Firms’ Cash Reserves Reach All-Time High
By Lee Hyo-sik
Staff Reporter
Listed companies have posted record profits over the past year, but they have been reluctant to reinvest in plants and other facilities amid an uncertain economic outlook, pushing up their cash holdings to an all-time high.
According to the Korea Exchange (KRX) Sunday, 534 listed manufacturing firms held combined cash and cash equivalents worth 347.5 trillion won as of September, up 8.7 percent from a year earlier. Cash equivalents refer to assets that are easily convertible to cash.
It is nearly seven times more than their combined paid-in capital of 51.4 trillion won, which increased only 0.8 percent over the one-year period. A ratio of cash reserves to capital came to 675.2 percent in September, up from 626.5 percent late last year.
The reserve ratio, which measures corporate capital surplus and retained earnings against paid-in capital, reflects companies' overall financial soundness. The higher the ratio gets, the sounder the financial state is. But the high ratio also indicates that companies are unwilling to invest and expand their businesses.
Corporate investment has remained sluggish over the past few years amid an uncertain business outlook. In September, corporate investments in plants and other facilities fell 8.3 percent from a year earlier, according to the National Statistical Office (NSO). In the third quarter, investment dropped 1.9 percent from the same quarter last year.
``Despite rising corporate earnings over the past year, companies have been reluctant to invest in plants and equipment, which ended up increasing their cash reserves. Recently, rising international oil prices and other external negatives have further discouraged businesses from expanding operations at home and abroad,'' a local securities analyst said.
In particular, listed firms affiliated with the country's 10 largest business groups posted a higher reserve ratio than small businesses, as their combined cash and cash equivalents was 788.7 percent more than paid-in capital in September, up from 724.1 percent late last year.