Beginning Backlog
Beginning backlog refers to the starting backlog for a period, carried over from the previous period’s ending backlog.
Guide to Construction & Engineering Industry KPIs
This guide highlights the key performance indicators for the construction & engineering industry and where investors should look to find an investment edge. While this guide is not a fully integrated construction & engineering industry primer, as the market leader in granular consensus estimates data, Visible Alpha works with partners and clients to determine the key performance indicators in the industry. This guide will aid market participants in identifying industry KPIs and the potential future performance of construction & engineering companies, by region and service type.
Industry Overview
The construction & engineering (C&E) industry is a crucial driver of global economic growth, infrastructure development, and urbanization. Encompassing the design, development, and construction of buildings, transportation networks, and energy facilities, it forms the backbone of essential infrastructure that underpins modern economies. The sector includes a wide range of services such as civil engineering, mechanical and electrical systems, project management, and consulting.
Spanning from public infrastructure to private sector projects, the industry is characterized by complex project management, regulatory challenges, and rapidly evolving technologies. Broadly, the construction and engineering industry is divided into two main segments: EPC (Engineering, Procurement, & Construction) and O&M (Operations & Maintenance).
The EPC segment includes:
- Engineering: Involving initial architecture, engineering concepts, and design planning.
- Procurement: Covers purchasing materials, materials management, inspection, and logistics.
- Construction: Includes employee hiring and training, subcontractor management, and supporting systems, equipment, and tools.
The O&M segment encompasses a broad range of specialized services, delivered either directly or through partnerships, such as joint ventures. Key services include:
- Operation and maintenance: Managing complex government facilities, such as military bases and test ranges.
- Engineering services: Network and communications engineering, software development, IT infrastructure design, cyber defense, and cloud computing.
- Waste management: Deactivation, decommissioning, and disposal of nuclear and hazardous waste.
- Component testing: Developing and testing new components and platforms, along with technical support for modernizing aging weapon systems.
- Logistics support: Facilitating government supply and distribution networks.
Within both the infrastructure and the industrial segments, construction & engineering companies’ clients range from local, state, and federal governments to national governments and private corporations in the power and petrochemical sectors. Key project types include:
- Highways, bridges, airports, railways, and other transit infrastructure
- Maritime and terminal facilities
- Dams, water, and wastewater treatment projects
- Industrial production facilities
- Mines and mining operations
Companies in the industry operate on a contract basis, which includes:
- Fixed-Price Contracts: Negotiated based on a specific project scope, often used in construction management and design-build services.
- Time-and-Materials Contracts: Common for smaller projects, these contracts involve negotiating hourly rates and charging clients for actual hours worked.
Industry Business Model
Revenue
Construction & engineering (C&E) companies generate revenue through engineering, procurement, and construction (EPC) services, as well as operations and maintenance activities. Revenue is estimated based on orders and backlog data. Analysts calculate revenue for C&E companies based on the unique aspects of their business, such as project duration, contract type, project backlog, and the percentage of project completion. Key metrics considered in revenue estimation include:
- Backlog value: Analysts often start with a company’s project backlog, which is the total value of uncompleted projects that are contracted and expected to generate revenue in the future. The backlog acts as an indicator of future revenue and provides insight into the volume and timing of expected cash flows.
- Book-to-bill ratio: Book-to-bill ratio is the ratio of orders received to units shipped and billed for the period. Companies with a strong backlog turnover can convert more of their backlog into revenue within a given period, which analysts consider when projecting revenue growth.
- Net order value refers to the total value of orders received by a company during a specific period, minus any cancellations, returns, or adjustments. It provides insight into the demand for the company’s services or products and is particularly useful for construction and engineering companies to gauge the value of new contracts signed during the period.
Net order value is important because it helps analysts understand a company’s sales momentum and backlog growth, providing a clearer picture of future revenue and business performance.
- Burn Rate refers to the rate at which a company converts its backlog of contracted work into realized revenue. It is calculated by dividing the revenue earned during a given period (e.g., a quarter) by the backlog at the beginning of that period.
A higher burn rate signals efficient project execution and faster completion of contracted work, leading to improved cash flow and greater financial stability. Conversely, a lower burn rate may indicate delays or inefficiencies in fulfilling contracts.
Specifically construction & engineering revenue is calculated as:
Here’s how each term is defined:
- Beginning backlog: The value of work that was contracted but not yet completed at the start of the period.
- Net new orders: The value of new contracts secured during the period, often referred to as “Net order value.”
- Ending backlog: The value of work that remains contracted but uncompleted at the end of the period.
Alternatively, construction and engineering revenue can also be calculated as the sum of EPC revenue and O&M revenue. Here EPC revenue is calculated as the sum of EPC revenue generated from infrastructure projects and industrial projects.
Operations and maintenance (O&M) revenue also follows a similar computation.
Construction & Engineering Industry Business Models
CLICK DIAGRAMS TO EXPAND
Expenses
C&E companies face a range of expenses associated with the execution of projects, maintenance of operations, and business development. The key expenses typically include:
- Cost of goods sold (COGS): COGS is a major expense for construction & engineering companies due to the nature of their business, which is heavily reliant on materials, labor, and project-specific inputs. COGS includes either the cost of goods sold or the cost of services rendered. Expenses under COGS include wages, benefits, subcontractor costs, materials, equipment, and other direct and indirect costs, including related depreciation.
