Numbers game – LLPs offer chance to look beyond PEP and revenue
It's all about the numbers this week, with our monthly news analysis drawing on the annual accounts of the UK's 30 largest law firms to create a comparison across, well, so many financial metrics it's almost impossible to decide what to highlight. Statistics can, of course, be manipulated in all manner of ways to produce all manner of results. But, hopefully, by comparing all of the firms on the same measures, we have removed some of the fuzziness around the edges.
March 27, 2013 at 08:03 PM
3 minute read
It's all about the numbers this week, with our monthly news analysis drawing on the annual accounts of the UK's 30 largest law firms to create a comparison across, well, so many financial metrics it's almost impossible to decide what to highlight.
Statistics can, of course, be manipulated in all manner of ways to produce all manner of results. But, hopefully, by comparing all of the firms on the same measures, we have removed some of the fuzziness around the edges.
Not that we can guarantee an exact like-for-like comparison, as differences in accounting policies make that near impossible to achieve – most notably due to differences in exactly who firms classify as 'members' and where they account for capital and profits. But even allowing for some disparities, the research still tells us a lot, not just about the financial health of the overall group analysed, but about how individual firms sit within it.
Looking at the group as a whole, the analysis backs up what has been apparent from financial results over the last few years: the UK's largest law firms have been holding up remarkably well despite frosty market conditions. Turnover, operating profit, lawyer numbers – everything is up year-on-year by at least 5% across the group as a whole, with members' capital held in the firms and cash in the bank also rising as firms continue to manage their finances more prudently.
Whether considering the top 30, the top 10 or just the magic circle, in general a picture of relative good health emerges at the bulk of the UK's leading law firms, although the percentage increases tend to get slightly smaller as the firms get bigger – the four magic circle firms, for example, saw only a 1.5% increase in member numbers last year.
But beyond this, the numbers highlight huge differences in approach between individual firms. To pick just one – operating profit margin – 16 firms reported operating profit of at least 30% of revenues during the last financial year, with Allen & Overy at the top of the scale at 41%. In comparison, seven firms posted operating profit margins of 25% or less. Equally disparate are firms' approach to debt, with 15 of the top 30 carrying net debt.
Looking at some of the outliers, the accounts reflect the impact of mergers and significant expansion in a way that growth in revenues and profits per equity partner do not. The impact of the DAC Beachcroft merger, for example, is every bit as apparent on measures such as debt, staff costs, pension liabilities and operating profit as turnover.
Not that that makes it a bad thing. This is the first time Legal Week has attempted financial analysis on this scale and it will take several years' worth of data analysis for a complete picture to emerge. In the meantime, though, enjoy this snapshot we have provided for you.
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