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Profit margin By industry

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A project is more likely to proceed if its ROI is higher – the higher the better. For example, a 200% ROI over 4 years indicates a return of double the project investment over a 4 year period.

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Presentation1 - PowerPoint (Product Activation Failed) 28_11_2020 10_24_42 AM

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HOW CONTRACTOR TO BE AWARDED WITH 5 OR 0 STARS

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HOW CONTRACTOR TO BE AWARDED WITH 5 OR 0 STARS

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Return of Equity is used to compare the performance of companies in the same sector. High ROE can attract investors to invest in a company.

Contractor A shows a high number of ROE ratio which has reached 15%. ROE above 15-20% is categorized as good. Here it can be seen, Contractor A is very smart in managing the financial affair of the company and also has the ability to generate income from the available equity. And this also qualifies Contractor A to receives 5 stars for showing good financial performance of the company

Contractor B shows a total ROE ratio below 10% where ROE below 10% is considered poor. Here you can see Contractor B is not wise in managing finances. Contractor B is not eligible for 5 stars but instead receives 0 star due to the company's poor financial performance.

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The return on equity (ROE) is a measure of the profitability of a business in relation to the equity because shareholder's equity can be calculated by taking all assets and subtracting all liabilities

ROE can also be thought of as a return on assets minus liabilities.

ROE measures how many dollars of profit are generated for each dollar of shareholder's equity.

ROE is a metric of how well the company utilizes its equity to generate profits.

FORMULA OF RETURN ON EQUITY

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How a contractor to be awarded with 5 stars. 

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How a contractor to be awarded with 5 stars. 

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When there is an increase of GPM and it is above the industry average, the company will be awarded with 5 stars. This is because the contractor successful generating the profit for every dollar of cost involved.

For an example, based on the table above, contractor A had an increase in the GPM from 20.0% in 2016 to 21.1% in 2017 and 28.3% in 2018. The GPM of contractor A is also above the industry average. Contractor A did well in managing its cost of sales. It also shows that the company has more to cover operating, financing and other costs.

Thus, contractor A will be awarded with 5 stars and it will be a good choice for the client because they are able to control the cost and generate the maximum sales.

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How a Contractor to be awarded with 0 stars. 

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How a Contractor to be awarded with 0 stars. 

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When there is a decrease of GPM and it is below the industry average, the company will be awarded with 0 stars. This is because the management may make mistakes or failed to control the costs.

For an example, based on the table above, contractor B have a decrease in the GPM from 22.3% in 2016 to 18.6% in 2017 and 17.0% in 2018. The GPM of contractor B is also below the industry average. Contractor B is said to be unable to control the costs. On the other hand, it could be the natural consequence of industry-wide or macroeconomics difficulties beyond the control of a company’s management. The impact of both revenue and costs leads to the decrease of the GPM. It maybe the increase of cost such as raw materials and labour cost and also because of the poor pricing leads to a lower expected profit.

Thus, contractor B will be awarded with 0 stars and it is not a good choice for the client because they have a poor performance.

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How a contractor to be awarded with 0 star

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How a contractor to be awarded with 0 star

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When the current ratio of the company is lower than the industry average. This is because the current assets is lower than current liabilities. Therefore, the company is a weak contractor because they are capable of paying the short-term obligations.

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How a Contractor to be awarded with 0 stars.

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How a Contractor to be awarded with 0 stars.

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The company will be awarded with 0 stars when there is an decrease of NPM and it is below industry average.
For example Company A have a below NPM than average industry. A low net profit margin means that a company uses an ineffective cost structure and/or poor pricing strategies. Therefore, a low ratio can result from: Inefficient management. High costs (expenses)
Thus, Company A is bad choice for clients because of overall poor performance due to ineffective cost structure and poor pricing strategies

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How a Contractor to be awarded with 5 stars.

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How a Contractor to be awarded with 5 stars.

