General Inquiries

CFMA Financial Benchmarker

  • 1.  CFMA Financial Benchmarker

    Posted 22 days ago
    I recently joined the CFMA and have reviewed the 2016 Construction Financial Benchmarker. I also have a copy of CFMA's Ratios and definitions. There are some terms that I hoped to get clarification on.

    Underbillings is defined as unbilled contract volume and Backlog is noted as signed or committed work. Can anyone provide an explanation as to the difference between these two? Examples would be helpful.

    The Times Interest Earned ratio refers to Income Taxes in the formula. We're a Sub-S corporation so there are no corporate taxes. Should I ignore the taxes in this equation?

    In the Days of Cash metric, Revenue is the divisor. For mid-year analysis, should this be annualized?

    For the Working Capital Turnover, the same question: For mid-year analysis, should this be annualized?

    The Productivity Ratios include calculations with FTE Employees, which are understandable. The other two refer to Production FTE Employees. Can anyone define which classes of employees should be included in the Production metrics? We have Sales Administrators, Accounting, Design and Project Management as well as various managers. I'm not sure which to include.

    Regarding the calculation of FTE: if overtime has been worked, should I include overtime in the calculation of FTE employees?

    Finally, I know the 2018 Benchmarker will be released in a few months, but I'm wondering if the 2017 Benchmarker is available yet? I can't find a copy posted on the CFMA website.

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    Robert William (Bill) Geary
    Vice President
    Rep Services, Inc.
    Lake Mary FL
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  • 2.  RE: CFMA Financial Benchmarker

    Posted 22 days ago
    An add-on question is regarding the FTE calculations. For the Revenue and GP values, should those be annualized? I would think so when comparing to the Benchmarker.

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    Robert Geary
    Vice President
    Rep Services, Inc.
    Lake Mary FL
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  • 3.  RE: CFMA Financial Benchmarker

    Posted 21 days ago
    Regarding under billed and backlog -

    Under billing is just the difference between the amount of revenue that can be recognized by percentage of completion method versus the total actually billed, when total billed is the lower amount.  Over billing occurs when the amount billed is the greater amount.
    The amount of revenue that can be recognized = total projected revenue * [cost incurred to date / total projected cost].
    So, if incurred cost = $75,000; projected total cost =$100,000, then percent complete = 75%.  So, you can recognize 75% of total revenue in your P&L.  If Total projected revenue = $200,000, then you can recognize $150,000.  If you have billed $110,000, under billed = $40,000.  If you have billed $180,000, over billed = $30,000.

    Backlog has nothing to do with billing.  It is a schedule of work under contract, showing how much is expected to be completed in the current and future periods.  I've found people use the term "backlog" to mean a few different things, but the primary purpose of the backlog is to give an indication of how much work is still to be put in place.  A low backlog may give cause for concern about future revenue flows.

    I'll let someone else pick up on the other parts of your question.

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    Steve Hunt CPA
    Cfo
    Alto Construction Company, Inc.
    Tampa FL
    (813) 241-2586
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  • 4.  RE: CFMA Financial Benchmarker

    Posted 21 days ago
    Edited by Mike Elek 21 days ago
    Bill, for some of your questions, I'll need to consult with our team and get back to you.

    CFMA just completed collecting FY 2018 information. The analyzed results will be available in mid-September as the 2019 Financial Benchmarker. All Financial Benchmarker information is maintained here: http://financialbenchmarker.com/

    You'll need to create a separate account on this site. Your CFMA.org credentials will not work.

    The most-recent information available on the benchmarker website is the 2018 Financial Benchmarker, which is based on FY 2017.

    Currently, there are three years of benchmarking data available for building Peer Reports. Prior-year Excel files and PDF reports are available in the CFMA Store.

    Regarding FTE, here's what I have told others:

    "Production FTEs are those that contribute to the fixed costs of the company (e.g., those employees whose employment costs are not directly associated with the variable costs of a project), and FTEs includes all full-time equivalent personnel employed."

