Fall 2008 issue of Horizons

knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS

6. Debt to Equity

10. Return on Equity

Total Debt (Includes all liabilities) Total Equity

Net Income Stockholders’ Equity A measure of how much profit a company generates with the money stockholders have invested. Return on equity will vary by company based on equity structure. Some companies prefer to track return on total assets. The Market The 2008 selling season is off to the same start as the weather – warm one day, then cloudy and raining the next. While traffic has been inconsistent, the quality of the buyer has generally been pretty good. Unfortunately, sales in the first half of the year have been relatively flat. Creative marketing and concessions continue to play a significant role in sales. The public has heard but does not truly understand that it certainly is a great time to buy a house. As for what to expect further in 2008, it is impressive to see how all – home builders, lenders, subcontractors, suppliers and others – are working together to survive this crisis. Spec inventory levels have been reduced in recent months to manageable levels, although relatively low backlogs in the market, runaway gas prices, and the overall health of the economy are concerns. Improvement is being seen on some gross margins, especially on homes to be built. The bottom of the market may not yet be in sight, but it appears many builders have fully buttoned down to weather the storm. When the market does turn, builders will be leaner, with better systems and processes in place to satisfy what should be some pent-up demand. It is hopeful that all of the Fed’s interest rate cuts will translate to even lower long-term mortgage rates.

Measures a company’s reliance on lender or creditor financing as well as the business’ indebtedness compared to the amount invested by its owners. The debt to equity ratio indicates the ratio of the dollars of liabilities the company has for every dollar of stockholders’ equity. This ratio is a good indicator of a company’s capacity to repay its lenders and creditors. 7. Backlog At any point in time, backlog represents the number of homes sold (under firm contract) but not yet closed (future firm sales). Backlog provides owners, management, bankers and investors with a short-term forecast should no other homes sell. When used in conjunction with break- even, it can help determine immediate sales needs and help plan for future production capabilities. 8. Sales per Employee Net Sales Number of Employees A measure of sales dollars generated by each employee. Sales per employee benchmarks should be established for each class of employees measured. It is a good tool to let you know if you have excess or not enough capacity in any class of employees. As a general rule, each employee (when measured in total employees) should generate $1.5 million in sales. 9. Cycle Time Contract Approved to Start Date + Start Date to End of Construction + End of Construction to Closing Date Total Cycle Time (measured in days) A measure of the number of days it takes a builder to complete a home. Cycle time can be used to determine the phase during which building inefficiencies occur. It should be measured in conjunction with the home builder’s averagesellingpricebecause it can take longer tobuild a bigger, more expensive home. Cycle time can be broken down into further phases for better analysis.

Stay Tuned!

Questions? Contact:

Steve Hays, CPA Partner-in-Charge Home Builders Services Group 314.290.3336 steve.hays@rubinbrown.com

34 ◆ fall 2008 issue