Listed Korean companies’ return on equity (ROE) in 2019 was approximately halved from the previous year. A sharp plunge in net profit caused a significant drop in their capital efficiency, making them hesitant about new investment.
The annualized return on equity (ROE) of 656 listed companies (manufacturers and distributors) decreased from 9.52 percent in the third quarters of 2018 to 4.93 percent in the same span of 2019, FnGuide said on Jan. 6. That is a 48.3 percent drop in one year. Since their overall earnings of 2019 have not yet come out, the ROE was calculated on the assumption that their earnings in the fourth quarter will be similar to the average of the third quarter.
The biggest impact on ROE arose from a decrease in net profit. During the same period, the average net profit of the 656 listed companies declined from 104.1 billion won (about US$89.7 million) to 55 billion won (about US$47.4 million). Their net profit margin also hit 4.07 percent in the third quarter of 2019, down 45.9 percent from 7.52 percent in the same period of 2018.
In comparison, the average capital of listed companies edged up from 1,457.5 billion won (about US$1.26 billion) to 1,487.4 billion won (about US$1.28 billion). This means that even though listed companies had virtually the same level of capital as they had had last year, the amount of money left on hand was cut by half.
Industry watchers say that external economic conditions have worsened significantly, and internally, labor flexibility has weakened, undermining corporate profitability. “It is not easy to make investment because labor flexibility has weakened while economic uncertainties have grown,” said the president of a listed company.