Many large privately held companies are more profitable and are growing revenues faster than publicly traded companies in the U.S., according to new data.
The financial information company Sageworks analyzed five years of financial statements, comparing the financial performance of publicly traded U.S. companies with the performance of privately held U.S. firms with more than $500 million in annual sales.
These larger privately held companies had an average net profit margin of nearly 10 percent in the 12 months ended April 27, 2015, versus an average public company net margin of nearly 8 percent. For the analysis, Sageworks adjusted the net profit margins for private companies to exclude taxes and include owner compensation in excess of their market-rate salaries. It contended that such adjustments are frequently made to provide a more accurate picture of private company operational performance.
During the same time period, large private companies also outpaced publicly traded firms in revenue growth, growing sales at a double-digit pace for the fifth straight year.
Sageworks analyst James Noe acknowledged that it’s not always fair to compare the financial performance of private and public companies, however.
“Public companies are, in many cases, massive organizations with huge revenue numbers,” he said. “It can often be easier for smaller private companies to grow revenues at a breakneck pace and keep margins high, because they’re dealing with smaller overheads and smaller figures overall.”
Restricting the dataset to only private businesses with more than $500 million in annual revenues provides more of an apples-to-apples comparison, he noted.
“Even when you look at the larger private companies exclusively, we’re seeing that their profit margin performance and revenue growth is significantly stronger than publicly traded companies,” said Noe.
He cautioned against the conclusion that publicly traded firms are struggling. “Publicly traded companies are seeing their highest net margins and fastest rate of revenue growth of the past few years,” said Noe. “The majority of businesses in the U.S., regardless of whether or not they’re publicly listed, are in sound financial shape.”
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