Annual Financial Analysis – Heavy Construction Contractor
This downsized publicly-traded civil heavy construction contractor serves both public and private sector clients. From highways, airports, and canals to residential and commercial development, this company builds it all. In the meantime, their financial infrastructure is crumbling to the ground.
One would expect the construction industry to fall apart during the economic downturn and this has been the case with this company. Revenues have dropped faster than operating expense could be reduced, obliterating the net income. How does the firm respond to this dire picture? The company allows its gross profit to collapse – making matters even worse. Cash flows head south due to the severe financial winter.
The company takes even more desperate measures to further make matters worse. The net trade cycle begins to lengthen due to increase in accounts receivable and reduction in accounts payable burning up precious cash flow.
The company’s overall return on assets has been miserable throughout the last four years. The cost of capital has been twice as high as the return on assets, consistently reducing the company market value year after year. There is too much risk in this business to have such lackluster financial performance. This company needs to rebuild its financial foundation!