In my last blog post I referred to studies I’ve read that found family-owned businesses have a competitive advantage over non-family businesses. These studies made me curious, so I decided to do some research on my own.
To start, I selected six publicly-traded companies that are currently family-owned and compared them to six of their publicly-traded competitors that are not family-owned. I reviewed their five-year average performance in four key areas: liquidity, leverage, profitability, and efficiency.
Here are my findings:
- Liquidity: I reviewed the current ratio as my evaluation of liquidity. As it turns out, the average current ratio of the family businesses was 1.42, which was about the same as the non-family business average of 1.45. No significant differences noted here.
- Leverage: I selected the debt to equity ratio to evaluate leverage. The family businesses averaged 1.32, as compared to the non-family businesses which averaged 3.50. It’s interesting to note that family businesses carried noticeably less debt than their non-family competitors.
- Profitability: I selected the net profit margin to evaluate overall profitability. Similar to the liquidity results, the family businesses averaged 4.19 percent, as compared to 4.16 percent for their non-family peers. Again, no significant differences here.
- Efficiency: Lastly, I reviewed the return on assets as my measure of efficiency. The family businesses returned 5.29 percent, as compared to 3.14 percent for the non-family competitors. The family businesses held a moderate advantage here.
Stay tuned for my next installment in this series, while I do research on some private companies to see if that makes any difference.
What do you think? Do family businesses have an advantage? Share in the comments.