Document ID: EPA-HQ-OW-2002-0030-0017
Agency: epa
Document Type: Supporting & Related Material
Title: 
Posted Date: 2002-06-24T04:00Z

APPENDIX
2C
Definitions
of
Key
Business
Ratios
From
Dun
&
Bradstreet
Economic
Analysis
of
Construction
and
Development
Proposed
Effluent
Guidelines
May
2002
SOLVENCY
RATIOS
Quick
Ratio
Cash
+
Accounts
Receivable
Current
Liabilities
The
Quick
Ratio
is
computed
by
divided
cash
plus
accounts
receivable
by
total
current
liabilities.
Current
liabilities
are
all
the
liabilities
that
fall
due
within
one
year.
This
ratio
reveals
the
protection
afforded
short­
term
creditors
in
cash
or
near­
cash
assets.
It
shows
the
number
of
dollars
of
liquid
assets
available
to
cover
each
dollar
of
current
debt.
Any
time
this
ratio
is
as
much
as
1
to
1
(
1.0)
the
business
is
said
to
be
in
a
liquid
condition.
The
larger
the
ratio
the
greater
the
liquidity.

Current
Ratio
Current
Assets
Current
Liabilities
Total
current
assets
are
divided
by
total
current
liabilities.
Current
assets
include
cash,
accounts
and
notes
receivable
(
less
reserves
for
bad
debts)
,
advances
on
inventories,
merchandise
inventories
and
marketable
securities.
This
ratio
measures
the
degree
to
which
current
assets
cover
current
liabilities.
The
higher
the
ratio
the
more
assurance
exists
that
the
retirement
of
current
liabilities
can
be
made.
The
current
ratio
measures
the
margin
of
safety
available
to
cover
any
possible
shrinkage
in
the
value
of
current
assets.
Normally
a
ratio
of
2
to
1
(
2.0)
or
better
is
considered
good.

Current
Liabilities
to
Net
Worth
Current
Liabilities
Net
Worth
Current
Liabilities
to
Net
Worth
is
derived
by
dividing
current
liabilities
by
net
worth.
This
contrasts
the
funds
that
creditors
temporarily
are
risking
with
the
funds
permanently
invested
by
the
owners.
The
smaller
the
net
worth
and
the
larger
the
liabilities,
the
less
security
for
the
creditors.
Care
should
be
exercised
when
selling
any
firm
with
current
liabilities
exceeding
two­
thirds
(
66.6
percent)
of
net
worth.

2C­
1
Economic
Analysis
of
Construction
and
Development
Proposed
Effluent
Guidelines
May
2002
Current
Liabilities
to
Inventory
Current
Liabilities
Inventory
Dividing
current
liabilities
by
inventory
yields
another
indication
of
the
extent
to
which
the
business
relies
on
funds
from
disposal
of
unsold
inventories
to
meet
its
debts.
This
ratio
combines
with
Net
Sales
to
Inventory
to
indicate
how
management
controls
inventory.
It
is
possible
to
have
decreasing
liquidity
while
maintaining
consistent
sales­
to­
inventory
ratios.
Large
increases
in
sales
with
corresponding
increases
in
inventory
levels
can
cause
an
inappropriate
rise
in
current
liabilities
if
growth
isn
 
t
made
wisely.

Total
Liabilities
to
Net
Worth
Total
Liabilities
Net
Worth
Obtained
by
dividing
total
current
plus
long­
term
and
deferred
liabilities
by
net
worth.
The
effect
of
long­
term
(
funded)
debt
on
a
business
can
be
determined
by
comparing
this
ratio
with
Current
Liabilities
to
Net
Worth.
The
difference
will
pinpoint
the
relative
size
of
long­
term
debt,
which,
if
sizable,
can
burden
a
firm
with
substantial
interest
charges.
In
general,
total
liabilities
shouldn
 
t
exceed
net
worth
(
100
percent)
since
in
such
cases
creditors
have
more
at
stake
than
owners.

