טכניון מכון טכנולוגי לישראל
הטכניון מכון טכנולוגי לישראל - בית הספר ללימודי מוסמכים  
M.Sc Thesis
M.Sc StudentPaz-Chen Itay
SubjectAnalysis of Financial Ratio for Construction Companies
DepartmentDepartment of Civil and Environmental Engineering
Supervisors Professor Ronie Navon
Professor Emeritus Abraham Warszawski (Deceased)
Full Thesis text - in Hebrew Full thesis text - Hebrew Version


Abstract

One of the most commonly used analysis tools among executives, investors and credit suppliers is the financials ratio analysis. I.e. the ratio between different parameters from the financial reports.

Financial ratio analysis is used as an early indicator as to which areas a company is performing at an acceptable level, and in which areas the company is headed towards bankruptcy.

The objective of the thesis is to identify the most important financial ratio for the management of a construction company, and examining the difference between the desired values and the existing values. Furthermore, the results of the research gives the construction company executive another tool in assessing the company's current status. Data for the research was gathered by reviewing high-ranking financial experts from the construction industry. Deriving the experience of these individuals' best practices may lead to outperforming the construction industry average.
Out of the interviews and questionnaires five financial ratios stood out as the most important: Equity /Total balance, Net profit/Average equity, Operating profit/Total sales, Operating profit/Funding expense and Net financial debt/EBITDA.
Desired values are divided into two different categories: construction companies for sale and construction companies to yield. Comparison of the actual values collected during the interviews to values collected through surveys filled out by 18 construction companies during the years 2006-2007 shows which ratios are most indicative of good performance.
In addition to the statistical analysis of the financial ratios through financial reports, this thesis also elaborates the reason for choosing each of the specified ratios and desired value of the ratio. In the construction industry each company has a unique financial structure, expertise and future goals, therefore a specific financial ratio that is computed via statistical tools alone might suit a few companies while others might not find it suitable. This thesis contribution is its elaboration of how each ratio was calculated, and especially the value range for each financial ratio. This way any company can find its own suitable range and adjust itself in order to accomplish its goals.