What is a Backlog?

A Current Ratio is a financial metric primarily used in the construction industry to gauge a company's short-term liquidity and ability to pay off its immediate obligations. It is calculated by dividing a company's current assets by its current liabilities. In construction, current assets include cash, accounts receivables, and inventory (like raw materials and work in progress), while current liabilities encompass accounts payable, income taxes, wages, and current portion of long-term debt. A high ratio indicates a company's robust financial health, implying it has adequate resources to cover its short-term debts. However, it varies depending on the specific business environment, so it is essential to compare this ratio with firms in the same construction sector for accurate benchmarking.

Fixed costs, in the context of the construction industry, are the expenses that a contractor has to pay regardless of the level or volume of building activity. These costs, also known as overhead costs, remain constant and do not change with the fluctuations in work demand or project size. They typically include items such as rent or mortgages for office space, salaries for permanent staff, insurances, property tax, machinery depreciation, among other expenditures. The ability to manage fixed costs effectively is vital for a construction company's profitability and viability, as they represent a substantial portion of the total expenses.

A completed contract, in the context of the construction industry, is a concept relating to the financial recognition of a project. In specific accounting terms, it represents a method where all the costs and profit related to the contract are recognized only after the project has been finished and fully executed. This means neither revenues nor expenses are recorded in company books until all the work stipulated in the contract is fully accomplished. This approach contrasts with the percentage-of-completion method, which requires ongoing recognition of revenues and costs as the project advances. The completed contract method is often chosen for projects where outcome and costs are uncertain, essentially to prevent financial discrepancies.