FACTOR ANALYSIS OF PROFITABILITY (LOSSES) CONSTRUCTION ENTERPRISES IN 1999-2019

Olha Bіelіenkova

doi:10.36690/2674-5208-2020-1-4

Authors

Olha Bіelіenkova Kyiv National University of Construction and Architecture https://orcid.org/0000-0002-1142-5237

DOI:

https://doi.org/10.36690/2674-5208-2020-1-4

Keywords:

DuPont model, Return On Equity (ROE), Return On Assets (ROA), Return on Sales (ROS), construction industry, construction enterprice

Abstract

Decomposition of Return on Equity (ROE) after Return on Assets (ROA), Return on Sales (ROS), Total Assets Turnover (TAT) and Equity Multiplier (EM) provides an analytical framework appropriate for observing factors that make and influence profitability. An analysis of the literature makes it clear that classic and modified DuPont models are widely used to analyze the profitability of many industries, including construction. Despite critical feedback from some scientists, this method remains a useful tool for identifying factors influencing the effectiveness of an enterprise, industry, or region. Aims - to calculate the profitability indicators of the "construction" activity enterprises in 1999-2019, to analyze their dynamics and to identify the reasons for the changes. Methods is a widely used Dupont profitability analysis method that involves decomposing the outputs into components in order to identify the effects of those components on the outcome. The profitability indicator analysis of "construction" activity enterprises in 1999-2019 revealed that the construction industry operated at a loss for a decade in a row (2008-2017), which is reflected primarily in the capital structure. During these years, equity decreased to a critical level; in 2015, uncovered losses exceeded the amount of authorized and reserve capital. Only in 2018 the situation started to level off. Factor analysis of profitability indicators has revealed the in depth factors that affect them, namely: loss of the main activity of construction enterprises for ten consecutive years, which caused a decrease in equity to a critically low level and, accordingly, high values of financial leverage. It can be seen that while in the 2000s, the volume of general sources of financing (the amount of liabilities) was 3.65 times higher than the amount of construction capital, in 2009 - 5.2 times, it was 15.5 times in 2019. Therefore, the reverse direction of the financial lever should also be considered. In the case of profitable activity, the financial lever will allow to reach high values of return on equity. But in times of crisis or continuation of a downward trend, this can lead to a loss of financial sustainability in the construction sector.

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Author Biography

Olha Bіelіenkova, Kyiv National University of Construction and Architecture

Ph.D (Economics), Associate Professor, Associate Professor of the Department of Construction Economics, Kyiv National University of Construction and Architecture, Kyiv, Ukraine, ORCID: https://orcid.org/0000-0002-1142-5237

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