CFMA and Industry Insights are pleased to present the Executive Summary from CFMA’s 2023 Construction Financial Benchmarker Online Questionnaire. The survey results fuel the industry’s only Financial Benchmarker tool (financialbenchmarker.com), whereby construction companies can compare their financial performance to others in the industry.

The 2023 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 1,429 companies submitted data by July 2023. Of those respondents, 1,270 provided detailed and valid financial statements and other required information needed for inclusion 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 and segmented by type of construction work performed, region, revenues, and financial performance.

Overall Results

Company Profile

Respondents are classified by type based on the reported percentage of annual construction-related revenue derived from specific groupings of North American Industry Classification (NAICS) codes. The three main segmentations include Industrial & Nonresidential, Heavy Highway, and Specialty Trade. Of those that provided NAICS information, 48.3% of respondents were Specialty Trade, 27.1% were Industrial & Nonresidential, and 20.5% were Heavy Highway.

The Far West and the Midwest were the most widely represented (27.4% and 23.9%, respectively) of those that provided regional information. Canadian and foreign companies accounted for less than 1% of the sample.

Subcontractors, or those that perform 50% or more of construction work for another contractor, was the primary role associated with 46.1% of all respondents. General/prime contractors, or contractors that self-perform over 20% of construction work, represented 38.4% of responding companies. Companies that self-perform less than 20% of construction work accounted for 15.2% of the sample.

Most respondents (82.4%) did not qualify to bid on public projects under a Disadvantaged Business Enterprise (DBE) category in 2022. Of those qualified, the Small Business Enterprise was the most cited (61.0%) category followed by Woman-Owned Business Enterprise (21.0%) and Minority Business Enterprise (18.0%).

Of responding companies, 66.0% indicated they operate as an S corporation and are privately owned within the U.S. (89.9%). These legal classifications and ownership structures of reporting companies are in line with the historical results of the study.

Financial Information

As you evaluate the results, it is important to consider the influence of economic events in 2022. Although there were glimpses of improvement in the supply chain, the persistent constraints of a tight labor market and inflationary pressures continued to impact performance throughout the year.

In 2022, the typical respondent achieved significant year-over-year revenue growth, with a 15.0% reported increase over 2021. Nearly three-quarters of all respondents reported growth compared to the previous year. Monitoring changes in sales is critical, as it often serves as a driving force behind a company’s performance and its ability to achieve profitability. However, it’s essential to keep in mind that sales-related metrics could be influenced by the unprecedented surge in inflation, which exceeded the Federal Reserve’s target levels.

In such an economic environment, it is crucial to recognize that revenue performance might be somewhat deceptive. As prices soar, reported sales figures may appear to be on the rise, but they could primarily reflect the impact of higher prices rather than genuine business growth. Consequently, it becomes essential for businesses to differentiate between the effects of inflation and authentic sales growth to attain an accurate assessment of their performance.

Despite experiencing double-digit revenue growth in 2022, profitability measures saw a significant year-over-year decline. Net income before taxes dropped from 8.0% of revenue in 2021 to 5.0% in 2022. Furthermore, the percentage of respondents reporting losses nearly doubled, increasing from 7.0% in 2021 to 13.0% in 2022.

It is important to note that loans obtained through the Paycheck Protection Program (PPP) had a substantial impact on bottom-line profitability in recent years. In 2021, PPP loans and Employee Retention Credits (ERCs) contributed an additional four percentage points to overall profitability, compared to just 0.4% in 2022.

When comparing current results to pre-pandemic levels, pre-tax net income has remained relatively stable, with 5.4% in 2019 as compared to 5.0% in 2022.

Profitability measures like Return on Assets (ROA) and Return on Equity (ROE) offer valuable insights into the overall financial health and performance of a company. Notably, pre-tax ROA showed a decline among the surveyed companies, dropping from 14.7% in 2021 to 9.3% in 2022. Similarly, the ROE also decreased considerably from 36.1% in 2021 to 24.3% in 2022, marking its lowest point since 2015 when it stood at 23.5%.

Exhibit 1 provides a detailed look at the key ratios for all responding companies and companies by total revenue.

Best in Class Information

The top 25% of contractors based on performance metrics make up the Best in Class. These companies outperformed the typical respondent’s performance for essentially all financial metrics.

The typical Best in Class company closely resembled the typical respondent in terms of its annual revenue, asset size, and equity figures. This provides some evidence that the company demographic profile did not provide a significant advantage or disadvantage.

The Best in Class companies reported a 24.9% ROA and a 55.7% ROE, compared to all respondents that reported 9.3% ROA and 24.3% ROE. Best in Class companies also reported less debt (1.1 times debt to equity for Best in Class companies vs. 1.3 times for all respondents) and a more stable fixed asset ratio (11.6% for Best in Class companies vs. 23.6% for all respondents).

The Best in Class companies particularly excelled in the margins they achieved. Best in Class companies achieved a gross profit margin of 19.4% of total revenue. Further, the Best in Class reported a net income before tax margin of 10.0%, which is five percentage points higher than the average respondent.

Industrial & Nonresidential

Profile

The predominant legal form of business entity for Industrial & Nonresidential companies was an S corporation (70.3%).

Most companies (88.1%) indicated they operate as a privately owned business followed by 10.9% indicating an employee stock ownership plan (ESOP). And, 56.4% responding Industrial & Nonresidential companies indicated they operate as a general/prime contractor, and 38.6% primarily operated in a construction management capacity.

The average Industrial & Nonresidential company estimated that 80.3% of revenues were derived from NAICS 236220 (Commercial and Institutional Building Construction) followed by 17.2% from NAICS 236210 (Industrial Building Construction).

Of the Industrial & Nonresidential companies that provided regional information, 29.9% were headquartered in the Far West region of the U.S. The Southwest was the next largest represented region, with 20.7% of respondents.

Financial Information

Industrial & Nonresidential companies, overall, experienced a 3.3% net income before taxes during 2022. ROA decreased from 11.0% in 2021 to 7.4% in 2022. The Industrial & Nonresidential segment utilized assets to generate 2.9 times more sales than assets, maintained a leverage ratio (total assets/net worth) of 3.8, and achieved a ROE of 26.1%.