Profitability in the Construction Sector

There is a positive trend of profitability in the construction industry though it has recently experinced some pullbacks, as respondants are less optimistic regarding profitability and the state of our economy at present.

It is however normal in this industry to accept pressurised profit margins due to extra-ordinary profit margins that are often received.

According to Stats SA nett profit before tax as a percentage of turnover for construction - the data provided for different firms showed the strongest deterioration, while conditions have stabilised with a gradual uptrend in the profitability of larger firms.

What does this tell us? Looking at the profit margins, it's quite clear that the opportunity is open to anyone from small to larger enterprises. Small enterprises have higher profit margins which is proportional to their contract values; and larger firms have smaller profit margins which are proportional to their values.

To get the bigger picture - a 15% profit margin of a Contract Value of about R 500 000.00 is R 75 000.00 (for smaller firms). While a 5% of R 50 000 000.00 is R 2 500 000.00. It's however highly possible to obtain higher profit margins even in the larger firms.

This is the significant difference because of the value of the Contract and responsibility involved which impose high risk on Profit Erodibility.

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