Corporate Profits
The profitability of Korean corporations reached a new low last year, the lowest since 2003. Their average profit-to-sales ratio fell by 0.2 percentage points to 4.6 percent, while the sales growth rate plummeted from 4.9 percent to 0.7 percent year-on-year.
The Bank of Korea announced the figures on April 28. They covered the 1,541 companies listed on the Korean stock market and 169 not listed yet representing various industry sectors. The figures are the lowest ever since the first edition of the central bank’s Corporate Management Analysis data published 11 years ago. The profit-to-sales ratio was even lower than that during the 2009 financial crisis at 5.8 percent.
The ratio can be defined as the proportion of the net operating profits, excluding the non-operating profit and loss not directly associated with the manufacturing and sale, to the total sales. The ratio of 4.6 percent means that Korean companies earned 46 won from an input of 1,000 won.
Things appear to be even worse for those other than Samsung Electronics and Hyundai Motor Company. The ratio fell from 3.8 percent to 3.4 percent on their part according to the Data Analysis, Retrieval & Transfer System of the Financial Supervisory Service. Meanwhile, it was found that their interest burden was eased to some extent as their financial costs were reduced.
However, the sales growth rate, which is a barometer of corporate sustainability, dipped to the financial crisis level. The growth rate, as stated above, fell to one-seventh of that of the previous year. The downtrend was particularly conspicuous in the machinery, electrical, and electronics sectors (11.0 percent to 6.0 percent), metal product manufacturing (negative 5.6 percent to negative 10.1 percent) and transportation (7.9 percent to negative 4.2 percent). “Last year, the producer price index and the export price plunged alike along with the raw material prices,” said Park Seong-bin, head of the Corporate Statistics Team of the central bank.
Fortunately though, their financial stability was improved owing to their efforts for handling debts. The debt ratio and the total borrowed to total assets decreased from 97.9 percent to 95.1 percent and from 25.5 percent to 25.2 percent, respectively. Still, those in the non-manufacturing businesses such as construction firms and electrical and gas service providers rose 3.8 percent and 0.9 percent each from a year ago.
The Bank of Korea is planning to announce the Corporate Management Analysis data covering all corporations in Korea within the latter half of this year.