Halim, Mohd Suberi Ab. and Jaafar, Mastura and Osman, Omar and Haniff, Md. Shariff
(2012)
Financial Ratio Analysis: An Assessment Of Malaysian Contracting
Firms.
Journal of Construction in Developing Countries , 17 (1).
pp. 71-78.
ISSN 1823-6499
Abstract
This paper examines the role of financial management in the success or failure of
construction firms. According to previous studies on the impact of financial factors in the
failure of construction projects, poor financial management and lack of capital are the main
determinants of construction failure. Failures in the construction industry are experienced not
only by developing countries but also worldwide, and the failure scenario is present in the
construction industry in Malaysia. The failure rate of construction companies in Malaysia is
high. According to the Construction Industry Development Board Malaysia (CIDB), from
January 2006 to August 2008, 11,321 construction companies were classified as dormant and
non-active. There are very few successful contractors in Malaysia, and most construction
projects cannot be completed within the original schedule. The sources of failure are directly
related to financial factors. In this case study, 17 financial ratios were used to measure
companies' financial performance. Six medium and large Bumiputera contractors were
selected as case studies. This study found that most Bumiputera construction companies had
insufficient cash capital to finance their construction work, experienced a low profit margin
from construction projects and were highly dependent on debt capital to finance their
construction costs. There was a lack of monitoring systems for cash flow and project costs.
Without effective financial practices, construction companies are setting themselves up for
failure.
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