Analysis of Financial Performance of Construction Companies

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CHAPTER 5

Conclusions

5.1Introduction

This chapter provides the conclusions with the overall study this research. Most of the findings are consistent with the objectives and can be stated out. However, there are also some limitations for the findings which are stated in section ( ). Besides, there are several recommendations are suggested for further study.

5.2Discussion

The present research has produced a substantial contribution to the literature of the local construction companies. By providing recent epoch empirical information on the performance of the construction environment, this nowadays study with its limitations make an important addition to the empirical literature on this important segment of the Malaysia construction industry. As such, the information may be practiced to provide Malaysia construction industry with crucial information and will enable to evaluate and monitor the financial distress over the accounting ratios and distress scoring.

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The aim of this field of study is to strengthen the construction companies to review, understand and beware from their past financial performance. In order to eliminate any inconsistencies happened in the future, therefore also to ensure the company can achieved best value by establishing or formulate a series of new strategies respectively.

Overall, the revenue of the construction companies has growth very fast from year 2004 to 2009. Although the revenue drops in 2010 and 2011, as the figure 4.4 shows in chapter 4, the total assets of construction companies perform a steady growth throughout the study period as result the majority of the construction companies have well utilized their asset. There is no big impact of financial crisis on total asset in the construction industry. The high growth rate of revenue in 2009 and 2012 may be contributed from the construction company’s high asset turnover. The high asset turnover indicates the constructions companies have been managing its asset efficiently to generate high amount of business activity in that particular year. After economic crisis, the net profit increase substantially from 2010 to 2012 as the construction companies was subjected to high borrowing cost and this may be that cause the net profit to grow not as fast as the revenue.

In 2006, the profitability show anomalous pattern which was drop in profit of the construction companies affected the net profit margin; return on average equity and return on average asset suffer immensely colossal drop. The global financial crisis has impact on the profitability in the construction industry. The profitability ratio of the construction companies suffer huge drop. The construction companies did not utilizing the assets well in generating income to run its business with a minimum profit margin and poor financial management in that particular year.

However, the huge drop of efficiency ratios in year 2010 are affected by the drop of the revenue. This related to the total number of transaction and the latter related to the business environment caused by global financial crisis. The construction companies should achieve more high efficiency in utilizing its assets. By well manage its asset can generate high amount of business activity in order to increasing the revenue of the construction company for the future. The current ratio and quick ratio of the construction companies facing huge drop in 2008 and 2012. The main reason because of the changes of the current liabilities and these include the amount due from customers and short term borrowing. In year 2008 and 2012, current liabilities were recorded as higher value.

In the overall trend, the leverage ratio shows that the construction companies no any impact from the global financial crisis towards the debt ratio of construction companies pre-crisis and post crisis and the construction companies have less risky capital structure and still able to growing the business.

In year 2008, earnings per share of the construction companies were drop because of the share price market was affected by global financial crisis. During year 2007, the investor willing to pay as much as RM 15.76 for RM 1 earnings. The P/E ratio drop in year 2008 and it means the stock does not worth at that particular year. This can be explaining with the fact that the market is not encouraging the construction companies for investment during global financial crisis. Cash flow ratio of the construction companies difficult in generate more cash to pay off its short-term liabilities which consider serious situation and mainly because of global financial crisis.

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The overall Z-score for the construction companies in the industry stay around 1.7 from year 2004 to 2006 and improve to 2.9 in year 2007. Following by a drop to 1.7 in year 2008 and 2009, the score then increase to 1.9 in 2011. The score in year 2012 is 1.7 which falls in the distress zone. The drop in year 2012 is due to the increase of total assets is greater than the increase in retained earnings and working capital. The construction companies were reducing the liquidity. Hence, to increase their leverage potentially due to more high profile investment plans.

5.3Results

This study show the performance of the 35 selected construction companies in the over nine years period in some of the financial area as shown in the analysis in chapter 4. The results of the over perform of the construction companies are as shown below,

  1. Overall of the 35 selected construction companies has the highest growth rate in revenue.
  2. Net profit of the construction companies drop every 2 years because of lag effect.
  3. Construction companies have grown its total assets the most over the nine years period.
  4. Construction companies have the lowest and falling return on average equity because of the impact of global financial crisis.
  5. Construction companies facing huge drop in current ratio and not stable in financial mainly because large amount due from customer and difficult finance loan from bank during global financial crisis.
  6. Construction companies have the good stability with highest total assets turnover.
  7. Construction companies still able to make profit and not affected during global financial crisis.
  8. The economics of construction industry started to deteriorate after global financial crisis.

5.4Findings

There are some findings were discover from this study as stated below,

  1. The financial performance of the companies can be evaluate and done by comparing the results with the peers.
  2. The analysis of the financial performance is a feasible performance measurement method which is economical to perform and can provide quantifiable and reliable result for this study.
  3. All the financial data derived from the construction companies can be used to analyze the information about the company’s capital efficiency and growth rate.

5.5Limitations

The final results obtain from this study has some limitations that need to be taken into consideration in exploring the result. Firstly, the methodology applies in this paper only focus on the analyzing and evaluating the past performance of the construction companies. Although the past growth trend of the construction companies can be identified and projected for the future financial performance, however the results from projection are not precise and subject to instabilities. However, the analysis does not provide a better framework for forecasting the future financial performance of the construction companies. Secondly, these studies only analyze all the construction companies listed in Bursa Malaysia. This study does not cover the other unlisted construction companies that are not listed in Bursa Malaysia. Thirdly, the financial performance of the construction companies stated in this paper are only limited to a nine years period which is from 2004 to 2012. Although the result obtain from over nine years period are sufficient to show the long term performance of the construction companies, but some of the company’s annual report end up in their financial balance sheet in different months. (Therefore, afadfbdsfbmsdbfdsfnmsdgmmsdgsd.) Lastly, there are more works to assured to examine the result of all the financial ratios, together with the prevailing circumstance of over rivalry, inelasticity of the construction cost and decrease entire local demand of all the public listed construction companies in Malaysia, for a longer period.