Cost Management

Cash Flow Diagram

a visual depiction of showing the receipts and disbursements of cash with the periods of time represented along the horizontal axis.

Owners Equity

Also known as net worth, is the claim of the company's owner or shareholders on the assets that remain after the liabilities are paid.

Net Present Value

Also known as present worth, is an analytical method where investment alternatives are compared based on their present worth at the time of the initial investment.

Profit Margin

Also known as return on revenues, the ____________________ ratio is calculated by dividing profit by revenues. May be measured before or after income taxes.

Workers Comp Insurance

By law, all employers are required to provide their employees with _______________________, which covers reasonable costs as well as some lost wages for employees who are injured on the job or who contract an occupational disease.

Notes Recievable

Invoices, short-term loans, or employee advances owed to the company that will likely be paid within one year and have been formalized by a written promise to pay

Unsecured Debt

a type of debt where the borrower has not pledged specific assets as security for the debt.

Income Statement

shows a company's revenues, expenses, and the resulting profit generated over a period of time. They span a period of time between two balance sheets and record all transactions that occur during the period.

Surety Bond

A __________________ is a promise to pay one party (the obligee) a certain amount if a second party (the principal) fails to meet some obligation, such as fulfilling the terms of a contract. The surety bond protects the obligee against losses resulting from the principal's failure to meet the obligation

Paid When Paid Clause

A clause that ties the payment of supplier and/or subcontractor bills to a specified to a number of days after the contractor has received payment for the bills in unrestricted funds from the owner is called a

Fiscal Year

A consecutive twelve-month period of time used by businesses as their financial year, which may be different from a calendar year, is defined as a

Acid Test Ratio

Also known as the "Quick Ratio", the equals the sum of cash and accounts receivable divided by the current liabilities.

Net Worth Ratio

Also known as the debt to equity ratio, _____________________ is equal to the total liabilities divided by the equity.

Debt to Equity Ratio

Also known as the net worth ratio, the equals total liabilities divided by equity (net worth).

Accrual Method

An accounting method where revenue is recognized when the company has the right to receive the revenues and expenses are recognized when the company is obligated to pay the expenses is defined as

Cash Method

An accounting method where revenue is recognized when the payments are received and expenses are recognized when bills are paid

Percentage of Completion Method

An accounting method where revenues, expenses, and estimated profits are recognized as the project is completed based on the percentage of the project that is completed

Off Balance Sheet Financing

An operation lease is not recorded on the financial statement and is often referred to as _______________ that does not show up on the balance sheet, thus improving a company's financial ratios.

Long Term Contract

Any construction contract that is likely to span more than one tax return

Tax Credits

As an incentive to stimulate specific areas of the economy or to reward certain behaviors, the government gives ________________ for certain activities. Unlike deducting expenses that reduce a business's taxable income - which in turn reduces a business's tax liability - they are used to directly reduce a business's tax liability.

Current Liabilities

As shown on the balance sheet, are liabilities that are expected to be paid within the next year.

Fixed Assests

Buildings, land, construction equipment, trucks, autos, and office equipment are classified as

Current Assets

Considered to be the most liquid assets, are those assets that are expected to be converted to cash, exchanged, or consumed within one year.

External Constraints

Constraints outside a pool of alternatives that may limit the number or restrict the alternatives that may be selected from the pool of alternatives, such as a limited supply of money or contractual obligations are called ______________________.

Long Term Liabilities

Debts that are not expected to be paid within one year

Notes Payable

Debts that will likely be paid within one year and have been formalized by a written promise to pay

Profit and Overhead Markup

Expressed as percentage, _______________________ are added to construction costs during the bidding phase to cover general overhead and provide for a profit.

Vertical Analysis

Financial analysis procedures can be grouped into two main categories, i.e. Vertical Analysis and Horizontal Analysis. _______________ utilizes a set of key indicators (ratios) from numbers presented in the company's balance sheet and income statement. This type of analysis utilizes a systematic approach to review the line items of the financial reports "from top to bottom."

Retention

Funds withheld from a payment to ensure that contractor or subcontractor completes a construction project

Davis Bacon Wage Act

In acted in 1931, the __________________ established the requirement for paying prevailing wages on all federal government construction projects, and most contracts for federally assisted construction projects in excess of $2,000.

Real Property

Land and the buildings permanently affixed to the land are classified as _________.

Inventory

Materials available for sale or are available and expected to be incorporated into a construction project within one year

Interest

Money paid by banks or borrowers for the use of money

Return on Equity

Often expressed as a percentage (%), is calculated by dividing net profit (before or after taxes) by equity. It is also known as return on investment.

