Halim, M S A; Jaafar, M; Osman, O and Shariff Haniff, M (2012) Financial ratio analysis: An assessment of Malaysian contracting firms. Journal of Construction in Developing Countries, 17(S1), pp. 71-78. ISSN 1823-6499
Abstract
This paper examines the role of financial management in the success or failure of construction firms. According to previous studies on the impact of financial factors in the failure of construction projects, poor financial management and lack of capital are the main determinants of construction failure. Failures in the construction industry are experienced not only by developing countries but also worldwide, and the failure scenario is present in the construction industry in Malaysia. The failure rate of construction companies in Malaysia is high. According to the Construction Industry Development Board Malaysia (CIDB), from January 2006 to August 2008, 11,321 construction companies were classified as dormant and non-active. There are very few successful contractors in Malaysia, and most construction projects cannot be completed within the original schedule. The sources of failure are directly related to financial factors. In this case study, 17 financial ratios were used to measure companies' financial performance. Six medium and large Bumiputera contractors were selected as case studies. This study found that most Bumiputera construction companies had insufficient cash capital to finance their construction work, experienced a low profit margin from construction projects and were highly dependent on debt capital to finance their construction costs. There was a lack of monitoring systems for cash flow and project costs. Without effective financial practices, construction companies are setting themselves up for failure.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | construction industry; financial failure; financial management |
| Index terms: | Malaysia, financial management, case study, construction cost, construction industry development, monitoring, construction work, financial factor, construction industry, determinant, developing country, cash flow, financial failure, project cost, construction firm, construction company, profit, financial performance, construction project, financial ratio |
| Subjects: | industry analysis, development economics, production management, Geography, business analysis, economics, financial management, financial and cost management, economic analysis, business management, operations management, control systems, organization, data collection methods, risk assessment |
| Topics: | Project Management, Geographical Context, Research Practice, Cost Management, Business Strategy, Risk Management, International Construction, Site Management |
| Descriptive scope: | 5 PCTEA |
N.B. Descriptive scope is a count of how many of the five facets of empirical research are indicated by the words used in title, abstract and keywords. It is not intended as a judgement on the research; merely a count of the kind of word we would expect to indicate Phenomenon, Concepts, Theoretical framing, Empirical techniques, Analytical techniques. If all five are present, then a code of “5 PCTEA” will indicate this. If you feel the coding for this record is questionable, we welcome discussion around the terms we matched or the way we categorized them. The facet you would expect may not be coded, or a facet may be coded inappropriately. This can also bear on a larger question, of which facets should be treated as defining in construction management research. Please get in touch, and we will look at it. More details here