What Has Happened to Builders’ Profit Levels?

Every couple of years, NAHB Economics asks single-family builders nationwide to provide data from their income statements and balance sheets so that industry-wide benchmarks on profit margins, asset and equity positions can be determined.  Results from the recently released Cost of Doing Business Study: 2014 Edition show that margins in 2012 improved over 2008 and 2010, but are still lower than in 2006.

Builders reported an average of $13.7 million in revenue for fiscal year 2012, of which $11.3 million (82.6%) was spent on cost of sales (i.e. land costs, direct and indirect construction costs), leaving them with a gross profit margin of 17.4%.  Operating expenses (i.e. finance, sales, marketing, general, and administrative expenses) took another $1.7 million (12.5%), and so in the end, builders posted an average net profit (before taxes) of $666,000, a 4.9% net profit margin.

Fig1

Builders’ average gross profit margin in 2012 (17.4%) was higher than in 2010 (15.3%) and 2008 (14.4%), but was still lower than in 2006 (20.8%).  Meanwhile, builders’ average net profit margin jumped to 4.9% in 2012, about 10 times higher than in 2010 (0.5%) and a definite improvement over the loss in 2008 (-3.0%), but still lower than in 2006 (7.7%).

Fig2

As far as their balance sheets, builders reported average 2012 total assets of $8.9 million, $5.7 million in liabilities (63.6% of all assets), and $3.2 million in equity (36.4%).  Only 7% of their assets was held in cash, while 67% was held as construction work in progress.  Current liabilities represented about 20% of assets.

Fig3After being cut in half between 2006 and 2010, builders’ balance sheets saw some improvement in 2012.  Their average total assets fell from $13.0 million in 2006, to $6.2 million in 2010, but bounced back to $8.9 million in 2012 (same level as 2008).  Similarly, average equity recovered to $3.2 million in 2012, higher than in 2008 ($2.8 million) and 2010 ($2.0 million), but not quite where it was in 2006 ($3.4 million).

Fig4



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