“In total, we've lost nearly 1.2 million jobs this year, and more than 10 million Americans are now unemployed. We are facing the greatest economic challenge of our lifetime.” (Fox News,2008) - in 2008 US president Barack Obama summarized the impact of the financial crisis on the US economy. The US construction industry, which accounts for approximately 8% of the overall GDP and employs 6.7 million workers, was adversely affected by the financial crisis (Research and Markets, 2010 - see figure 1). James Sudbury a consultant for the construction industries analyzed in August 2008: “The markets changed dramatically in the last three months. There
used to be plenty of money all over the street. Now, it's difficult to get it done with any major banks” (Ireland & Writer 2008). In conjunction with other relevant factors the significant
dependency on a high cash flow level, contradicting the money and capital market climate during the financial crisis, has strongly driven the negative economic trend of the industry.In order to examine the impact of the financial crisis on the US construction industry by business segment this paper first summarizes external influences and outlines basic principles of corporate finance.
Inhaltsverzeichnis (Table of Contents)
- Introduction
- Financial Crisis
- Corporate Financial Management
- Impact Financial Crisis on the Construction Industry
- Overview
- Small Businesses
- Large and Medium-Sized Businesses
- Analysis of Financial Key Performance Indicators and Ratios
- Analysis of Financial Instruments
- Cost of Capital
- Cost of Debt
- Cost of Equity
- Weighted Average Cost of Capital
- Conclusion
- References
- Appendix
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This paper examines the impact of the financial crisis on the US construction industry, focusing on the business segment of residential construction. The paper aims to illustrate how the financial crisis affected the industry's financial performance and funding options.- Impact of the financial crisis on the US construction industry
- Analysis of financial key performance indicators and ratios
- Analysis of financial instruments used by businesses in the construction industry
- Cost of capital for construction businesses
- Impact of the crisis on small and large businesses within the industry
Zusammenfassung der Kapitel (Chapter Summaries)
- Introduction: This chapter introduces the paper's focus on the impact of the financial crisis on the US construction industry, particularly the residential construction sector. It highlights the significant downturn in the US economy and construction industry during this period, emphasizing the industry's reliance on high cash flow.
- Financial Crisis: This chapter explores the financial crisis, focusing on the US credit market and the impact on business funding options. It analyzes the decline in interest rates and credit market volume, highlighting the challenge businesses faced in accessing capital.
- Corporate Financial Management: This chapter provides a brief overview of corporate financial management principles, establishing the framework for analyzing the financial impact of the crisis on the construction industry.
- Impact Financial Crisis on the Construction Industry: This chapter delves into the specific impact of the financial crisis on the construction industry. It examines the impact on both small and large businesses, analyzing financial key performance indicators, ratios, and financial instruments. It further explores the challenges associated with accessing capital and the implications for the cost of capital for construction businesses.
Schlüsselwörter (Keywords)
The keywords that represent the main themes of this paper include the US construction industry, financial crisis, corporate finance, financial performance, financial instruments, cost of capital, small businesses, large businesses, and residential construction. These keywords provide a comprehensive overview of the key research foci and areas of focus within the paper.Frequently Asked Questions
How did the 2008 financial crisis affect the US construction industry?
The crisis led to a dramatic decrease in available credit, adversely affecting the industry's high cash flow dependency and causing a significant economic downturn.
What is the significance of the construction industry to the US GDP?
The construction industry accounts for approximately 8% of the overall US GDP and employs millions of workers, making it a vital economic pillar.
Why was accessing capital difficult for construction firms during the crisis?
Major banks tightened lending criteria, leading to a "credit crunch" where money that was previously abundant became scarce for residential and commercial projects.
What are the components of the Weighted Average Cost of Capital (WACC)?
WACC is calculated by combining the cost of debt and the cost of equity, weighted by their respective proportions in the firm's capital structure.
Did the financial crisis impact small and large construction businesses differently?
Yes, the study analyzes how different business segments faced varying challenges in terms of financial KPIs, ratios, and access to specific financial instruments.
What role does cash flow play in the construction business?
Construction projects require high upfront investment and consistent liquidity; therefore, a high cash flow is essential for day-to-day operations and project completion.
- Quote paper
- Patrick Daum (Author), Martin Rojas (Author), Jens Rüger (Author), 2011, Financing the business sector during the credit boom and the credit crisis, Munich, GRIN Verlag, https://www.grin.com/document/193421
