During Q1 2014, the revenue growth and profitability of Korean listed companies and major non-listed companies increased. However, their stability became weaker as well, as their debt ratios and loan dependency has also increased.
After analyzing 1,518 listed companies and 144 major non-listed companies that represent each industry, The Bank of Korea announced a return on net sales, which indicates profitability, of 5.2 percent, a 0.4 percent increase from the same period last year.
This is the highest figure since Q2 last year. A return on net sales shows net profit, the cost of sales subtracted from total sales, of a company. For example, if a return on net sales is 1 percent, a company made 1 won out of 100 won worth of sales. Accordingly, this could be interpreted as companies made 5.2 won out of 100 won worth of total sales.
By business type, the return on net sales of manufacturing industries was 5.9 percent, a 0.1 percentage point increase from the previous year, and a return on net sales of non-manufacturing industries was 4.1 percent, 0.8 percentage point increase from previous year. By industry, machinery and electronics (9.8 percent), furniture and others (10.6 percent), construction (2.6 percent), and transportation (1.3 percent) scored well. The Bank of Korea analyzed that a decrease in the cost of sales and operating costs increased the return on net sales.
Total revenues, a growth indicator of companies, increased 1.5 percent from last year. By industry, automobiles was the highest at 9 percent, furniture and others 8.6 percent, and construction 7.7 percent.
The stability of companies, however, became weaker, even though profitability and growth potential improved. The debt ratio of evaluated companies was 97.2 percent, a 1.7 percentage point increase from last year’s 95.5 percent. Loan dependency also increased to 25.5 percent, a 0.1 percentage point increase from last year’s 25.4 percent.
The cash flow recovery ratio, which indicates the capability of cash flow to manage debt, was 45.2 percent, a 10.4 percentage point decrease from the previous year. The interest coverage ratio also increased to 477.7 percent from 422.0 percent, meaning profits from sales activities are 4.8 times greater than interest. The portion of companies unable to cover interest payments with their profits (an interest coverage ratio below 100 percent) decreased to 31.9 percent of total the from 32.7 percent as well.
Park Sung-bin, head of the Corporate Statistics Team of the Bank of Korea, said, “Although corporate profitability improved during Q1 as the economy recovered slowly, Q2 does not look that good due to the Sewol ferry disaster effects.”