Variable Overhead

Overhead costs that change or vary with the change in the volume of work are classified as

Fixed Overhead

Overhead costs that do not change with a change in volume of work over a specified range of volume of work

Mixed Overhead

Overhead that contains both a variable and fixed component

Fair Labor Standards Act

Passed in 1938, the ______________________________ is a federal statute that established a national minimum wage, guaranteed time-and-a-half for overtime in certain jobs, and youth employment standards.

Retained Earnings

Prior accounting period's profits or earnings are withheld by the company to invest in the company's operations rather than be distributed to the shareholders are called

Bid Bond

Submitted with the proposal, the _________________ guarantees to the Owner that the successful Contractor will sign a contract.

Contribution Margin

The _________________ is the amount of money that a project or projects contribute to the company to be used for fixed overhead and provide a profit for the stakeholders.

Straight Line Method

The __________________ of depreciation assumes that an asset loses value at a constant rate for all years of the recovery period.

General Ledger

The ___________________ consists of all of the accounts necessary to track the financial data needed to prepare the balance sheet, income statement, and income taxes.

Collection Period

The ____________________ ratio, also known as the average age of accounts receivable, is calculated by multiplying the accounts receivables by 365 days and dividing the resultant by revenues.

Sum of the Years Method

The ______________________ is used to accelerate the depreciation of an asset. The annual depreciation rate is calculated by dividing the number of years left in the recovery period by the sum of the years in the recovery period.

Annual Percentage Yield

The _______________________ is the annually compounded interest rate that produces the same amount of interest as the interest rate that is compounded on a more frequent basis.

Average Age of Accounts Payable

The _________________________ represents the average time it takes a company to pay its bills and is a measure of how extensively a company is using trade financing.

Balance Sheet

The __________________________ is a snapshot of a company's financial assets, liabilities, and the value of company to its owner(s) - often referred to as net worth or equity - at a specific point in time, typically at the end of the month and the end of the fiscal year.

Taxable Income 104 Trade Income

The amount of income that is subject to income tax and equals the company's income minus tax deductions

Labor Burden

The cost to the employer to pay for employee taxes, insurances, and other benefits

Ownership Costs

The costs associated with an asset including purchase price, salvage value, interest, property taxes, and insurance are called _____________________________.

Salvage Value

The estimated resale value of an asset when the asset is sold at some future time

Capital Stock

The initial investment in a corporation by the shareholders

Trade Financing

The most common form of short-term financing for a construction company is _______________. It occurs whenever there is a delay between the supplying of material, labor, and equipment to construction project and the payment for these items. When this happens, the supplier or subcontractors are providing financing to the project in the form of materials, labor, and equipment supplied for the time between delivery of these items and payment of the bill.

Useful Life

The number of years for which an asset is useful. The is most often based on economics rather than the number of years an asset can be used.

Horizontal Analysis

The purpose of the ____________________ is to look at the direction and trends of key financial indicators (ratios) over a period of time, i.e. months and/or years. Normally, this time-based financial analysis is shown graphically.

Equipment Ledger

To warrant the investment in construction equipment, the costs and billings must be tracked. This tracking is accomplished through the ____________________

First In First Out

Used in pricing inventory, ______________________ assumes that the materials purchased first are the materials that are used first.

Actual Cost of Work Performed

Used in the calculation of the Cost Performance Index (CPI) the ____________________________ comes from the accounting system and represents the actual costs spent on construction work up to a specific period of time.

Budgeted Cost of Work Scheduled

Used in the calculation of the Schedule Performance Index (SPI) the ________________________ comes from the cost loaded schedule and represents the budgeted or estimated cost for each of the tasks in the schedule that should have been completed or partially completed as of the date selected.

Budgeted Cost of Work Performed

Used in the calculation of the Schedule Performance Index (SPI), __________________________ is determined by taking the budget cost from the cost-loaded schedule for each of the activities on the schedule and multiplying them by their percentage of completion as of the date selected.

Gross Profit Margin Ratio

Usually expressed as a percentage, ___________________________ is the percentage of revenues remaining after paying construction and equipment costs and is a measure of what percentage of each dollar of revenue is available to cover general overhead expenses, sales costs, taxes, and provide the company with a profit.

Accrued Payables

_________________ are monies owed for supplies, services, taxes, rents, etc., that have not been billed. For example, from the time an employee's hours are entered into the accounting system until the payroll check is prepared, the wages due the employee are recorded as an _________________. (same answer for both blanks)

Direct Overhead Costs

__________________ may also be referred to as indirect costs, indirect project costs, or project overhead. They are costs that can be specifically identified to the completion of a specific project, but cannot be identified with the completion of a specific construction component on that project.

