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Analyze backlog as a measure of potential future work, not guaranteed revenue or profit. First reconcile what the company counts as backlog and how much of it is funded, signed, and economically attributable to the company. Then assess margins on a consistent basis, trace changes to project costs and estimates, and calculate revenue shares for major customers. A large backlog can still carry conversion, profitability, or customer risks.
What these three measures can—and cannot—tell you
Backlog, margins, and customer concentration answer different questions. Backlog indicates how much work a contractor says it has in its pipeline under its own definition. Gross margin shows how much revenue remains after the costs included in cost of revenue. Customer concentration shows how much business depends on particular buyers. Read them together: a large backlog does not establish that the work will start on schedule, earn a good margin, or come from a diversified customer base.
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Backlog is not a standardized industry measure. One company may count unearned revenue on executed contracts; another may include projects once awarded, to the extent management believes funding is probable. A filing can also warn that backlog may not be realized or may not produce earnings. These differences make the definition and composition more important than a headline total.
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The examples below are from U.S. public-company filings. Private contractors may disclose less, and reported figures should not be treated as universal benchmarks. For any company, use its latest annual report or 10-K and relevant earnings releases, and record the fiscal period and definition alongside each figure.
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How to analyze backlog
1. Find out exactly what is counted
Read the company’s backlog discussion in its latest annual report or 10-K, then compare it with the definition in earnings releases. Record whether the total includes:
- Only executed contracts, or also awards, letters of intent, or other unsigned work.
- Work awaiting a notice to proceed, remaining approvals, or funding.
- Options, claims, or change orders.
- Work performed through unconsolidated joint ventures—and whether the company reports only its proportionate share.
- Gross contract value that includes subcontractors, materials, or other third-party pass-through costs.
These distinctions change what the number means. AECOM’s 2024 Form 10-K explains that its backlog can include its proportionate share of unconsolidated joint ventures and gross revenue that includes third-party or pass-through costs. That headline amount is not necessarily the same as revenue economically attributable to AECOM’s own operations. Construction Partners’ 2026 annual report filing describes including awarded projects to the extent funding is believed probable. Other issuers define backlog more narrowly, such as unearned revenue expected under executed contracts.
Also check what is excluded. Revenue from work that is earned and completed within the same reporting period may never appear in a period-end backlog balance. A company with shorter-duration work can therefore have a smaller reported backlog without necessarily having less activity overall.
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2. Separate commitment from possibility
Do not treat all backlog as equally certain. Sort the disclosed work into practical categories: executed and funded; executed but awaiting funding or a notice to proceed; awarded but not yet signed; optional work; and claims or pending changes. The company may not provide enough detail to quantify every category. If so, note that limitation instead of assuming the entire total has the same likelihood of conversion.
For material projects, look for remaining approvals, contract duration, customer termination-for-convenience rights, cancellation terms, and evidence of delay. A backlog can be delayed, cancelled, or changed in scope. Even when a project proceeds, adjustments to costs or contract value can alter its financial contribution. A 2024 annual report filing in the source set discusses these realization risks, including delays, defaults, cancellations, scope changes, and cost adjustments.
3. Track the backlog bridge
Where the company discloses enough information, reconcile the period’s movement:
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Beginning backlog + awards − revenue recognized ± adjustments = ending backlog
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Compare backlog movement with revenue growth over several periods. If backlog rises while revenue remains flat, the work may be longer-duration, delayed, or not yet ready to convert; the disclosures should determine which explanation is plausible. If revenue grows faster than backlog, the company may be drawing down existing work or booking work that turns over quickly. Neither pattern alone establishes the quality of earnings or cash generation. Compare cash conversion separately; a backlog change does not explain a company’s cash flow by itself.
4. Compare comparable backlog, not just totals
Before comparing two contractors, make their definitions as similar as possible. Signed work should be compared with signed work, funded with funded, and company-attributable share with company-attributable share. Separate options and unsigned awards when disclosed, and account for joint ventures and pass-through amounts. If those components are not disclosed, flag the comparison as incomplete rather than ranking companies by raw backlog.
| Backlog question | What to compare or verify | Why it matters |
|---|---|---|
| Definition | Executed work, awards, notices to proceed, options, claims, and unsigned work | Companies may count different levels of commitment. |
| Funding and cancellation | Funding assumptions, approvals, termination rights, delays, and cancellation terms | Nominal backlog may not convert at the expected time or amount. |
| Economic share and composition | Joint ventures, subcontracted work, material content, and pass-through costs | Gross backlog can include value that contributes less to the contractor’s own economics. |
| Period and coverage | Fiscal period, project duration, and activities excluded from the measure | A period-end snapshot may omit short-cycle work completed within the period. |
How to analyze construction margins
Calculate gross margin consistently
Use the company’s reported gross profit and revenue for the same period and business segment:
Gross margin = gross profit ÷ revenue × 100
For example, if a segment reported $120 million of gross profit on $800 million of revenue, its gross margin would be 15%. This is only a calculation example, not a reported company result. Use the same accounting presentation and period for every company in a comparison. Do not mix a construction segment’s gross margin with a company-wide operating margin, or combine construction with materials, engineering, or other businesses when the issuer reports them separately.
Granite Construction’s 2025 annual report (filed in 2026) reports construction-segment gross profit margins of 10.9% in 2023, 14.4% in 2024, and 15.7% in 2025. Those figures illustrate a company-specific historical trend; they are not a target range for the construction sector. Check whether periods are fiscal years and whether segment definitions stayed comparable before drawing conclusions from any trend.
Explain the movement, not just the percentage
A margin change is a starting point for investigation. Read management’s discussion of project mix and costs, and look for explanations involving:
- Labor and material price changes.
