Optical Illusion Due to Capital Growth

The KOSPI-listed companies’ debt ratio in the first half of this year lowered as their capital increased, but their debts actually inched up.

As the debt ratio of companies listed on the main KOSPI bourse slightly dropped, it was said that their financial soundness has somewhat improved. However, it turned out that it was an optical illusion caused by capital growth. The companies’ debt ratio in the first half of this year lowered as their capital increased. Their debts actually inched up.

According to the data by the Korea Exchange and Korea Listed Companies Association on August 27, the debt-to-equity ratio of 587 companies listed on the KOSPI market, which close their books in December, came to 107.14 percent at the end of June, down 1.53 percentage points from the end of last year. As a key measure of financial health and stability, the ratio is calculated by dividing a company's total liabilities by its equity capital.

As of the end of June, the firms' debt totaled 1,151.68 trillion won (US$1.03 trillion), up 2.84 percent from six months earlier, with their combined equity surging 4.31 percent to 1,074.92 trillion won (US$964.92 billion). Their debt ratio increased from the end of last year but it slightly decreased due to the further increase in their equity capital.

Of the total, 56.22 percent of the firms, or 330 entities, had a debt ratio of 100 percent or lower, while 28.1 percent of the firms had a debt ratio between 100 and 200 percent. Only 15.67 percent of the firms saw their debt ratio exceed 200 percent.

By industry, the debt ratio of companies in 18 industries, including other transportation equipment manufacturing, beverage manufacturing, information communication and chemical substance and product manufacturing, fell, while that of companies in the real estate, transportation and warehousing, electricity gas and lodging and restaurant industries rose.

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