In a previous article 2, we projected a 2019 Am Law 100 profit margin (defined as operating income divided by revenue) of 40.23%, an increase of 0.20% from 40.03% in 2018. Our projection was validated by early results of 42 firms in the 2018 Am Law 100. We continue our analysis with a follow on question: can we project profit margin for the 2020 Am Law year (which is calendar 2019)?
In late calendar 2018 and early calendar 2019, there were indications of weakening economic conditions and sharp downtrends in global stock markets, which pointed to a potential impending US recession, but whose occurrence, timing, and magnitude were unknown. Article 1 demonstrated that Am Law 100 profit margin decreases with US recessions. Am Law profit margin is likely to similarly decrease in the next recession, but due to the uncertainty of the incidence, length and depth of such a recession, we need to project 2020 profit margin for multiple scenarios.
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