- Depreciation & amortization (D&A) expenses: Expenses associated with the wear and tear of physical assets and the amortization of intangible assets.
- Selling, general, and administrative (SG&A) expenses: This includes advertising expenses, employee benefits, and other operational overheads not directly tied to project execution.
Profitability
Profitability in this industry hinges on operational efficiency, strategic cost control, and managing substantial capital investments. Key profitability metrics include:
- Operating profit margin (EBIT margin) shows the percentage of revenue left after accounting for operating expenses such as salaries, rent, utilities, and depreciation. It reflects the company’s ability to manage overhead costs while running operations.
- EBITDA margin measures the operating profitability of a company without the influence of capital structure, tax rates, and depreciation. It’s particularly useful in assessing the cash-generating ability of a C&E company.
- Return on equity (ROE) assesses the profitability generated for shareholders relative to the equity invested in the company.
- Return on Invested Capital (ROIC) evaluates how efficiently the company generates returns from its invested capital, including debt and equity, highlighting overall capital efficiency.
Key performance indicators (KPIs) are the most important business metrics for a particular industry. When understanding market expectations for the construction & engineering industry, whether at a company or industry level, some KPIs to consider include:
Visible Alpha’s Standardized Industry Metrics
To understand market expectations for the construction & engineering industry, a key information source is sell-side analyst estimates and consensus forecast data. The buy-side, sell-side, and public companies leverage this type of data to conduct competitive analysis, a type of analysis conducted by professional analysts that involves comparing standardized metrics of one company with those of similar companies. Because companies report metrics differently – and sometimes report on different metrics altogether – standardizing the key metrics for each company can be a cumbersome process.
Visible Alpha Insights includes analyst data, company data, and industry data at a level of granularity unparalleled in the market. Our industry data – Standardized Industry Metrics – enables market participants to quantify and compare market expectations for companies across 150+ industries.
Data as of December 18, 2024
Our integrated construction & engineering industry data set includes:
111
Global Tickers
1010
Current Analyst Excel Models
513
Proprietary line items in our standardized operating metrics data
111
Contributing Brokers
770
Total standardized line items
257
Unique Line Items In Our Standardized Financials Data
Visible Alpha offers 10 construction & engineering-related comp tables, comparing forecasts for key financial and operating metrics, to make it easy to quickly conduct relative analysis. Every pre-built, customizable comp table is based on region, sub-industry, or key operating metrics.
NORTH AMERICA
- Quanta Services Inc: (NYSE: PWR)
- AECOM: (NYSE: ACM)
- Fluor Corporation: (NYSE: FLR)
- MasTec Inc: (NYSE: MTZ)
- WSP Global Inc: (TSX: WSP)
EMEA
- Vinci SA: (EPA: DG)
- ACS, Actividades de Construcción y Servicios, S.A.: (BME: ACS)
- Hochtief AG: (FRA: HOT)
- Bouygues SA: (EPA: EN)
- Eiffage SA: (EPA: FGR)
APAC
- China State Construction Engineering: (SHA: 601668)
- China Railway Group: (SHA: 601390)
- Hyundai Engineering & Construction: (KRX: 000720)
- Kajima Corporation: (TSE: 1812)
- Larsen & Toubro Ltd: (NSE: LT)
Industry KPI Terms & Definitions
Visible Alpha offers an innovative, integrated experience through real-time, granular consensus estimates and historical data created directly from the world’s leading equity analysts. Using a subset of the below KPIs, this data can help investors hone in on the key drivers of companies to uncover investment opportunities.
Beginning Backlog
Beginning backlog refers to the starting backlog for a period, carried over from the previous period’s ending backlog.
Orders
Orders refer to the confirmed customer requests for products or services that the company has agreed to deliver.
Net Order Value
Net order value is the total value of new orders received during a specific period, excluding any cancellations, adjustments, or discounts. It reflects the actual revenue potential from confirmed customer orders after accounting for any modifications or reductions.
Backlog Value
Backlog value represents the total dollar value of awarded contracts and works in progress that the company expects to recognize as revenue in the future. In the C&E industry, backlog reflects the remaining value of work that has yet to be completed.
Book-to-Bill Ratio
The book-to-bill ratio is the ratio of new orders received during a period to the revenue recognized during that same period.
Burn Rate
Burn rate is a measure of how quickly the company converts backlog into revenue, calculated by dividing the revenue for the current period by the beginning backlog for that same period.
EPC Revenue
EPC revenue refers to the income generated from Engineering, Procurement, and Construction (EPC) contracts. These contracts typically cover the end-to-end delivery of a project, including designing, sourcing materials, and completing construction. EPC revenue is recognized based on the progress of work completed under these agreements.
Operations & Maintenance Revenue
Operations & maintenance (O&M) revenue is the income earned from ongoing services provided to maintain, repair, or operate completed projects or infrastructure. This revenue stream is typically generated through long-term service contracts and reflects the support provided after the initial construction or installation phase.
Download this guide as an ebook today:
Guide to Construction & Engineering Industry KPIs for Investment Professionals
This guide highlights the key performance indicators for the construction & engineering industry and where investors should look to find an investment edge, including:
- Construction & Engineering Industry Business Model & Diagram
- Key Construction & Engineering Industry Metrics PLUS Visible Alpha’s Standardized Industry Metrics
- Available Comp Tables
- Industry KPI Terms & Definitions
Contact Us
For more information, or to request data, fill out this form.
