top of page

Economic Analysis of a Steel Processing Facility


usda feasibility study steel

In this article, we will use a case study to examine the economic performance of a typical "smaller size" steel processing company with 103 employees. This example, based on industry averages and financial data sourced from the MMCG database, provides valuable insights into the financial dynamics of such facilities.


Revenue and Gross Profit

Steel processing facilities generate substantial revenues, with the total revenue for a typical facility estimated at $48.0 million. With 103 employees in the facility, each employee typically generates approximately $466,000 in revenue. This figure underscores the productivity of the workforce in the steel processing industry, highlighting the substantial economic output generated by each worker.


The revenue is derived primarily from the sale of processed steel products, which constitutes the core business operation of these facilities. The cost of goods sold (COGS), representing the direct costs associated with production, amounts to $37.8 million, or 79% of the total revenue. After accounting for COGS, the gross profit stands at $8.9 million, representing 18% of total sales. This gross profit margin reflects the efficiency of the production process and the facility's ability to manage direct costs effectively.


Operating Expenses

Operating expenses are crucial in determining the net profitability of a steel processing facility. The total operating expenses for a typical facility amount to $7.1 million, which is 15% of the total revenue. Key components of these operating expenses include:

  • Salaries and Wages: Accounting for 3% of total revenue, salaries and wages are a significant expense, highlighting the labor-intensive nature of steel processing.

  • Depreciation and Amortization: These non-cash expenses, which represent 3% and 1% of total revenue, respectively, are essential for capturing the wear and tear of equipment and other assets.

  • Other Operating Expenses: Comprising 4% of total revenue, these expenses include various costs such as utilities, maintenance, and administrative expenses necessary to support the facility's operations.


Operating Income and EBITDA

After deducting operating expenses from gross profit, the operating income for a typical facility is $1.8 million, or 4% of total revenue. This figure represents the earnings before interest, taxes, depreciation, and amortization (EBITDA), which is a critical measure of operating performance. The EBITDA for a steel processing facility is estimated at $4.6 million, or 10% of total revenue, indicating a healthy operating margin before accounting for depreciation, interest, and taxes.


Net Profit

After accounting for non-operating income, interest expenses, and taxes, the net profit for a typical steel processing facility is $1.7 million, representing a net profit margin of 4%. This profitability ratio underscores the facility's ability to generate earnings after all expenses have been paid, providing a benchmark for evaluating financial performance within the industry.


Conclusion

The financial data presented in this article, sourced from the MMCG database, reflects the average economic performance of smaller-sized steel processing facilities in the industry. With each employee generating significant revenue, these facilities demonstrate strong productivity and economic output. MMCG, an expert company specializing in USDA-compliant feasibility studies, provides valuable insights and comprehensive analysis for stakeholders looking to assess the financial viability and potential profitability of steel processing operations. By understanding these financial dynamics, stakeholders can make informed decisions about investments, expansions, and operational improvements in the steel processing industry.

Comments


bottom of page