By Kim Jae-kyoung
Staff Reporter
Korean enterprises are slipping into deep trouble, with their balance sheets turning uglier in the wake of the deepening global recession.
Even conglomerates such as Samsung, Hyundai, LG, SK and Hanwha, as well as small- and medium-sized enterprises, are suffering from decreasing profitability and worsening financial health.
The biggest concern is that with a cash shortage deepening day after day, more and more profit-generating companies are exposed to the risk of bankruptcy for having failed to make interest and principal payments due to poor cash inflows.
According to the Korea Chamber of Commerce and Industry (KCCI), among 629 listed firms surveyed, 34.8 percent posted operating income for the first nine months of the year but suffered from a cash shortage with their cash outflow exceeding inflow ― way above the 23.1 percent recorded in 1997.
``Cash flows are deteriorating as inventories are rising due to sluggish demand caused by the deepening economic downturn,'' a KCCI official said. ``In addition, with the money market frozen, many firms are having difficulty collecting cash for account receivables (unpaid customer invoices).''
Data released Thursday by the Bank of Korea (BOK) confirmed the difficulty.
In its third quarter survey of 1,624 local firms ― both manufacturing and non-manufacturing ― the central bank found that manufacturers' cash flow coverage ratio plunged to 57.1 percent between January and September from 87.5 percent a year ago.
The ratio assesses a firm's ability to meet cash obligations with current cash inflow. A ratio of less than 100 percent means that firms cannot make interest and principal payments as they become due.
As a result, the number of manufacturers in the red accounted for 30.8 percent of the total, up from 26.3 percent a quarter ago, according to the survey.
``Since conglomerates account for more than 80 percent of the firms surveyed in assets, the outcome illustrates the current difficulties large enterprises are facing,'' BOK economist Oh Kwon-young said.
Corporate profitability and financial health have also been deteriorating.
The survey showed that the ratio of pre-tax net income to sales for both manufacturing and non-manufacturing firms fell to 2.8 percent in the third quarter from 6.7 percent in the previous quarter.
This means that firms earned 28 won for every 1,000 won in sales before taxes, the lowest level since the central bank began compiling quarterly data in the first quarter of 2003.
The falling profitability was due to increasing non-operating costs triggered by rising raw materials prices and soaring foreign exchange losses stemming from debts denominated in foreign currencies. During the third quarter, they posted 3.4 trillion won in such losses ― both realized and unrealized, bringing the cumulative loss for the year to September to 14.47 trillion won.
The manufacturers' debt to equity ratio rose to 104.3 percent in September, up from 95.4 percent in June and the highest level since the 106 percent posted in the first quarter of 2004.
``Despite sales growth, all key indicators ― profitability, financial soundness and cash flows ― are pointing to a downturn,'' Oh said.
``Given the slowdown in exports and industrial activity, things will likely turn worse in the fourth quarter before they get better,'' he added.