![]() It is calculated in the same way as the Current Ratio, by dividing current assets by current liabilities. As its name suggests, it looks at assets that can be liquidated quicker. The Quick Ratio is another liquidity ratio. If you want to compare your company with the average, consider that the overall average Current Ratio amongst US-listed construction companies was 1.54 in 2020, and 1.65 in 2019. It may be missing opportunities to generate revenue through its assets – either through the business or through investment. Although a ratio higher than 1.0 is financially healthy, too high a ratio could indicate that the company is not using its working capital as efficiently as it could. A ratio of less than 1.0 implies a high level of liabilities and could be a sign of upcoming financial problems.īe careful with high ratios, though. This indicates that the company could pay off all its liabilities if they become immediately due. What’s considered a good ratio?Ī current ratio above 1.0 is considered good for a construction company. It is also known as the Working Capital Ratio. The Current Ratio uses all current assets and all current liabilities in the calculation. It is calculated by dividing the total current assets by the total current liabilities. If all short-term liabilities suddenly became due, could the company cover these? It shows the company’s ability to use its assets to pay off its short-term debt. Efficiency ratios – These provide a measure of how well a company uses its value to generate revenue.Leverage ratios – These ratios show how a company finances its assets and operations – and the level of debt involved in this.Profitability ratios – They show a company’s ability to turn revenue into profit.Liquidity ratios – These show the extent to which companies can meet their short-term commitments.The ratios discussed above fall into 4 categories: ![]() There is a common set, though, of very useful ratios for construction companies to understand. Indeed, some of these are very specific and niche. The information on a company’s balance sheet and accounts can be used to create any number of ratios. For construction companies, a few stand out – including the Current Ratio, Quick Ratio, Debt-to-Equity Ratio, Working Capital Turnover Ratio, and Equity Turnover Ratio. There are many possible ratios of interest to different companies. Knowing the key ratios to look for is essential. They will show you the company’s current financial health and can also be used to quickly benchmark against other companies or sector averages. They present a clear picture of current business performance in vital areas. Profit and loss statements, balance sheets, and other reports are useful and important but can be hard to interpret.įinancial Ratios are an alternative to this. It is often difficult to determine the most important metrics and figures within the financial statements of construction companies. What Are Financial Ratios and Why Are They Useful? Key Considerations As You Evaluate Financial Ratios for Your Construction Business.What Are Financial Ratios and Why Are They Useful?.
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