Private companies more likely to fail

Private companies are more likely to collapse within the next year, and are outperformed by public companies in profit margins and return on investment figures, Dun & Bradstreet research shows.

Private companies are more likely to collapse within the next year, and are outperformed by public companies in profit margins and return on investment figures, Dun & Bradstreet research shows.

The new figures show 8% of private companies reported a loss in the past two years, as opposed just 5% of public companies.

The annual median revenue of public companies during 2007-08 was $1.9 billion, while the average for private companies came in at $500 million. Public companies also achieved an average 12.9% revenue growth, compared to just 8.5% for private companies.

The average public company reached an 8.2% net profit margin, while an equivalent private company reached just 2.8%, the figures show.

But public companies are more likely to be involved in court action, with 20% of public companies being approached in the last five years for money owed, compared with 10% to 12% for private companies.

Damian Karmelich, Dun & Bradstreet’s director marketing and corporate affairs, says the research shows private and public companies must be treated differently.

“Australia’s private companies outperform public entities on certain key performance measures, including liquidity, debt-to-net worth and return on equity,” he says.

“Public companies, however, have greater stability and outperform on revenue and revenue growth. These indicators are in part a reflection of their size, with larger firms on average more stable than smaller organisations and able to produce higher revenue figures.

“There are approximately 2000 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.”