by Rose Quint — Eye on Housing
If you have ever wondered how much single-family builders are earning these days or how much profit is considered “average” in the industry, then a recently published NAHB study based on a national survey of single-family builders titled “The Cost of Doing Business Study: 2012 Edition” will help provide answers.
On average, single-family builders in fiscal year 2010 made $7.1 million in revenue, had $6.0 million go towards cost of sales, and slightly over $1 million towards operating expenses, which left them with an average net profit of $39,000 (before taxes). In terms of percentages of revenue, cost of sales represented 84.7% of total revenue, which translates into a gross profit margin of 15.3%. Operating expenses ate up another 14.7%, leaving builders with a net profit margin of only 0.5%.
The average net profit margin of 0.5% reported by builders in 2010 may be small, but at least it was positive. The picture was quite different in 2008, when builders reported a negative net profit margin of 3.0%! In contrast, the average net margin in 2006 stood at 7.7%.
Data also show that builders did some significant belt-tightening around operating expenses. In fact, these expenses went from representing 17.4% of revenue in 2008, down to 14.7% in 2010.
As far as their balance sheet, builders had an average of $6.2 million in assets in 2010, $4.2 million in liabilities, and $2.0 million in equity. Only 7.7% of their total assets was held in cash, while 69.7% was held as construction work in progress.
Builders’ balance sheets have shrunk by more than half since 2006, when they reported an average $13.0 million in total assets. But liabilities have come down by even a bigger margin, going from $9.5 million in 2006 to $4.2 million in 2010. As a result, on average, builders have seen their current ratio and debt-to-equity ratio improve significantly during this period.