Developer profitability: an application of Du Pont and comparison with Building Contractors

This paper presents an empirical analysis of the dispersion, and determinants, of profitability and labour productivity of UK Housing Developers. A sample of around 40 Housing Developers’ financial statements was identified via the FAME database. This data is analysed with a view to providing insight on the variance and explanatory variables of return on capital employed via application of an extended form of the Du Pont formula. Specific considerations are applied to the relative changes in input and output prices, with reference to impact of land and house price changes in the context of the UK in recent years. Comparisons are made with UK based Building Contractors to highlight the differences in the rate at which these two types of firms turnover their capital over time, the gross margin they sustain and the resulting profitability they achieve. Additional commentary will be concerned with the alternative financing strategies applied in these types of firms. The research aim is to provide insight into to relative unique nature of Housing Developers, characterised by, in general, very high values of land bank assets on their balance sheet