Measuring the performance of Australia's top public and private companies
27 November 2008
Private companies are more likely to fail in the coming twelve months and are outperformed by their public counterparts on key performance measures including profit margin, return on assets and return on investment. However private firms excel on liquidity and return on equity measures and are significantly better payers than listed entities.
These findings are from a Dun & Bradstreet (D&B) study released today, which examines the characteristics of Australia's top 100 public and private companies as defined by annual sales.
The study found that private companies have an average chance of failure and a below average risk of delinquent payment, while for public companies the likelihood of failure is low and the risk of delinquent payment is high.
Key financial indicators
In the last financial year the annual median revenue of public companies was close to four times that of private companies, at $1.9 billion and $500 million respectively. Public companies also outperformed on revenue growth, achieving 12.9% as compared to 8.5% growth for the private sector.
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Median annual revenue growth
The median public company achieved an 8.2% net profit margin while the equivalent private company reached 2.8%. However in the upper quartile public companies outperformed by close to three times, achieving a 16.1% net profit margin as compared to 6.4% for public companies.
Meanwhile, private companies outperformed on the debt to net worth ratio, demonstrating relative financial stability and a solid position to borrow funds if required.
A review of liquidity - defined by balance sheet data - shows the top 100 private companies have higher current and quick ratios, higher accounts receivable turnover and lower collection period ratios. This indicates that private companies collect their receivables in a more efficient manner.
According to Christine Christian, CEO of Dun & Bradstreet, Australia's public and private companies operate very differently and it is important that businesses and investors understand their strengths and weaknesses.
"Australia's private companies outperform public entities on certain key performance measures, including liquidity, debt to net worth and return on equity," said Ms Christian.
"At a time when credit is particularly difficult to access, even for organisations in a sound financial position, a company's liquidity position must be seen as an important indicator of financial health and a key criteria for investor safety.
"Public companies however have greater stability and outperform on revenue and revenue growth. These indicators are in part a reflection of their , with larger firms on average more stable than smaller organisations and able to produce higher revenue figures."
Key performance indicators
Private companies performed better on the inventory turnover ratio except in the lower quartile, indicting that some private companies may be experiencing poor sales and excess inventory. Private companies also outperformed on the return on equity measure, with the median private entity achieving a 22.4% return. Public companies achieved 17.8%.
Return on investment measures are relatively similar at 22.0% (public) and 26.6% (private) however private companies significantly outperform in the upper quartile, with organisations in this segment achieving a 45.6% return on investment (8% higher than public firms).
Listed firms outperformed on the return on assets ratio however private companies in the upper quartile are using their assets very efficiently, outperforming their public counterparts.
Adverse filings
Examining adverse filings, the research reveals that Australia's public companies are more likely to be involved in court actions or approached to collect debt. One in five public companies has had legal action initiated against them in the past five years for monies owed and one in four has been approached to collect debt. This compares to 10 and 12 per cent respectively for private companies.
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Adverse filings
Eight per cent of private companies reported a loss in the past two years as compared to five per cent of public companies.
"Recent high-profile failures around the globe and locally provide a clear demonstration of the need to have a complete picture of your customers, suppliers and investments," said Ms Christian.
"Businesses have long been aware of the importance of financial information and they have accessed public company data with ferocity. This study is a good reminder that we should not discount private companies.
"There are approximately 2,000 publicly listed entities in Australia and more than one million registered private companies. These organisations are incredibly diverse and they play a vital role in our economy - it is important that they are understood."
The study also revealed that public companies employ on average four times as many staff as private companies and they have been operating for an average of ten years longer. Meanwhile, the top 100 private companies import and export more than their public counterparts.
Almost half (48%) of the top 100 public companies are located in New South Wales. Victoria, Western Australia and Queensland follow with 28%, 10% and 9% respectively.
Private company headquarters are relatively evenly split between New South Wales and Victoria at 36 and 31% respectively. Queensland (15%) and Western Australia (10%) follow.
Public companies dominate the Mining, Manufacturing and Finance, Insurance & Real Estate sectors while private companies are more likely to be involved in Construction, Transport & Utilities, Wholesale or Retail.
For further information please contact:
Danielle Woods
D&B PR Manager Australia & New Zealand
(02) 8270 2926
About D&B
D&B is the world's leading provider of business-to-business credit, marketing and purchasing information and receivables management services. D&B manages the world's most valuable commercial database with information on more than 130 million companies.
Information is gathered in 193 countries, in 95 languages or dialects, covering 186 monetary currencies. The database is refreshed more than one million times daily as part of D&B's commitment to provide accurate, comprehensive information for its more than 150,000 customers.
The Australasian operations were bought out by the senior management group in August 2001. It was the first MBO of a wholly owned subsidiary in D&B's history worldwide.
Today Lazard Carnegie Wylie owns an approximate 90% stake in DBA and the local management team a 10% stake.
Strategies for future growth include developing DBA's commercial and consumer credit referencing business; expanding its receivables management outsourcing business; maintaining its lead in the development of unique credit and risk scoring products; and developing new products specifically tailored to the Australasian market. DBA currently employs over 500 people in Australia and New Zealand.
