Financial Data
Enter the essential financial figures below. Expand the additional sections for a comprehensive analysis.
Financial Ratio Analysis Guide for European Auditors — free PDF
ISA 520 & ISA 570 practical workbook: all formulas with visual explanations, industry benchmark reference tables from BACH for 15 industries, ratio interpretation guide, and template narrative paragraphs for audit working papers.
No spam. Unsubscribe anytime.
ISA 520.5 — Design and perform analytical procedures near the end of the audit that assist in forming an overall conclusion.
ISA 520.A1 — Analytical procedures may include ratios such as gross margin percentages and ratio of sales to accounts receivable.
ISA 570.A3 — Negative working capital, adverse key financial ratios, operating losses, and other indicators may cast doubt on going concern.
Financial Ratio Analysis for Construction
Construction company financial ratio analysis is complicated by percentage-of-completion revenue recognition under IFRS 15, which means that both revenue and profit are estimated throughout the contract lifecycle rather than observed at completion. This creates unique challenges for ISA 520 analytical procedures: a construction company's reported gross margin depends heavily on management's estimate of total contract costs, stage of completion, and expected profit. Shifts in margin estimates can produce large adjustments in any given period.
The cash conversion cycle for construction companies is typically longer than other sectors (BACH median DSO: 70 days, DPO: 55 days) due to progress billing cycles and retention receivables. Contract assets (amounts due from customers for work completed but not yet billed) represent a significant balance that doesn't appear in traditional AR. For meaningful ratio analysis, combine contract assets with trade receivables when calculating turnover ratios. Retention receivables (typically 5–10% of contract value, held for 6–24 months) should be assessed separately for recoverability.
Construction companies often operate through joint ventures and consortium arrangements (IFRS 11), which can significantly affect consolidated ratios. A contractor's proportionate share of joint venture revenue and assets may not appear in the primary statements if equity-accounted. Similarly, back-to-back subcontractor arrangements create off-balance-sheet exposure that traditional ratios miss. BACH construction benchmarks (median gross margin: 20%, median D/E: 1.50) reflect the thin-margin, capital-efficient business model typical of European contractors.
Regulatory Context
IFRS 15 over-time revenue recognition. Contract modifications and claims. IFRS 11 joint arrangement classification. Performance bonds and guarantees. Retention receivable recoverability.
Industry-Specific Going Concern Indicators (ISA 570)
Loss-making contracts in the current backlog
Order backlog declining below 12 months of revenue
Increasing claims and disputes on completed contracts
Key subcontractor insolvency or payment delays
Bond or guarantee facility expiring without renewal
Negative operating cash flow despite accounting profit
Worked Example: European Construction Company
BauWerk Bau GmbH — mid-size commercial construction with €52M revenue
Key results: Current Ratio: 1.22, Quick Ratio: 0.81, Gross Margin: 18.0%, Net Margin: 3.5%, ROE: 14.0%, D/E: 1.69, Interest Coverage: 4.5x, DSO: 63 days (includes contract assets), Inventory Days: 64 (WIP-heavy), CCC: 73 days