1 / 33

How to Enhance the Value of Your Construction Firm Presented by: Randy Stutzman

How to Enhance the Value of Your Construction Firm Presented by: Randy Stutzman. Examine industry earnings and return potentials Benchmark best-of-class industry performance Apply earnings quality analysis to your firm’s earning stream

serena
Download Presentation

How to Enhance the Value of Your Construction Firm Presented by: Randy Stutzman

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. How to Enhance the Value of Your Construction Firm Presented by: Randy Stutzman

  2. Examine industry earnings and return potentials Benchmark best-of-class industry performance Apply earnings quality analysis to your firm’s earning stream Apply the FMI Value Driver Scorecard (VDS) to your firm’s situation Program Objectives

  3. What would the answer be if you asked each of your employees . . . How are you adding value today Why should value matter to you Fundamental Questions

  4. Relative worth, utility or importance The monetary worth of something; marketable price Value (Webster)

  5. Financial performance Market positioning Claims and litigation record (risk) Project history Management depth Competitive advantage Drivers of Value at The Company Level (1 of 2)

  6. Profit Profit Before Tax/Sales (% profit) Return Profit Before Tax/Net Worth (ROE) Risk Debt/Total Net Worth Cash Flow Cash Flow/Curr. Mat. Long-Term Debt Drivers of Value at The Company Level (2 of 2)

  7. Profit Margins - relatively thin Return - potentially strong Risk - usually high Cash flow - potentially strong How Does the IndustryMeasure Up?

  8. Plumbing, Heating,& Air Conditioning Balance Sheet Source: CFMA’s 2010 Construction Industry Annual Financial Survey

  9. Plumbing, Heating,& Air Conditioning Balance Sheet Source: CFMA’s 2010 Construction Industry Annual Financial Survey

  10. Plumbing, Heating,& Air Conditioning Statement of Earnings Source: CFMA’s 2010 Construction Industry Annual Financial Survey

  11. Current Assets Current Liabilities Financial RatiosCurrent Ratio FMI recommends 1.5 – 2.0 to 1 Source: CFMA’s 2010 Construction Industry Annual Financial Survey

  12. Sales (Current Assets – Current Liabilities) Financial RatiosWorking Capital Turnover FMI recommends 8-12 times Note: Working Capital = Current Assets – Current Liabilities Source: CFMA’s 2007 Construction Industry Annual Financial Survey

  13. Net Profit Before Taxes Equity (Net Worth) Financial RatiosReturn on Equity FMI recommends 20-40% Source: CFMA’s 2010 Construction Industry Annual Financial Survey

  14. Total Liabilities Equity (Net Worth) Financial RatiosDebt to Equity FMI recommends less than 2 times Source: CFMA’s 2010 Construction Industry Annual Financial Survey

  15. Accounts Receivable Days in Period X Sales Financial RatiosAverage Days of Accounts Receivable FMI recommends sixty days or less Source: CFMA’s 2010 Construction Industry Annual Financial Survey

  16. Self-perform; higher risk but more control Historic volatility of earnings Participation in attractive market niches Earnings from repeat customers Consistency of project budget-to-actual results Quality of Earnings (1 of 4)

  17. Degree of negotiated versus bid Dependency on a few owners Consistency of bid results Liquidated damages experience Claim experience Quality of Earnings (2 of 4)

  18. Trends in margins Reliability of cost-to-complete projections Growth opportunity in existing markets Management quality and depth Unique technical competence Quality of Earnings (3 of 4)

  19. Does increased inspection and service work impact the quality of earnings? Reoccurring revenue 40 something vs. 20 something gross profit Can lead to more negotiated work Third party buyers value at 1-2 times earnings higher than construction work Quality of Earnings (4 of 4)

  20. Business development Human resources Project control and performance Information management Financial Asset management FMI Value Driver Scorecard (1 of 11)

  21. Market profile Growth opportunities, market share, competition Market approach Marketing plan/research, PR, strategic alliances Market image Reputation, differentiation, repeat customers FMI Value Driver Scorecard (2 of 11) Business Development

  22. Sales, estimating and pricing Customer selection, mark-up policy Market Risk Customer dependency, labor market, diversification FMI Value Driver Scorecard (3 of 11) Business Development (cont.)