- Subcontractor pricing, availability, and performance.
- Productivity and schedule performance.
- Weather, owner-caused delays, and schedule extensions.
- Design changes, site conditions, and scope changes.
- Claims, change orders, or back-charge recoveries.
- Updated estimates of the remaining cost to complete projects.
The same backlog can have different expected profitability depending on contract terms, actual execution, and revised estimates. Fixed-price work is particularly sensitive to the contractor’s estimate of total project cost: if expected costs rise after work begins, anticipated project profit can fall even though the contract value has not changed. Conversely, a favorable resolution or recovery can affect the expected result.
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Understand the role of estimates
Under a cost-to-cost approach described in a 2025 annual report, progress is measured using costs incurred relative to estimated total costs. Estimates of total cost therefore influence how much revenue and profit are recognized as work progresses. If the expected cost changes, reported revenue and profit can change as well; the estimate depends on assumptions about future events, not only costs already incurred.
When reviewing a margin trend, look for disclosed revisions to cost-to-complete estimates and whether they are concentrated in particular projects or segments. A reported margin is not a guarantee of a project’s final result. Compare trends over multiple periods and read accompanying explanations before attributing an improvement or deterioration to durable operating performance.
How to measure customer concentration
Calculate the disclosed revenue share
For each named customer, calculate:
Customer revenue share = revenue from that customer ÷ total company revenue × 100
Use the same fiscal year and revenue basis in numerator and denominator. If the company reports a customer’s revenue directly as a percentage of total revenue, record both the amount and percentage, along with the reporting year. A single customer’s share is useful, but it does not capture every kind of dependency.
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A free scan shows the junk files, broken settings and background clutter dragging Windows down - then fixes them in one click.Free scan · Windows 10 & 11Granite Construction’s 2025 annual report (filed in 2026) identifies Caltrans as its largest-volume customer and reports $446.6 million of revenue from Caltrans, or 10.1% of total revenue, in 2025. The filing also reports that no other customer individually exceeded 10% in the years shown. This is an illustration of a company disclosure, not a generally safe or unsafe concentration threshold.
Look beyond named customers
Two contractors can each report many customers and still depend on the same source of demand. Where disclosures allow, examine concentration by:
- Related public agencies or government funding programs.
- End market, such as a particular type of infrastructure or construction demand.
- Geography or regional construction cycle.
- Individual project or a group of related projects.
- Prime-contracting versus subcontracting relationships.
A diversified list of legal customers may not eliminate correlated exposure if those buyers depend on one budget, commodity market, or regional cycle. Granite describes pursuing public and private work across end markets, geographies, procurement methods, and contract types as a diversification approach; that is its stated strategy, not proof that all exposures are independent.
When available, also inspect accounts receivable and backlog by customer. Revenue share measures sales exposure, not whether customers pay promptly or whether future awards are likely. A customer may represent a modest share of historical revenue but a large portion of a contractor’s receivables or future workload. Report only concentration details the company actually discloses; do not infer undisclosed customer-level figures from total company data.
Put the measures together
Use one worksheet per company and keep the same fiscal periods where possible. A useful comparison records the definition behind every number, not just the number itself.
| Measure | Record | Interpretation check |
|---|---|---|
| Backlog | Reported total, definition, signed/awarded status, funding assumptions, joint-venture share, pass-through content, and period | How much is committed, attributable to the company, and likely to convert on the expected schedule? |
| Margin | Gross profit, revenue, segment, period, and percentage | What project costs, mix, productivity, or estimate revisions explain the trend? |
| Customer exposure | Named customer revenue and share, plus disclosed agency, market, geographic, project, receivable, or backlog concentration | Is demand spread across independent sources, or correlated around a common budget or market? |
Then test the combined picture. Backlog growth alongside stable margins may be more informative when the company’s definition is consistent and the work is funded. A strong margin can be less reassuring if it depends on favorable estimates that are later revised. A diverse customer list may not reduce risk if awards depend on the same public budget or regional cycle. These are questions for the filings to resolve, not conclusions that can be drawn from a single headline metric.
Quick Recap
A practical filing-review sequence
- Locate the company’s latest annual report or 10-K. Find the backlog definition, revenue-recognition policy, segment results, customer concentration disclosure, and discussion of risks and estimates.
- Write down the scope of each figure. Include fiscal year, business segment, geographic context, and whether the reported amount is gross or the company’s economic share.
- Classify backlog components. Separate signed, funded, pending, optional, and claim-related work where disclosed; note cancellation rights and expected timing.
- Reconcile changes. Compare beginning backlog, awards, recognized revenue, adjustments, and ending backlog if the company provides the information.
- Recalculate margins. Divide gross profit by revenue for the same segment and period; compare the result with the issuer’s presentation and investigate changes.
- Calculate customer shares. Divide named customer revenue by total revenue for that year, then check for correlated exposure by market, agency, geography, or project.
- Compare only after normalizing. Align definitions, periods, margins, and economic shares; disclose remaining differences rather than forcing a ranking.
Common interpretation mistakes
- Calling backlog future revenue. It is a company-defined measure of potential work, with conversion and realization risks.
- Assuming a bigger backlog is better. Funding, timing, cancellation terms, duration, joint-venture share, and pass-through amounts affect quality.
- Comparing raw backlog totals. Different inclusion policies make totals unlike measures unless reconciled.
- Treating margin as fixed. Cost-to-complete assumptions and project changes can alter reported and final profitability.
- Using one company’s figures as a sector benchmark. Granite’s margins and Caltrans share are company-specific examples, not industry thresholds.
- Equating customer count with diversification. Multiple buyers can depend on the same funding source or economic cycle.
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