Fixed
Assets
to
Net
Worth
Fixed
Assets
Net
Worth
Fixed
assets
are
divided
by
net
worth.
The
proportion
of
net
worth
that
consists
of
fixed
assets
will
very
greatly
from
industry
to
industry
but
generally
a
smaller
proportion
is
desirable.
A
high
ratio
is
unfavorable
because
heavy
investment
in
fixed
assets
indicates
that
either
the
concern
has
a
low
net
working
capital
and
is
overtrading
or
has
utilized
large
funded
debt
to
supplement
working
capital.
Also,
the
larger
the
fixed
assets,
the
bigger
then
annual
depreciation
charge
that
must
be
deducted
from
the
income
statement.
Normally,
fixed
assets
over
75
percent
of
net
worth
indicate
possible
over­
investment
and
should
be
examined
with
care.

2C­
2
Economic
Analysis
of
Construction
and
Development
Proposed
Effluent
Guidelines
May
2002
EFFICIENCY
RATIOS
Collection
Period
Accounts
Receivable
Sales
x
365
Accounts
receivable
are
divided
by
sales
and
then
multiplied
by
365
days
to
obtain
this
figure.
The
quality
of
the
receivables
of
a
company
can
be
determined
by
this
relationship
when
compared
with
selling
terms
and
industry
norms.
IN
some
industries
where
credit
sales
are
not
the
normal
way
of
doing
business,
the
percentage
of
cash
sales
should
be
taken
into
consideration.
Generally,
where
most
sales
are
for
credit,
any
collection
period
more
than
one­
third
over
normal
selling
terms
(
40.0
for
30­
day
terms)
is
indicative
of
some
slow­
turning
receivables.
When
comparing
the
collection
period
of
one
concern
with
that
of
another,
allowances
should
be
made
for
possible
variations
in
selling
terms.

Sales
to
Inventory
Annual
Net
Sales
Inventory
Obtained
by
dividing
annual
net
sales
by
inventory.
Inventory
control
is
a
primate
management
objective
since
poor
controls
allow
inventory
to
become
costly
to
store,
obsolete
or
insufficient
to
meet
demands.
The
sales­
to­
inventory
relationship
is
a
guide
to
the
rapidity
at
which
merchandise
is
being
moved
and
the
effect
on
the
flow
of
funds
into
the
business.
This
ratio
varies
widely
between
lines
of
business
and
a
company
 
s
figure
is
only
meaningful
when
compared
with
industry
norms.
Individual
figures
that
are
outside
either
the
upper
or
lower
quartiles
for
a
given
industry
should
be
examined
with
care.
Although
low
figures
are
usually
the
biggest
problem,
as
they
indicate
excessively
high
inventories,
extremely
high
turnovers
might
reflect
insufficient
merchandise
to
meet
customer
demand
and
result
in
lost
sales.

Asset
to
Sales
Total
Assets
Net
Sales
Assets
to
sales
is
calculated
by
dividing
total
assets
by
annual
net
sales.
This
ratio
ties
in
sales
and
the
total
investment
that
is
used
to
generate
those
sales.
While
figures
vary
greatly
from
industry
to
industry,
by
comparing
a
company
 
s
ratio
with
industry
norms
it
can
be
determined
2C­
3
Economic
Analysis
of
Construction
and
Development
Proposed
Effluent
Guidelines
May
2002
whether
a
firm
is
overtrading
(
handling
an
excessive
volume
of
sales
in
relation
to
investment)
or
undertrading
(
not
generating
sufficient
sales
to
warrant
the
assets
invested)
.
Abnormally
low
percentages
(
above
the
upper
quartile)
can
indicate
overtrading
which
may
lead
to
financial
difficulties
if
not
corrected.
Extremely
high
percentages
(
below
the
lower
quartile)
can
be
the
result
of
overly
conservative
or
poor
sales
management,
indicating
a
more
aggressive
sales
policy
may
need
to
be
followed.