    I'll get an answer for you on these items:
    • Should OT be included in calculating full-time employees?
    • For mid-year analysis, should:
      • working capital be annualized?
      • days of metric cash be annualized?
    • Times Interest Earned ratio, should income taxes be zero in the formula?


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    Mike Elek
    CFMA
    Princeton NJ
    (609) 452-8000
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  • 5.  RE: CFMA Financial Benchmarker

    Posted 21 days ago
    I'm with you, Robert.  I am unclear who is included in  "production FTE".  Mike, you responded to me once with the same: "Production FTEs are those that contribute to the fixed costs of the company (e.g., those employees whose employment costs are not directly associated with the variable costs of a project)."  I think this means it represents project management and excludes administration, but I'm not sure.  It would be very helpful to have a more clear definition.

    With respect to the ratios, you would typically compute those based on annualized results.  You can use shorter timeframes but you'd have to make sure your numerator and denominator are based on the same date range.

    Times Interest Earned only includes taxes if that has an impact on the results.

    I hope that helps!



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    Reba Stephens CPA
    Director of Finance & Accounting
    Ausland Group
    Grants Pass OR
    (541) 476-3788
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  • 6.  RE: CFMA Financial Benchmarker

    Posted 21 days ago
    Bill,

    Welcome to CFMA.  I hope you find this association very beneficial.  There are so many really great people in this group.

    Underbillings is specifically related to the asset account typically named, "Earnings in Excess of Billings", which in the construction industry can become significant.  Most of this account is associated with self-performed labor which the contractor must carry until it is invoiced and collected.  Once invoiced, of course, it typically shifts accounts to AR.

    Backlog is merely contracted work which may or may not have begun.  Perhaps some other members can clarify how they manage account balancing when work in backlog is placed (meaning work performed with billing value).

    The questions on the benchmarker regarding FTE are specifically referring to non-direct labor personnel, mainly project and corporate overhead personnel.  This question was originally added to help companies analyze the balance between revenue size and fixed-personnel costs.  However, I have since heard of several companies using that statistic in various ways; all of which informs their ability to remain competitive as revenues change from one economic condition to another.  There is a similar question that refers to the base payroll, which allows you to look at the same question but using dollars as the baseline for comparison.  The differences can be nuanced, but FTE doesn't always tell the entire story because labor rates vary around the country.

    I hope you get some good response to this post.

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    John Killingsworth Ph.D.
    Assistant Professor
    Colorado State University
    Fort Collins CO
    (715) 308-1167
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  • 7.  RE: CFMA Financial Benchmarker

    Posted 19 days ago
    Edited by Mike Elek 19 days ago
    Here are the answers that I received for specific questions.

    The Times Interest Earned ratio refers to Income Taxes in the formula. We're a Sub-S corporation so there are no corporate taxes. Should I ignore the taxes in this equation?

    That is correct, please ignore the income taxes component in your calculation as you're a pass-through entity.

     

    In the Days of Cash metric, Revenue is the divisor. For mid-year analysis, should this be annualized?

    The Days of Cash metric should be calculated using a full 12 months of revenue if comparing against the Financial Benchmarker results.

     

    For the Working Capital Turnover, the same question: For mid-year analysis, should this be annualized?

    The Working Capital Turnover metric should be calculated using a full 12 months of revenue.


    Regarding the calculation of FTE: if overtime has been worked, should I include overtime in the calculation of FTE employees?

    Please use total hours worked (e.g., overtime, etc.) when calculating FTEs.  (one who worked full-time for three months out of the year as 0.25 employees; and an employee who year-round works 60 hours per week would count as 1.5 FTEs).

    # # #

    Regarding full-time employees, I can only repeat what was told to me by the company that analyzes the information for CFMA.

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    Mike Elek
    CFMA
    Princeton NJ
    (609) 452-8000
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