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But profitability continues to rise, data shows, indicating companies controlling spending.
Mary Ellen Biery, CFO.com | US
August 2, 2012
Sales increases at privately held companies continue to outpace the broader economy but have slowed in recent months, according to new data from Sageworks, a financial-information company.
Average annual sales growth for U.S. private companies that filed financial statements within the past three months is about 6%- a new 12-month low, though a solid rate nevertheless. Historical data from Sageworks's Private Company Indicator shows that sales growth often slows from May to July, and it's unclear whether the recent dip reflects growing uncertainty about the economy or a leveling off of growth at around prerecession levels.
Among major sectors, manufacturing and wholesale trade are showing sales growth above the average for private companies. Manufacturing companies averaged about 14% annual sales growth as of June, compared with December 2011's 15%. Annual sales growth for wholesalers in Sageworks's database averaged about 9% as of June, compared with 14% last December.
Retailing, construction, and health care/social assistance are posting below-average sales growth, although they continue to show improvement over last year.
Private companies' profitability, meanwhile, has continued to climb, indicating they are keeping a tight rein on expenses. Average net profit margin for the companies in Sageworks's database is 9.6%, a five-year high.
The ability of private companies to service their debt is also improving. Looking at ratios of debt to earnings before interest, taxes, depreciation, and amortization (EBITDA), private companies are in the best shape they've been in five years. Debt-to-EBITDA is commonly used to assess the probability a business will default on current debt, with higher numbers indicating negative trends. Private-company leverage over the past 12 months has averaged 5.8 times EBITDA, compared with 6.9 times for all of 2011.
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 market-rate salaries. These adjustments are commonly made to private-company financials to provide a more accurate picture of operational performance.
Mary Ellen Biery is a research specialist at Sageworks, a financial-information company that collects and analyzes data on the performance of privately held companies and provides financial forecasting software. She is a veteran financial reporter.