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When the current ratio of the company is higher than the industry average. The current ratio will increase if the current assets is greater than current liabilities but it will decrease if the current assets is lower than current liabilities. Therefore, the company is a good contractor because they are capable of paying the short-term obligations.

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How a contractor to be awarded with 5 star

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How a contractor to be awarded with 5 star

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The company will be awarded with 5 stars when there is an increase of NPM and it is above industry average.
For example Company B have a high NPM above average industry. This means that the company is able to effectively control its cost and provide service at a price significantly higher that its costs, therefore a high ratio can result from efficient management. Low cost (expenses)
Therefore, Company B is a good choice for because they able to effectively control its cost and provide service at a price higher than its cost

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How a Contractor to be awarded with 0 stars.

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How a Contractor to be awarded with 0 stars.

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Due to the negative ROI. If a contractor company does not have the positive ROI, will probably should be undertaken.

It might be due to some situations such as:
▪extraordinary weather
▪payment delay or non-payment
▪tenured (trusted) supervision gone bad
▪uncompensated change orders
▪disorganized client
▪site conditions
▪litigation.

Based on the table, the ROI of Contractor B is lower then Contractor A.  In 2015, Contractor B get a positive ROI which is 79.2% and it started decreased to 53.4% in 2016. After that it still in a decreased to become 20.9% ROI in 2017 and get a lower ROI in 2018 which is only 10.8% It might because of the project have some problem cause it can not to get a good return and start to loss money year by year.

Hence, will not be undertaken and will get 0 star because the investment project is in the loss money condition and it will influence the Contractor B to be trusted by the client.

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How a Contractor to be awarded with 5 stars.

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How a Contractor to be awarded with 5 stars.

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Due to the positive ROI and higher ratio. It means that contractor with a high performance which show the contractor's control over investment management and risk management.

A higher ROI means that the contractor:
▪no large up-front investment in plant or equipment
▪the accounts payable for material can be matched with accounts receivable for that same material.

Based on the table, the Contractor A had a higher ROI compare with Contractor B. When 2015, Contractor A get 90.1% of ROI and then increased to 136.3% in 2016. After that increased 45.9% to become 182.2% ROI in 2017. And in 2018, it had achieve the best ROI which is 205.5%. It means that the project which invested by the Contractor A have a good return within this four years.

Hence, Contractor A is qualified to get a 5 star award due to the higher ROI and the ROI of the investment project achieve the 200% and above.

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Based on the principals that you have identified above, reflect on the scenarios in which contractors to be awarded with 5 stars and 0 stars.

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The net profit margin is equal to how much net income or profit is generated as a percentage of revenue. Net profit margin is the ratio of net profits to revenues for a company or business segment. Net profit margin is typically expressed as a percentage but can also be represented in decimal form.

Net Profit Margin=Net Income/Net Sales x 100 %

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ROI is a simple yet powerful indicator of the true value of a project. Perhaps the most important aspect of ROI in construction industry is its ability to show the contractor figures of a project’s worth. ROI turns the subjective into the objective, which can often turn uncertainty into support.

Formula:
ROI = [(TPO – TPI) / TPI] x 100

▪ Total Project Outcomes (TPO) is the project’s payback/ benefits.
▪ Total Project Investment (TPI) is the project cost.

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Presentation1 - PowerPoint (Product Activation Failed) 28_11_2020 10_36_58 AM

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Gross profit margin (GPM) is a metric analysts use to assess a company's financial health by calculating the amount of money left over from product sales after subtracting the cost of goods sold (COGS). Sometimes referred to as the gross margin ratio, gross profit margin is frequently expressed as a percentage of sales.

The gross profit margin reflects how successful a company's executive management team is in generating revenue, considering the costs involved in producing their products and services. In short, the higher the number, the more efficient management is in generating profit for every dollar of cost involved.

Gross profit margin should be interpreted within the context of the industry and past company performance.

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Current ratio is a liquidity ratio which measure the ability of a company to pay any short-term obligations. This ratio also compares all of the current assets to the current liabilities of a company