Profitability Decline

 

According to the LG Economic Research Institute, 21.7 percent of the listed non-financial companies in Korea recorded operating losses during the first three quarters of last year. The percentage had surged to 25.9 percent back in 1998, when Korea had sought a financial bailout from the IMF.

Corporate sales growth stagnated during the three quarters, too. A full 48.2 percent of the companies showed negative sales growth, and the percentage is just slightly lower than those of 2013's 50.5 percent and of 1998's 51.3 percent.

Such deteriorations in growth potential and profitability can be attributed to the appreciation of the Korean currency. The won-dollar exchange rate, which was at an average of 1,095 won per U.S. dollar in 2013, fell to approximately 1,060 won in the first quarter of 2014, 1,030 won in the second and 1,020 won in the third. The won-yen exchange rate dropped from about 1,100 won per 100 yen to 980 won or so between 2013 and the third quarter of 2014, too. This dragged down the performance of Korean exporters while Europe, China, Japan and emerging countries failed to recover their economies.

Likewise, no less than 30 percent of the companies recorded an interest coverage ratio of less than one during the same period. Their debts accounted for 35.4 percent of total corporate liabilities.

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