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Large Private Companies More Profitable, Growing Faster Than Public Companies

May 26, 2015, 07:39 AM
Filed Under: Economic Commentary
Related: Sageworks

Sageworks released data suggesting that large privately held companies are more profitable and are growing revenues faster than publicly traded companies in the United States.

The analysis covered 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. Private-company net profit margin has been adjusted to exclude taxes and include owner compensation in excess of their market-rate salaries; these adjustments are commonly made to provide a more accurate picture of private company operational performance. In 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 explained that it’s not always fair to compare the financial performance of private and public companies: “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.” However, Noe continued, by restricting the dataset to only private firms with more than $500 million in annual revenues, you can get a more apples-to-apples comparison. “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.”

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