Sureties and banks, as well as rating agencies and governmental customers, analyze a contractor’s financial strength using different metrics and methods. Liquidity (the ability to meet obligations as they arise) is generally prized as the greatest strength, with leverage and profitability close behind. For bonding purposes, the contractor must understand the surety’s unique approach to liquidity analysis, with the goal being to steer the bonding company—rather than being steered by it.
Matt Burchett is a partner in the Charleston, W.Va., office of Brown Edwards & Company, LLP, a Top 100 CPA firm in the United States. In addition to being a CPA/MBA/CVA, the author is registered with the CFMA as a Certified Construction Industry Financial Professional. For more information, please visit becpas.com.