Understanding and Analyzing Contractor Financial Statements: Part II of II
Q: Please confirm that the list of Open and Closed Contracts in the March 31, 2014 Work in Progress Report did not display all the contracts in either category.
My reason for asking is that the March 31, 2014 report showed only Job Numbers 3975 and 4001 as completed. One of optional responses for Poll Question 4 was “Completed Job Numbers 4001, 4004, and 4012 before 03/31/14”, but Job Numbers 4004 and 4012 were not on the list of completed jobs. Another optional response for Poll Question 4 was “Began numerous contracts in 2014…”, but no new contracts were listed on the March 31, 2104 Work in Progress Report.
I had difficulty in responding to Poll Question 4 since information critical to arriving at an answer appeared to be missing. I then discovered that the Open and Closed Job Numbers presented was not a complete listing of all Open and Closed Jobs. This resolved the problem, but I’d like confirmation that I understand it correctly.
A. Poll Question 4 reads as follows:
“The change in the expected gross margin on all open contracts between 12/31/13 and 03/31/14 suggests that Southwest Contractors:
My reason for asking is that the March 31, 2014 report showed only Job Numbers 3975 and 4001 as completed. One of optional responses for Poll Question 4 was “Completed Job Numbers 4001, 4004, and 4012 before 03/31/14”, but Job Numbers 4004 and 4012 were not on the list of completed jobs. Another optional response for Poll Question 4 was “Began numerous contracts in 2014…”, but no new contracts were listed on the March 31, 2104 Work in Progress Report.
I had difficulty in responding to Poll Question 4 since information critical to arriving at an answer appeared to be missing. I then discovered that the Open and Closed Job Numbers presented was not a complete listing of all Open and Closed Jobs. This resolved the problem, but I’d like confirmation that I understand it correctly.
A. Poll Question 4 reads as follows:
“The change in the expected gross margin on all open contracts between 12/31/13 and 03/31/14 suggests that Southwest Contractors:
- Increased its anticipated total cost for some open contracts as of 12/31/13.
- Began numerous contracts in 2014 with expected gross margins < 9.06%.
- Completed Job Numbers 4001, 4004, and 4012 before 03/31/14.
- All of the above.” [Correct Response.]
You are correct. The list of Open and Closed Contracts as of March 31, 2014 is incomplete. Our purpose in presenting the partial list was to make it easier to locate and work with the data needed to address the issues associated with analyzing the report.
To elaborate a bit more on Poll Question 4. The question offers possible reasons why the change in expected gross margins on all open contracts would decrease from 9.06% to 6.57% at the end of Q1/ 2014. All three options are legitimate and relate directly to Southwest Contractors Q1 / 2014 performance.
If Job Numbers 4004 and 4012 cited in Option 3 were indeed completed along with Job Number 4001, which is the only one of the three shown as completed in the abbreviated report, their combined impact would be to reduce the gross margin performance of Open Contracts as of 03/31/14 since all three contracts had expected gross margins above 10% as of 12/31/2013. If they were completed during Q1 / 2014, their final results would be included in the Closed Totals although Job Numbers 4004 and 4012 are not displayed. If all three jobs were completed in Q1 / 2014 removing these more profitable contracts from the open contracts total would drive down the summary expected gross margin of contracts still open at 03/31/14.
To elaborate a bit more on Poll Question 4. The question offers possible reasons why the change in expected gross margins on all open contracts would decrease from 9.06% to 6.57% at the end of Q1/ 2014. All three options are legitimate and relate directly to Southwest Contractors Q1 / 2014 performance.
If Job Numbers 4004 and 4012 cited in Option 3 were indeed completed along with Job Number 4001, which is the only one of the three shown as completed in the abbreviated report, their combined impact would be to reduce the gross margin performance of Open Contracts as of 03/31/14 since all three contracts had expected gross margins above 10% as of 12/31/2013. If they were completed during Q1 / 2014, their final results would be included in the Closed Totals although Job Numbers 4004 and 4012 are not displayed. If all three jobs were completed in Q1 / 2014 removing these more profitable contracts from the open contracts total would drive down the summary expected gross margin of contracts still open at 03/31/14.