Million (4)

150 - 250Million (1)

Sales per Employee


238310 - Drywall and Insulation Contractors

3.79

2.24

1.54 1.71

0.000.501.001.502.002.503.003.504.00

1 - 10Million

(33)

10 - 25Million

(17)

25 - 50Million

(12)

50 - 150Million

(6)

150 - 250Million ()

2019 Current Ratio

25.72% 25.79%

20.93%

16.82%

0%

5%

10%

15%

20%

25%

30%

1 - 10Million

(33)

10 - 25Million

(17)

25 - 50Million

(12)

50 - 150Million

(6)

150 - 250Million ()


3.84%

6.33%

-1.14%

1.98%

-2%-1%0%1%2%3%4%5%6%7%

1 - 10Million

(33)

10 - 25Million

(17)

25 - 50Million

(12)

50 - 150Million

(6)

150 - 250Million ()


2.44 2.432.69

0.79

0.00

0.50

1.00

1.50

2.00

2.50

3.00

1 - 10Million

(33)

10 - 25Million

(17)

25 - 50Million

(12)

50 - 150Million

(6)

150 - 250Million ()


6.69 7.33

10.17

13.36

0.002.004.006.008.00

10.0012.0014.0016.00

1 - 10Million

(33)

10 - 25Million

(17)

25 - 50Million

(12)

50 - 150Million

(6)

150 - 250Million ()

2019 Debt Service Coverage Ratio55.08% 55.71%

-17.80% -17.16%-30%-20%-10%

0%10%20%30%40%50%60%

1 - 10Million

(33)

10 - 25Million

(17)

25 - 50Million

(12)

50 - 150Million

(6)

150 - 250Million ()



238990 - All Other Specialty Trade Contractors

3.27

2.28

1.831.63

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

1 - 10Million(224)

10 - 25Million

(52)

25 - 50Million

(17)

50 - 150Million

(8)

150 - 250Million

(1)


23.59%18.53% 17.25%

0%5%

10%15%20%25%30%35%40%

1 - 10Million(224)

10 - 25Million

(52)

25 - 50Million

(17)

50 - 150Million

(8)

150 - 250Million

(1)


4.58%

8.09%

3.96%

5.46%

0%1%2%3%4%5%6%7%8%9%

1 - 10Million(224)

10 - 25Million

(52)

25 - 50Million

(17)

50 - 150Million (8)

150 - 250Million (1)


2.68

1.67

2.16

1.37

0.00

0.50

1.00

1.50

2.00

2.50

3.00

1 - 10Million(224)

10 - 25Million

(52)

25 - 50Million

(17)

50 - 150Million

(8)

150 - 250Million

(1)


7.00

12.17

2.78

7.18

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

1 - 10Million(224)

10 - 25Million

(52)

25 - 50Million

(17)

50 - 150Million

(8)

150 - 250Million

(1)


52.00%55.17%

27.49%

44.81%

0%

10%

20%

30%

40%

50%

60%

1 - 10Million(224)

10 - 25Million

(52)

25 - 50Million

(17)

50 - 150Million

(8)

150 - 250Million

(1)



RATIO DEFINTIONS Financial Indicator

Current Ratio = Total Current Assets / Total Current Liabilities

Explanation: Generally, this metric measures the overall liquidity position of a company. It is certainly not a perfect barometer, but it is a good one. Watch for big decreases in this number over time. Make sure the accounts listed in "current assets" are collectible. The higher the ratio, the more liquid the company is.

Gross Profit Margin = Gross Profit / Sales

Explanation: This number indicates the percentage of sales revenue that is not paid out in direct costs (costs of sales). It is an important statistic that can be used in business planning because it indicates how many cents of gross profit can be generated by each dollar of future sales. Higher is normally better (the company is more efficient).

Net Profit Margin = Adjusted Net Profit before Taxes / Sales

Explanation: This is an important metric. In fact, over time, it is one of the more important barometers that we look at. It measures how many cents of profit the company is generating for every dollar it sells. Track it carefully against industry competitors. This is a very important number in preparing forecasts. The higher the better.

Debt Leverage Ratio = Total Liabilities / EBITDA

Explanation: This ratio measures a company's ability to repay debt obligations from annualized operating cash flow (EBITDA).