Sales
to
Net
Working
Capital
Sales
Net
Working
Capital
Net
Sales
are
divided
by
net
working
capital
(
net
working
capital
is
current
assets
minus
current
liabilities)
.
This
relationship
indicates
whether
a
company
is
overtrading
or
conversely
carrying
more
liquid
assets
than
needed
for
its
volume.
Each
industry
can
vary
substantially
and
it
is
necessary
to
compare
a
company
with
its
peers
to
see
if
it
is
either
overtrading
on
its
available
funds
or
being
overly
conservative.
Companies
with
substantial
sales
gains
often
reach
a
level
where
their
working
capital
becomes
strained.
Even
if
they
maintain
an
adequate
total
investment
for
the
volume
being
generated
(
Assets
to
Sales)
,
that
investment
may
be
so
centered
in
fixed
assets
or
other
noncurrent
items
that
it
will
be
difficult
to
continue
meeting
all
current
obligations
without
additional
investment
or
reducing
sales.

Accounts
Payable
to
Sales
Accounts
Payable
Annual
Net
Sales
Computed
by
dividing
accounts
payable
by
annual
net
sales.
This
ratio
measures
how
the
company
is
paying
its
suppliers
in
relation
to
the
volume
being
transacted.
An
increasing
percentage,
or
one
larger
than
the
industry
norm,
indicates
the
firm
may
be
using
suppliers
to
help
finance
operations.
This
ratio
is
especially
important
to
short­
term
creditors
since
a
high
percentage
could
indicate
potential
problems
in
paying
vendors.

2C­
4
Economic
Analysis
of
Construction
and
Development
Proposed
Effluent
Guidelines
May
2002
PROFITABILITY
RATIOS
Return
on
Sales
(
Profit
Margin)

Net
Profit
After
Taxes
Annual
Net
Sales
Obtained
by
dividing
net
profit
after
taxes
by
annual
net
sales.
This
reveals
the
profits
earned
per
dollar
of
sales
and
therefore
measures
the
efficiency
of
the
operation.
Return
must
be
adequate
for
the
firm
to
be
able
to
achieve
satisfactory
profits
for
its
owners.
This
ratio
is
an
indicator
of
the
firm
 
s
ability
to
withstand
adverse
conditions
such
as
falling
prices,
rising
costs
and
declining
sales.

Return
on
Assets
Net
Profit
After
Taxes
Total
Assets
Net
profit
after
taxes
divided
by
total
assets.
This
ratio
is
the
key
indicator
of
profitability
for
a
firm.
It
matches
operating
profits
with
the
assets
available
to
earn
a
return.
Companies
efficiently
using
their
assets
will
have
a
relatively
high
return
while
less
well­
run
businesses
will
be
relatively
low.

Return
on
Net
Worth
(
Return
on
Equity)

Net
Profit
After
Taxes
Net
Worth
Obtained
by
dividing
net
profit
after
tax
by
net
worth.
This
ratio
is
used
to
analyze
the
ability
of
the
firm
 
s
management
to
realize
an
adequate
return
on
the
capital
invested
by
the
owners
of
the
firm.
Tendency
is
to
look
increasingly
to
this
ratio
as
a
final
criterion
of
profitability.
Generally,
a
relationship
of
at
least
10
percent
is
regarded
as
a
desirable
objective
for
providing
dividends
plus
funds
for
future
growth.

2C­
5
APPENDIX
2D
Summary
Statistics
for
the
C&
D
Industry,
By
NAICS
Code
Economic
Analysis
of
Construction
and
Development
Proposed
Effluent
Guidelines
May
2002
Table
2D­
1.
Summary
Statistics
for
the
C&
D
Industry
NAICS
Description
Number
of
Establishments
Number
of
Employees
Annual
Payroll
(
$
1000)
Number
of
Construction
Workers
Annual
Payroll
­
Construction
Workers
(
$
1000)
Value
of
Construction
Work
(
$
1000)
Value
of
Construction
Work
Subcontracted
In
(
$
1000)
Net
Value
of
Construction
Work
Value
Added
(
$
1000)