Payable Turns

_____________________ represent the number of times the accounts payable are turned over during a year and is calculated as follows: X\:=\:365\:\div Average\:Age\:of\:Accounts\:Payable

Federal Unemployment Tax Act

a United States federal law that imposes a federal employer tax used to help fund state workforce agencies. It covers the federal share of the costs of administering the unemployment insurance.

Federal Insurance Contribution Act

a United States payroll (or employment) tax imposed by the federal government on both employees and employers to fund the Social Security and Medicare programs.

Current Ratio

a measure of a company's ability to use current assets to pay for current liabilities. The ratio is equal to current assets divided by current liabilities.

Schedule Performance Index

a measure of the success of a project's management team to complete a project on time, which is based on the ratio of budgeted cost of the workperformed to the budgeted cost of the work scheduled.

Cost Performance Index

a measure of the success of a project's management team to complete a project under budget, which is based on the ratio of budgeted cost of the work performed to the actual cost of the work performed.

Working Capital Turns

a measurement of how efficiently a company is using its working capital or how many dollars of revenue each dollar of working capital is generating

Fixed Assets to Net Worth Ratio

a measurement of the amount of owner's equity that is tied up in construction equipment, buildings, vehicles, etc. It is often expressed as a percentage.

Net Loss

a negative taxable income

Cash Flow Statement

a summary of the sources of and uses of cash indicating where it came from and where it went to for the same period of time as the income statement.

Depreciation Schedule

a table showing each year's book value and depreciation for an asset.

Completed Contract Method of Accounting

an accounting method where revenues, expenses, and profits are recognized at the completion of the project.

Future Worth

an analytical method where investment alternatives are compared based on their worth at some time in the future.

Rate of Return

an interest rate that produces a net present value of zero for an investment alternative.

Liabilities

an obligation to transfer assets or render services at some time in the future, for which the commitment has already been made.

Months in Backlog

another ratio that can be useful in determining the financial health of a company. It is a measure of how many months of work the company has if they were to perform work at the average rate that they performed work during the last twelve months.

Long Term Assests

assets with an expected useful life of more than one year at the time of purchase.

General Overhead

costs that cannot be charged to a specific construction project or be included in the equipment costs section of the income statement.

Working Capital

current assets less current liabilities and represents those funds available for future operations or for the reduction of long-term liabilities.

1. Accounts Payable

debts the company owes and expects to pay within one year that are not evidenced by written promise to pay.

Net Profit from Operations

equals the gross profit less the overhead or, also equals revenues less construction costs, equipment costs, and overhead.

Capital Gains

gains on the sale, exchange, or disposition of a capital asset, depreciable property, and real property. They may be divided into different divisions, i.e. short-term and long-term.

Accounts Recievable

invoices owed to the company that likely will be paid within one year and have not been formalized by a written promise to pay. Most commonly, these are invoices to the project owners.

Capital Lease

non-cancelable leases that must meet one of four criteria related to equipment's useful life and future ownership. They look and act much like a loan and therefore is treated as an asset and liability on the balance sheet.

General Liability Insurance

protects the company against claims due to negligent business activities and failure to use reasonable care including bodily injury, property damage or loss, and other personal injury such as slander and damage to reputation. Premiums are based upon the estimated payroll and adjusted for the audited actual payroll.

Assets

resources held by a company that will probably lead to some future cash inflow. Correct! 8

Operating Leases

sometimes called service leases are used for short-term leasing and often for assets that are high-tech or in which the technology changes often, like computer and office equipment.

Direct Costs

the costs of materials, labor, equipment and subcontracts that are incorporated into the construction of a project.

Revenue

the income earned from the completion of part or all of a construction project.

Depreciation

the loss in value of an asset, such as equipment and buildings, due to wear, the age of the asset, and obsolescence.

Return on Assests

the measurement of how efficiently a construction company is using its assets and is often expressed as a percentage (%). It is calculated by dividing the Net Profit After Taxes by the Total Assets.

Recovery Period

the number of years over which an asset is to be depreciated, which may equal the useful life of the asset.

Principal

the original amount deposited in a saving instrument, such as a certificate of deposit, or borrowed from a debt instrument, such as a loan.

Financial Management

the use of a company's financial resources, encompassing all decisions that affect a company's financial health.

Book Value

the value of a company's equipment reported in the accounting system, which equals the purchase price less depreciation.

Secured Debt

where the borrower has pledge specific assets as security for the debt.