Return on Equity = Net Income / Total Equity

Explanation: This measure shows how much profit is being returned on the shareholders' equity each year. It is a vital statistic from the perspective of equity holders in a company. The higher the better.

Debt-to-Equity Ratio = Total Liabilities / Total Equity

Explanation: This Balance Sheet leverage ratio indicates the composition of a company’s total capitalization -- the balance between money or assets owed versus the money or assets owned. Generally, creditors prefer a lower ratio to decrease financial risk while investors prefer a higher ratio to realize the return benefits of financial leverage.


IDEAS FOR IMPROVING PROFITABILITY AND LIQUIDITY Profitability and cash flow management are never-ending battles for most contractors. Below are some ideas to review on a regular basis to ensure your company is converting revenues into profit, and in turn, profit into cash as efficiently as possible.

• Establish contractual agreements that allow as much collection up front as possible for large jobs. This will ensure that construction is being completed with funds provided by the customer instead of the business.

• Speed up the billing of customers (even three days earlier each month) in order to accelerate the collection process, which can significantly improve the firm’s cash position.

• Keep an accurate payables schedule on a week-by-week basis. This can help the business know what payments should be made each week to avoid any late charges or double billings.

• Prepare yearly forecasts that show cash flow levels at various points in time. Consider updating these forecasts on a monthly or even bi-weekly basis to help predict/prepare for potential future cash shortfalls.

• Monitor accounts receivable on a weekly basis and charge interest on invoices that are past due.

• Monitor invoicing procedures to help ensure correctness. Nothing will delay payment more than sending out an incorrect invoice to a customer.

• Term out some short-term debt if necessary and possible by moving some short-term debt down the Balance Sheet to long-term debt. This usually requires refinancing from the bank.

• Establish a sufficient line of credit from the bank. The business should obtain, but not necessarily use, as much financing as possible. If external financing is needed, structure it as long-term rather than short-term in order to decrease monthly payments.

• Set longer terms for Accounts Payable when possible and allowable by the vendor. For example, increase a 30-day payment window to 60 days.

• Discover ways to receive returns on excess cash balances. For example, set up a "sweep" account (allows fund transfer overnight into a higher-yielding account) at the bank so that interest can be earned on any excess funds in the checking account.

• Closing out a project and collecting final payment can be a challenge. Effectively managing the final punch list can improve the timeliness of the final payment avoid decreases in retainage.

• Establish bonuses in contracts for work that is done well and done early. Remember, however,

that along with bonuses there may be penalties for late work. Accurate length estimation can be crucial.

• Manage inventory and supplies so that theft and loss are less likely to occur. A good way to do

this is to take inventory of tools and materials on a regular basis. Harding, Shymanski & Company, P.S.C. 23

• Submit bids that not only cover direct labor and material costs, but also include a portion ofoverhead and account for increases in expenses and unforeseen expenses.

• Forecast equipment requirements, and keep equipment busy. If there is too much equipment, itwill be sitting idle while still being paid for. If there is not enough equipment, jobs will be harderto complete on time.

• Find low cost suppliers that are reliable and provide quality materials/supplies. Work out a way tohave vendors deliver right to the job, when needed, to reduce material handling costs.

• Conduct a gain/fade analysis to review performance. Trends in gain/fade can indicate areas ofconcern regarding bidding and job management and can track whether the business is on targetto meet projected profit goals.

• Lock in prices for materials in advance when anticipating future price increases.

• Be agile, and minimize down-time between jobs. Make sure the company can pick up and movethe crew to a new job site quickly and without problems or extra costs. Have equipment availableat will to allow for a hasty move.

• Create good monthly budgets with cost reduction goals, broken down by account, that are putright into an accounting system (chart of accounts). This allows management to have the ability topull "variance reports" to compare budgeted revenues and expenses with actual revenues andexpenses.

• Create direct labor reports by job with the financials each month to assess performance. Look atthe efficiency of staffing per job/project, determine whether employees could be used indifferent capacities to improve productivity or save on costs, and evaluate whether part-time/temporary labor could be hired to reduce overtime costs while maintaining quality.

• Generate accurate financial reports on a timely basis. This will help ensure the usefulness of thedata for examination purposes. Good financial reports are the backbone of managementdecisions.


21 SE Third Street, Suite 500 545 S Third Street, Suite 102Evansville, IN 47708 Louisville, KY 40202812.464.9161 502.584.4142

www.hsccpa.com

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