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Start with five questions: Are project margins holding up? Is backlog funded, executable and likely to earn a profit? Do earnings turn into operating cash? Can the balance sheet and surety capacity support new work? And are you comparing companies with similar businesses and contract risks? No single ratio answers all five. Read the measures across multiple years, by segment where possible, and use each company’s definitions rather than treating an industry figure as a universal benchmark.
1. Are project margins durable?
Track gross margin, operating margin and net income over several years, preferably by segment. Revenue growth alone can hide cost overruns, weaker estimates or a less profitable mix of work. A rising margin can be encouraging, but it is not proof that future projects will earn the same returns: contract terms, project mix and timing matter.
Granite Construction reported Construction gross profit margins of 15.7% in 2025, 14.4% in 2024 and 10.9% in 2023. Those are Granite’s company-specific results, not heavy-civil industry targets. Granite also says revenue, gross profit and operating cash flow can vary significantly with project progress, outstanding change orders and claims, and contract payment terms. Granite Construction’s 2025 Form 10-K provides the company’s reported figures and discussion.
If management highlights adjusted EBITDA or another non-GAAP measure, read its definition and reconciliation, then compare it with GAAP operating income, net income and cash flow. Construction Partners cautions investors against treating non-GAAP measures in isolation or as substitutes for GAAP financial information. Construction Partners’ Form 10-K for the fiscal year ended September 30, 2025 describes its measures and backlog reporting.
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2. Is backlog likely to become profitable work?
Backlog can indicate future activity, but it is not a standardized promise of revenue, timing or profit. Start by reading the issuer’s definition. Separate contracts already executed and funded from unsigned awards, apparent-low-bid work, claims and pending change orders. Then consider conversion timing and concentration: a large total may depend on a small number of projects, customers or regions.
Two reported totals illustrate why definitions matter:
| Company and date | Reported backlog | Definition detail relevant to comparison |
|---|---|---|
| Sterling Infrastructure, December 31, 2025 | $3.01 billion, versus $1.69 billion a year earlier | Sterling excludes apparent low bids until the customer formally executes a contract. It says most backlog is fixed-unit-price or lump-sum work; lump-sum work generally carries more contractor risk, though it can be more profitable if completed below estimate. Sterling’s 2025 Form 10-K |
| Construction Partners, September 30, 2025 | $3.0 billion: $2.2 billion on contracts in progress or executed, and $0.8 billion of low-bid/no-contract projects | The company describes backlog as a non-GAAP industry measure and includes projects when awarded and funding is considered probable. Its headline total is therefore not directly comparable with a measure that excludes unsigned awards. Construction Partners’ 2025 Form 10-K |
Backlog quality also depends on contract economics. Fixed-price work can expose a contractor to cost increases or estimation errors; the outcome depends on the terms and execution, not just the dollar value booked. Compare backlog with annual revenue only after checking what each company counts and how much is already funded or under contract.
3. Do reported earnings convert into cash?
Compare operating cash flow with net income over multiple periods, and examine the working-capital items behind the difference. For contractors, receivables, contract assets, contract liabilities, retainage and billing milestones can move cash timing away from the timing of recognized revenue. Project starts may require spending before invoices are issued or collected; customer acceptance, collections and disputed change orders can also affect cash.
Granite reports that private-sector customers can pay more slowly than public-sector customers and that contracts frequently retain a percentage of payments until completion and acceptance. Its net cash provided by operating activities was $468.916 million in 2025, $456.343 million in 2024 and $183.707 million in 2023. These are Granite-specific reported results, not a sector benchmark. See its 2025 Form 10-K for the cash-flow statement and discussion.
Days sales outstanding (DSO) can help assess collection timing, but definitions differ. Quanta Services defines DSO using receivables—including retainage and unbilled balances—plus contract assets less contract liabilities, divided by average daily quarterly revenue. Quanta reported DSO of 60 days at December 31, 2025, compared with 59 days a year earlier and a five-year historical average of 75 days. Those figures are meaningful in the context of Quanta’s definition, not automatically comparable with another issuer’s DSO. Quanta also says project starts can require costs to be paid before related receivables are billed and collected, while delayed or unpaid change orders and claims can weigh on cash flow. Quanta Services’ 2025 Form 10-K explains its calculation and cash-flow risks.
4. Can the balance sheet and bonding support execution?
Assess gross and net debt, interest burden, debt maturities and available liquidity alongside operating cash flow. Include capital expenditure and acquisition spending: equipment and working capital may be needed to execute new awards, while acquisitions can change both growth and leverage. Consider whether cash generation can fund these needs without depending on increasingly tight borrowing capacity.
Surety bonds are another practical capacity constraint for contractors. Sterling says bonding companies consider capitalization, working capital, aggregate contract size, past performance, management expertise, the amount of backlog already bonded and changing surety-market underwriting standards. A headline backlog figure may therefore overstate near-term capacity if bonding is a limiting factor. See Sterling’s 2025 Form 10-K.
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Read debt covenants as company-specific contractual terms, not as recommended industry limits. Quanta’s credit agreement disclosed a maximum consolidated leverage ratio of 3.5:1 and a minimum consolidated interest coverage ratio of 3.0:1, with temporary leverage covenant accommodation for certain qualifying acquisitions. These are Quanta’s contractual limits, not a universal safe level. Its 2025 Form 10-K provides the relevant agreement details.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.5. Are you comparing like businesses and contracts?
Before comparing margins, growth or valuation multiples, establish what each company builds and how its business is organized. Heavy-civil work may sit alongside building construction, materials, specialty contracting or infrastructure services. Public and private customers, geography, project concentration, labor and materials exposure, seasonality and acquisition history can all change the meaning of a reported trend.
Contract structure matters too. Compare fixed-price work with cost-reimbursable arrangements only with their risk allocation in view; the same revenue growth or margin can reflect different exposure to cost overruns. Construction Partners describes work in roads, highways, bridges, airports and site work for public and private customers, while Sterling reports multiple business solutions and discusses different contract forms. Their filings illustrate why company mix and definitions must be understood before drawing comparisons: Construction Partners’ 2025 Form 10-K and Sterling’s 2025 Form 10-K.
How to apply the metrics to a stock comparison
Use the same analytical checklist for every company, but preserve each issuer’s definitions and business context:
- Compare multi-year gross and operating margin trends, by segment where disclosed, and reconcile highlighted non-GAAP measures to GAAP results.
- For backlog, record its definition, funding and award status, expected conversion, concentration, contract mix and share already bonded.
- Compare operating cash flow with earnings, then inspect working-capital movements, contract balances, retainage and the company’s DSO definition and trend.
- Review net debt, interest coverage, maturities, liquidity, capital spending and acquisition funding together.
- Describe each company’s business mix, geography, customer type, contract structure, seasonality and acquisition-driven growth before comparing operating performance.
- Only then compare valuation multiples, applying them consistently to comparable earnings or cash-flow measures and keeping GAAP figures and non-GAAP reconciliations visible.
The cited filings are from U.S.-listed issuers, so this framework and the examples are most directly applicable to investors comparing those companies. The reported figures above are company-specific illustrations; they establish no universal margin, backlog, DSO, leverage or valuation cutoff.
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