23
Construction
656,448
5,664,853
174,184,608
4,332,737
119,676,792
845,543,552
237,691,136
612,209,024
383,845,728
233
Building,
developing,
and
general
contracting
199,289
1,342,953
42,546,112
885,939
23,135,832
381,641,600
15,724,829
198,826,896
120,322,720
2331
Land
subdivision
and
land
development
8,186
41,827
1,509,773
10,977
254,247
13,635,521
272,860
10,247,820
9,154,633
233110
Land
subdivision
and
land
development
8,186
41,827
1,509,773
10,977
254,247
13,635,521
272,860
10,247,820
9,154,633
2332
Residential
housing
construction
146,394
629,886
16,731,210
407,801
8,762,123
161,286,076
5,260,611
100,124,176
56,374,697
233210
Single­
family
housing
construction
138,850
570,990
14,964,583
367,719
7,739,858
146,798,768
4,985,452
92,802,168
52,585,924
233220
Multifamily
housing
construction
7,544
58,896
1,766,627
40,082
1,022,265
14,487,308
275,159
7,322,008
3,788,773
2333
Nonresidential
building
construction
44,709
671,238
24,305,128
467,161
14,119,463
206,720,022
10,191,358
88,454,894
54,793,388
233310
Manufacturing
and
industrial
building
construction
7,280
143,066
5,128,967
107,180
3,322,347
33,514,342
2479077
17202078
10429844
233320
Commercial
and
institutional
building
construction
37,430
528,173
19,176,160
359,981
10,797,116
173,205,680
7712281
71252816
44363544
234
Heavy
construction
42,557
880,400
30,291,850
710,898
22,218,582
127,841,600
28,386,274
105,639,352
68,775,976
2D­
1
Economic
Analysis
of
Construction
and
Development
Proposed
Effluent
Guidelines
May
2002
NAICS
Description
Number
of
Establishments
Number
of
Employees
Annual
Payroll
(
$
1000)
Number
of
Construction
Workers
Annual
Payroll
­
Construction
Workers
(
$
1000)
Value
of
Construction
Work
(
$
1000)
Value
of
Construction
Work
Subcontracted
In
(
$
1000)
Net
Value
of
Construction
Work
Value
Added
(
$
1000)

