Fundamental Analysis of Profitability of Large Engineering and Construction Firms

Abstract

This research examines the strategic performance of sixty-one large international engineering and construction (E&C) firms from the regions of North America, Europe, and East Asia. The primary objective is to identify critical factors of corporate strategy that potentially affect the prospects of a large E&C firm. The research methodology relies on financial analysis and strategic management theories to draw meaningful conclusions. Statistical tests are selectively conducted to assess various aspects, including profitability, capital structure and asset liquidity. This paper documents the research findings for the first aspect—profitability. The first part of the findings suggests that there is no significant correlation between firm size and profitability. Large firms, which are endowed with greater resources and prowess, are not guaranteed to be more profitable. However, firm size has some influence on generic strategies, as large firms tend to adopt either a broadly targeted or a nonrelated diversification strategy. Regional trends of revenue growth of firms are subsequently presented. Despite strong forces of globalization experienced in many other industries, the growth trends suggest that the construction business remains largely localized in nature. Consequently, domestic and regional economic outlook, rather than global trends, should be given more weights in strategic planning.