  23. Organizational structure Structure, authority/responsibilities, information flow Recruiting, hiring and retention Hiring practices, training/development, mentoring, evaluations, turnover Compensation Salaries/wages, benefits, incentives/disincentives FMI Value Driver Scorecard (4 of 11) Human Resources

  24. Management depth and quality Age spread of managers, single person dependency, tenure, capacity Leadership and management practices Strategic and business planning, motivational practices, communication Organizational risk Leadership changes, succession plans, morale, culture FMI Value Driver Scorecard (5 of 11) Human Resources (cont.)

  25. Project planning Preconstruction and scheduling practices, purchasing process and procedure Project controllability Quality program, project selectivity, design control, average job size Project management Document handling, subcontractor and material management, change orders FMI Value Driver Scorecard (6 of 11) Project Control and Performance

  26. Management reporting Costs projections and reporting, productivity measurement, post-project reviews Project risk Budget to actual history, contract methods, schedule attainment, claims FMI Value Driver Scorecard(7 of 11) Project Control and Performance (cont.)

  27. Core operational systems Accounting, project administration, estimating and scheduling systems Information management infrastructure Networking, innovative uses of technology, file sharing and standards Information and intellectual capital risks Systems integration, knowledge management, legacy systems FMI Value Driver Scorecard (8 of 11) Information Management

  28. Financial performance ROE, ROCE, EVA, average age of A/R, working capital turnover Financial management practices and tools Ratio/trend analysis, cash flow systems, operating budgets, other tools Management of financial resources Credit line management, A/P and A/R practices, overhead management FMI Value Driver Scorecard (9 of 11) Financial

  29. Risk management General liability/umbrella, works compensation, EMR, safety program Financial capacity Key cash and liquidity ratio analysis, bonding capacity, credit facilities Financial management risks Profitability trends, earnings growth rate, earnings volatility FMI Value Driver Scorecard (10 of 11) Financial (cont.)

  30. Production equipment Rental rates, utilization, maintenance, small tools, lease/buy/subcontract decisions Nonproduction equipment Lease/buy decisions, asset newness, facility utilization/capacity FMI Value Driver Scorecard (11 of 11) Asset Management

  31. How to Enhance the Value of Your Construction Firm Randal G. Stutzman Principal Randy Stutzman is a director at FMI, management consultants to the construction industry. As a specialist in corporate mergers, acquisitions and strategy development, Randy helps contractors throughout the country develop and implement plans that are uniquely tailored to meet individual needs. This involves helping clients acquire additional businesses, sell existing business units, or ensure that profitable organic growth is achieved. In any case, the goal is always to maximize shareholders’ value. Randy grew up in a family-owned construction and development business. In 1978, he joined FMI and began working with contractor clients to help them better manage their businesses. In addition to his responsibilities as a consultant to individual contractors, Randy is responsible for FMI’s merger and acquisition services for several industry segments. As an instructor for FMI seminars, Randy teaches and publishes subjects related to mergers and acquisitions in the construction industry, field productivity improvement, pricing and bidding strategies, financial management for contractors, field management training, integration of consolidated companies and a number of other topics. Randy is a graduate of Indiana University of Pennsylvania, holding a master of business administration. He received a bachelor’s degree in business management from David Lipscomb University. Randal G. Stutzman FMI Corporation 308 South Boulevard Tampa, FL 33606 Tel: 813.636.1247 Fax: 813.636.9601 E-mail: rstutzman@fminet.com Web sites: www.fminet.com

  32. ABOUT FMI Founded in 1953 by Dr. Emol A. Fails, FMI provides management consulting and investment banking for the worldwide construction industry. FMI delivers innovative, customized solutions to contractors; construction materials producers; manufacturers and suppliers of building materials and construction equipment; facility owners, managers and developers; engineers and architects; surety companies; and industry trade associations. FMI’s experienced professionals assist businesses with strategic planning, leader and organizational development, business development, research, mergers and acquisitions, peer groups, private equity placement, project execution and training.

More Related