ASSESSMENT OF FINANCIAL HEALTH OF CONTRACTORS IN SINGAPORE

Abstract

Selection of main contractors that show signs of financial distress should be avoided at all costs. This research aims to identify the financial indicators and methods that construction clients and contractors in Singapore can use to assess the financial health of contractors. Based on the financial data of 44 contractors obtained from ACRA, the financial health of contractors was ascertained using financial ratios and Z-score model. In addition, ANOVA test was carried to identify if different company characteristics will result in significant differences in the financial health of main contractors. The results show that between 2013 and 2015, the financial health of contractors in the top 50% improved, while the financial health of contractors in the bottom 25% declined. Also, the financial ratios indicate that there are more positive trends in the liquidity, profitability, leverage and operating efficiency of contractors from 2014 to 2015, as compared to 2013 to 2014. It is also found that the country of origin and size of a company have statistically significant relationships with the financial health of a contractor, in which contractors that originated in Singapore and/or has large revenues (above S$300 million) are significantly stronger in terms of financial health. It is recommended that contractors refer to the benchmarks constructed in this study to compare themselves to the industry’s top 75th percentile, median and 25th percentile. Knowing where they stand with respect to the rest of the industry, actions can be taken to improve their financial health, if necessary.