Moving from number two to number one, DLA Piper nudged its rival Baker & McKenzie down a place. The annual global rankings compiled by Legal Business Magazine shows that DLA Piper’s revenue has increased by 9% up to 2.4 Bn. Its average profit per equity partner, a measure highly weighted to quantify financial health, increased 6% to 1.3m, according to the Financial Times.
As a measure of profitability PPP is like EPS. Earnings per share is calculated by taking net income, less dividends, and divided by the number of shares outstanding. Its a fairly simple formula. Profits per partner quantifies the profitability of a law firm. Management translates its performance metrics and profits and quantifies it into PPP. This number helps investors gauge how profitable a firm is.
From this number we can basically understand that companies that are profitable will have better work, have better partners, gain more revenue, have more fame, and will have better minds and more merit to earn their elite status. Much investor and industry sentiment hinges on these rather abstract numbers that may not fairly assess the value addition and quality of the firms.
A flaw of the PPP model of profitability is that in some scenarios younger or new graduate partners may not have a high profitability. However, after several years they may grow into top performers. So PPP is a single snapshot for a year of a firm’s performance, and not a long look. Investors should reflect on the long term vision that a firm has when taking a look at results such as PPP, and not just focus on the one year of results that it shows.