Private-company sales, margin growth continue – Sageworks Stats @ Forbes.com
Privately held U.S. companies – the millions of businesses that drive job creation and GDP –are growing sales so far this year at about the same rate as they did for all of 2011, according to new data from Sageworks Inc., a financial information company.
Companies across all industries, on average, have generated an 8.1 percent increase in sales so far this year, compared with 8.25 percent growth for all of 2011, based on a financial statement analysis. On a trailing 12-month basis, sales growth has been in the 6 to 8 percent range each month of 2012.
Profitability, meanwhile, has improved year to date for private companies, compared with 2011. The average net profit margin for all private companies was 6.84 percent through May 10, an improvement from the 5.87 percent average margin for all of last year. Net profit margin shows how many dollars of profit a company generates from each $100 in sales.
All in all, said Sageworks analyst Samara Zippin, companies continue to generate healthy gains.
“Overall, private companies are still doing well, and we’re seeing similar growth trends to last year, while profit margins have improved quite a bit,” she said. “If 2012 continues as it is now throughout the year, I think we’ll see positive trends comparable to 2011.”
“The biggest caveat is the unemployment rate,” she said. Unemployment of around 8 percent remains too high, especially considering the U.S. is more than 30 months into the recovery. The fear is that if unemployment doesn’t fall at a faster rate, the economy may bump into the next recession before job growth is healthy.
Zippin said it may be that lower costs are behind the margin gains. Indeed, average gross profit margin is higher so far in 2012 than it was, on average, for 2011. Overhead, or sellling, general and administrative expenses, relative to sales has been higher.
“It appears that regardless of what sales growth is doing, companies are learning to become more efficient,” she said.
Through its cooperative data model, Sageworks collects financial statements for private companies from accounting firms, banks and credit unions. 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 private company financials in order to provide a more accurate picture of the companies’ operational performance.
How important are private companies? While Wall Street focuses on the performance of public companies, not all employers in the U.S. contribute to new job creation equally. Out of the 27 million businesses in America, only about 6,200 are publicly traded on listed exchanges. Most others are privately held, and many of them are small businesses.
No government agency tracks private company performance by itself. But small businesses, which the government considers to be any company with fewer than 500 employees, drive approximately half of GDP and 65% of new job creation, according to the Small Business Administration. Figures for all privately held businesses, including medium and large private companies, would be even higher, assuming most small businesses (by the government’s definition) aren’t publicly traded.
Sageworks’ industry ratios show that over the last 12 months, industries that have had the highest growth rates among privately held companies have included manufacturing, mining, transportation and warehousing, and professional services. Construction, too, has been among the strongest sectors, with roughly 15 percent sales growth over the last 12 months. Health care and social assistance (NAICS code 62) and accommodations and lodging (NAICS code 72) have each generated sales growth that trails the all-industry average over the last 12 months. Nevertheless, sales growth in those sectors has been around 6 percent, outpacing the broader economy.
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