construction financial management

S. L. Tang
Construction Financial
Management
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2

S.L. Tang
Construction Financial Management
Download free eBooks at bookboon.com
3

Construction Financial Management
2
nd
edition
© 2014 S.L. Tang &
bookboon.com
ISBN 978-87-403-0684-2
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Construction Financial Management
4
Contents
Contents
1 Financial Statements – Income Statement and Balance Sheet 8
1.1 Introduction 8
1.2 Income Statement 8
1.3 Balance Sheet 9
1.4 Working Capital and Current Ratio 12
1.5 Under Billing and Over Billing 13

1.6 Worked Examples 15
2 Financial Statement Analysis of a Construction Company 21
2.1 Analysis of Financial Statements by Financial Ratios 21
2.2 Five Categories of Financial Ratios 21
2.2 A Case Study 25
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Construction Financial Management
5
Contents
3 Compound Interest, Net Present Value (NPV), Equivalent Annual Cost and Loan
Redemption 33
3.1 Nominal Interest Rate and Real Interest Rate 33
3.2 Compound Interest Calculations 35
3.3 Benet-Cost Ratio 43

3.4 Salvage Value and Equivalent Annual Cost 43
3.5 Redeeming a Loan 46
3.6 Principal Amortization and Interest Payment of a Loan 49
4 Internal Rate of Return (IRR) and the Dierences between IRR and NPV 53
4.1 Net Cash Flow (NCF) 53
4.2 DCF Method and IRR 54
4.3 IRR versus NPV 57
4.4 IRR as Financial Indicator and NPV as Economic Indicator 61
5 Eect of Ination 66
5.1 Introduction 66
5.2 Real IRR and Its Calculation in a World with Ination 66
5.3 When Is Ination Adjustment Considered Or Not Considered? 69
5.4 Concluding Remarks 71
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