Level of Financial Performance of Selected Construction Companies in South Africa

Abstract

Purpose—There is no consensus on the indicators that assess a construction company’s financial performance projects undertaken. There is also a dearth of concepts on the financial performance indicators for construction companies in South Africa and indeed, the wider continent of Africa. This paper proposes novel financial performance indicators for assessing construction organizations and tests these on selected construction companies in the South African construction industry. Design/methodology/approach—This research employed a pragmatic approach. Contractors with financial credibility and capacity of ≥R 40 million, annual turnover of ≥R 20 million, and available capital of ≥R 40 million were purposively selected for this study. Parameters such as total revenue, direct cost of work, total indirect cost and total income were elicited from the sample contractors to assess their financial performance. The assessment was undertaken using formulas that were formulated based on the descriptions provided under the research methodology. Further analysis was conducted using post hoc Tukey’s honest significant difference (HSD). Findings—The study finds that construction companies with a strong structure, multiple areas of specialization, creative and efficient staff members, and access to funding, have a greater chance of experiencing higher: income; positive leverage; positive liquidity; and positive cash flow. Moreover, companies with specialization in civil engineering construction and project management skills experienced higher positive liquidity and profitability. Originality/value—This research is unique through its investigation and formulation of indicators for assessing the financial performance of construction companies. This research is consequently representing the first attempt to analyze financial data using the approaches prescribed and adopted.

Modelling the domino effect of advance payment system on project cash flow and organisational performance

“…These payments vary in size and frequency depending upon the contract(s) agreement(s) made between the contractor and client, sub-contractors and suppliers (Kenley, 2003). Omopariola et al (2021), noted that most contractors working on construction projects suffer serious liquidity and cash flow problems. Also, many contractors have become insolvent not because their work was not profitable but due to a short run lack of cash (Omopariola et al, 2021).…”

“…The ability to have robust and interest-free cash flows to meet the general expenses of a construction organisation is necessity to stimulate performance in construction projects and organisations. Consequently, this allows for nondisruption of project progress (Omopariola et al, 2021). Peer (1992) postulated that a proper cash flow management system (such as prompt payment of sub-contractors, suppliers and payment to workers to cover expenditure of items) is crucial for the survival of a construction firm and organisation efficiency.…”

“…Omopariola et al (2021), noted that most contractors working on construction projects suffer serious liquidity and cash flow problems. Also, many contractors have become insolvent not because their work was not profitable but due to a short run lack of cash (Omopariola et al, 2021). A prominent example includes: Carillion Plc, a former company with a substantial portfolio of public private partnership projects and a sector leading ability to deliver sustainable solutions ECAM 31,13 (Carillion, 2016).…”

“…These payments vary in size and frequency depending upon the contract(s) agreement(s) made between the contractor and client, sub-contractors and suppliers (Kenley, 2003). Omopariola et al. (2021), noted that most contractors working on construction projects suffer serious liquidity and cash flow problems.…”

“…(2021), noted that most contractors working on construction projects suffer serious liquidity and cash flow problems. Also, many contractors have become insolvent not because their work was not profitable but due to a short run lack of cash (Omopariola et al. , 2021).…”