2341
Highway,
street,
bridge
&
tunnel
construction
12,447
325,742
11,374,785
265,267
8,473,898
58,011,325
13,657,005
46,274,086
27,477,466
234110
Highway
and
street
construction
11,270
277,979
9,527,626
227,066
7,095,139
48,472,284
12,246,944
39,102,084
22,983,910
234120
Bridge
and
tunnel
construction
1,177
47,764
1,847,160
38,201
1,378,759
9,539,041
1,410,061
7,172,002
4,493,556
2349
Other
heavy
construction
30,107
554,655
18,917,062
445,630
13,744,685
69,830,272
14,729,269
59,365,265
41,298,511
234910
Water,
sewer,
and
pipeline
construction
8,042
162,566
5,522,281
134,023
4,087,007
22,204,058
5,233,440
19,126,738
12,280,098
234920
Power
and
communication
transmission
line
construction
3,300
74,050
2,387,432
60,880
1,748,715
7,849,436
1,312,622
6,741,945
5,201,423
234930
Industrial
nonbuilding
structure
construction
531
98,555
3,722,363
79,473
2,734,020
9,255,216
966,283
8,129,656
6288698
234990
All
other
heavy
construction
18,236
219,486
7,284,989
171,254
5,174,943
30,521,562
7,216,924
25,366,926
17,528,292
235
Special
trade
contractors
414,602
3,441,500
101,346,648
2,735,901
2,940,440
336,060,352
193,580,032
307,742,752
194,747,056
235930
Excavation
contractors
18,229
116,237
3,353,874
92,830
2,525,857
13,746,608
8,745,278
12,216,146
9,086,184
235940
Wrecking
and
demolition
contractors
1,542
18,820
592,176
14,486
414,583
2,164,162
1,099,814
1,913,892
1,732,366
2D­
2
Economic
Analysis
of
Construction
and
Development
Proposed
Effluent
Guidelines
May
2002
a
An
establishment
is
a
single
physical
location
at
which
business
is
conducted.
It
is
not
necessarily
identical
with
a
company
or
enterprise,
which
may
consist
of
one
establishment
or
more.
b
Value
of
construction
work
includes
all
value
of
construction
work
done
during
1992
for
construction
work
performed
by
general
contractors
and
special
trades
contractors.
Included
is
new
construction,
additions
and
alterations
or
reconstruction,
and
maintenance
and
repair
construction
work.
Also
included
is
the
value
of
any
construction
work
done
by
the
reporting
establishments
for
themselves.
This
value
is
not
available
for
SIC
655,
instead
estimates
of
annual
revenue
from
the
Census
of
Financial,
Insurance,
and
Real
Estate
Industries
is
used.
The
measure
includes
'
reported
revenues,
which
include
revenues
from
all
business
activities,
including
amounts
received
for
work
subcontracted
out
to
others.
c
Employment
comprises
all
full­
time
and
part­
time
employees
on
the
payrolls
of
construction
establishments,
who
worked
or
received
pay
for
any
part
of
the
pay
period
including
the
12
th
of
March,
May,
August,
and
November.
Included
are
all
persons
on
paid
sick
leave,
paid
holidays,
and
paid
vacations
during
these
pay
periods.
Officers
of
corporations
are
included,
but
proprietors
and
partners
of
unincorporated
firms
are
not.
All
employees
is
the
sum
of
all
employees
during
the
pay
periods
including
the
12
th
of
March,
May,
August,
and
November,
divided
by
4.
d
Payroll
includes
the
gross
earnings
paid
in
the
calendar
year
1992
to
all
employees
on
the
payroll
of
construction
establishments.
It
includes
all
forms
of
compensation
such
as
salaries,
wages,
commissions,
bonuses,
vacation
allowances,
sick
leave
pay,
prior
to
such
deductions
as
employees'
Social
Security
contribution,
withholding
taxes,
group
insurance,
union
dues,
and
savings
bonds.
e
Construction
workers
include
all
workers
up
through
the
working
supervisor
level
directly
engaged
in
construction
operations,
such
as
painters,
carpenters,
plumbers,
and
electricians.
Included
are
journeymen,
mechanics,
apprentices,
laborers,
truck
drivers
and
helpers,
equipment
operators,
and
on­
site
recordkeepers
and
security
guards.
f
Construction
worker
payroll
includes
gross
earnings
paid
in
the
calendar
year
1992
to
all
construction
workers
only.
g
Net
value
of
construction
work
is
derived
for
each
establishment
by
subtracting
the
costs
for
construction
work
subcontracted
to
others
from
the
value
of
construction
work
done.
h
Value
added,
derived
for
each
establishment,
is
equal
to
dollar
value
of
business
done
less
the
costs
of
construction
work
subcontracted
to
others
and
costs
for
materials,
components,
supplies,
and
fuels.
i
Value
of
construction
work
subcontracted
in
from
others
includes
the
value
of
construction
work
during
1992
for
work
done
by
reporting
establishments
as
subcontractors.
j
Covers
establishments
in
SICs
1794
(
Excavation
Work)
and
1795
(
Wrecking
and
Demolition
Work)
only.
k
Covers
establishments
in
SICs
6552
(
Land
Subdividers
and
Developers,
Except
Cemeteries)
and
6553
(
Cemetery
Subdividers
and
Developers)
only.
S
Withheld
because
estimate
did
not
meet
publication
standards
on
the
basis
of
either
the
response
rate,
associated
relative
standard
error,
or
a
consistency
review.
NA
These
values
are
not
included
in
the
Census
of
Financial,
Insurance,
and
Real
Estate
Industries
and
therefore
are
unavailable
for
SIC
655.

2D­
3