Profitability of UK construction contractors

This paper describes three analyses to examine differences in construction company POT profitability between (1) different financial years and (2) different sizes of companies. In the first analysis, the aggregated profitability of a sample of 80 UK general contractors was found not to differ significantly from 3.23 % for each year of the period examined. The size (turnover) of companies, however, was significantly and positively correlated with profitability. The second analysis, of a sub-sample of eight very large companies, showed that profitability enhancement was associated with diversification into house building and other related activities. The third analysis, of 110 speculative house builders, showed profit margins to be around four times those of general contractors but uncorrelated with company size. Systematic changes were found, however, over the period involved. In all cases, the variability of profitability between companies was found to reduce with company size, implying a greater consistency in the financial performance of larger companies.