, CONTENTS
New to the Fourth Edition 1
Chapter 1: Construction Financial Management 2
Chapter 2: Construction Accounting Systems 4
Chapter 3: Accounting Transactions 7
Chapter 4: More Construction Accounting 23
Chapter 5: Depreciation 34
Chapter 6: Analysis of Financial Statements 50
Chapter 7: Managing Costs 58
Chapter 8: Determining Labor Burden 62
Chapter 9: Managing General Overhead Costs 65
Chapter 10: Setting Profit Margins for Bidding 67
Chapter 11: Profit Center Analysis 70
Chapter 12: Cash Flows For Construction Projects 75
Chapter 13: Projecting Income Taxes 87
Chapter 14: Cash Flows for a Construction Company 91
Chapter 15: Time Value of Money 93
Chapter 16: Financing a Company’s Financial Needs 99
Chapter 17: Making Financial Decisions 111
Chapter 18: Income Taxes and Financial Decisions 130
iii
, New to the Fourth Edition
The major changes to the fourth edition include the following
The business failure rate for construction companies in Chapter 1
have been updated.
Sections on cost segregation and bonus depreciation have been added to
Chapter 5.
The discussion of typical median ratios in Chapter 6 has been updated.
A section on the monitoring and controlling process has been added to
Chapter 7.
A section on managing design-build costs has been added to Chapter 7.
The wages, social security, and Medicare costs were updated in
Chapters 8, 9, and 14.
A weekly cash flow problem has been added to Chapter 12.
The income tax regulations in Chapter 13 have been updated to
incorporate provisions of The Tax Cuts and Jobs Act passed in
December 2017.
The project cash flows used to develop an annual cash flow for a
construction company have been expanded to cover the entire project
(including work done in the prior year) and the calculation of the
underbillings/overbillings has been included in Chapter 14.
The effects of taxes on decision has been updated in Chapter 18 to
incorporate the Tax Cuts and Jobs Act.
The Instructor’s Manual includes a list of learning objectives, instructional
hints, suggested activities, and resources for each chapter. Files for the
figures and tables in the textbook are found on the instructor’s website. It is
my hope that these resources will make it easier for course instructors to
teach the material in a meaningful manner. Because the courses that use this
textbook are quite diverse, it is impossible to organize the chapters into one
best order. Each instructor should consider his or her individual program and
determine which chapters need to be taught and in what order.
Best wishes,
Steven J. Peterson, MBA, PE
, Chapter 1: Construction Financial Management
Learning Objectives
At the completion of this chapter the student should be able to:
Explain why financial management is so important to a construction
company.
Explain why financial management is different for construction
companies than for most other industries.
Understand that all managerial employees from the owner to the
crew foreperson play a role in financial management of a construction
company.
Instructional Hints
Compare a construction company to a manufacturing plant.
Emphasize the differences between a construction company and a
manufacturing plant, particularly: construction companies build
unique products and the equipment is not usually stationary at single
location. These are the reasons a construction company needs a job
cost system and an equipment cost system.
Activities
Invite a financial manager (for example, an accountant or general
manager) from a construction company to your class to discuss their
role as a financial manager.
Have each student interview a management employee for a
construction company. The interviews should include owners, project
managers, superintendents, and forepersons. Each student is to find
out how the employee contributes to the financial management of the
company. Discuss their findings in class.
Instruction Resources
The figures from this chapter in electronic format and PowerPoint
slides can be found at the instructor’s website.
Data on construction failures can be obtained from the Surety
Information Office (www.sio.org).
Current data on construction company failures can be found at
http://www.census.gov/ces/dataproducts/bds/data_firm.html. The most
New to the Fourth Edition 1
Chapter 1: Construction Financial Management 2
Chapter 2: Construction Accounting Systems 4
Chapter 3: Accounting Transactions 7
Chapter 4: More Construction Accounting 23
Chapter 5: Depreciation 34
Chapter 6: Analysis of Financial Statements 50
Chapter 7: Managing Costs 58
Chapter 8: Determining Labor Burden 62
Chapter 9: Managing General Overhead Costs 65
Chapter 10: Setting Profit Margins for Bidding 67
Chapter 11: Profit Center Analysis 70
Chapter 12: Cash Flows For Construction Projects 75
Chapter 13: Projecting Income Taxes 87
Chapter 14: Cash Flows for a Construction Company 91
Chapter 15: Time Value of Money 93
Chapter 16: Financing a Company’s Financial Needs 99
Chapter 17: Making Financial Decisions 111
Chapter 18: Income Taxes and Financial Decisions 130
iii
, New to the Fourth Edition
The major changes to the fourth edition include the following
The business failure rate for construction companies in Chapter 1
have been updated.
Sections on cost segregation and bonus depreciation have been added to
Chapter 5.
The discussion of typical median ratios in Chapter 6 has been updated.
A section on the monitoring and controlling process has been added to
Chapter 7.
A section on managing design-build costs has been added to Chapter 7.
The wages, social security, and Medicare costs were updated in
Chapters 8, 9, and 14.
A weekly cash flow problem has been added to Chapter 12.
The income tax regulations in Chapter 13 have been updated to
incorporate provisions of The Tax Cuts and Jobs Act passed in
December 2017.
The project cash flows used to develop an annual cash flow for a
construction company have been expanded to cover the entire project
(including work done in the prior year) and the calculation of the
underbillings/overbillings has been included in Chapter 14.
The effects of taxes on decision has been updated in Chapter 18 to
incorporate the Tax Cuts and Jobs Act.
The Instructor’s Manual includes a list of learning objectives, instructional
hints, suggested activities, and resources for each chapter. Files for the
figures and tables in the textbook are found on the instructor’s website. It is
my hope that these resources will make it easier for course instructors to
teach the material in a meaningful manner. Because the courses that use this
textbook are quite diverse, it is impossible to organize the chapters into one
best order. Each instructor should consider his or her individual program and
determine which chapters need to be taught and in what order.
Best wishes,
Steven J. Peterson, MBA, PE
, Chapter 1: Construction Financial Management
Learning Objectives
At the completion of this chapter the student should be able to:
Explain why financial management is so important to a construction
company.
Explain why financial management is different for construction
companies than for most other industries.
Understand that all managerial employees from the owner to the
crew foreperson play a role in financial management of a construction
company.
Instructional Hints
Compare a construction company to a manufacturing plant.
Emphasize the differences between a construction company and a
manufacturing plant, particularly: construction companies build
unique products and the equipment is not usually stationary at single
location. These are the reasons a construction company needs a job
cost system and an equipment cost system.
Activities
Invite a financial manager (for example, an accountant or general
manager) from a construction company to your class to discuss their
role as a financial manager.
Have each student interview a management employee for a
construction company. The interviews should include owners, project
managers, superintendents, and forepersons. Each student is to find
out how the employee contributes to the financial management of the
company. Discuss their findings in class.
Instruction Resources
The figures from this chapter in electronic format and PowerPoint
slides can be found at the instructor’s website.
Data on construction failures can be obtained from the Surety
Information Office (www.sio.org).
Current data on construction company failures can be found at
http://www.census.gov/ces/dataproducts/bds/data_firm.html. The most
