EVALUATING FINANCIAL RATIOS in CONSTRUCTION INDUSTRY: A CASE STUDY of INDONESIAN FIRMS
This paper presents findings of a pilot study, which evaluates financial ratios in the Indonesian construction Industry. The study is an extension of a larger study that is an attempt to identify the areas of strategic issues for Indonesian construction firms and develop an appropriate strategic management process for the firms to formulate, implement and evaluate. The findings are based on financial reports taken from all of construction companies listed in Surabaya Stock Exchange (SSX). The SSX has classified 6 firms in the construction sector. It has included both private and state owned firms. The research methodology adopted for this study includes data collection and analysis of firm annual reports and financial statements. There are some methods and techniques of financial ratio analysis in evaluating corporate performance of construction firms. Modified traditional ratios such as Liquidity, Leverage, Activity and Profitability ratios are adapted from Construction Financial Management Association (CFMA) to support different purposes of analysis. When evaluating ratios, the results are compared with other firms in the same sector of industry. The analysis reveals that the Indonesian firms in this study are financially sound, where profits and returns generated from construction works are still satisfactory. However, this performance can still be sustained if they are able to manage their maximum pace at which a company can grow revenue without depleting its financial resources.