Corporate Revenues Up, Profitability Down
By Lee Hyo-sik
Staff Reporter
Businesses saw their revenues jump on strong exports and rises in sales prices in the second quarter of the year. But their ability to generate cash from a variety of operating activities fell on worsening profitability as a result of surging oil and other imported commodity prices.
According to the Bank of Korea (BOK), Friday, the combined revenue of 1,578 firms rose 24.8 percent in the April to June period from a year earlier, up from an 18.2 percent gain in the first quarter. Earnings increased as companies posted strong outbound shipments, despite a slowing global economy, and raised prices in line with rising raw material prices.
But their profitability deteriorated as they had to pay more for soaring oil and other materials. A weaker won against the dollar also worsened their bottom line as companies had to pay more in won for dollar-denominated debts. The pre-tax net income to sales ratio of domestic firms reached 6.5 percent in the second quarter, down from 6.7 percent the previous quarter, indicating businesses earned less profit from sales.
``For most export-oriented manufacturers, business has been pretty good this year as they shipped more goods overseas and were able to hike goods prices in reflection of higher raw material prices. But service providers and domestic market-oriented firms suffered from falling profits amid sluggish private consumption here,'' a BOK official said.
He also said the won's weakness against the greenback aggravated the profitability of companies that borrowed foreign currency loans from overseas because they had to pay more in won.
Worsening profitability was also the main culprit behind declining corporate liquidity. Manufacturers earned an average of 18 billion won in cash through various operating activities in the second quarter, down from 21 billion won a year ago, with the average cash flow of services companies declining to 19 billion won from 25 billion won.
Construction companies spent more cash than they earned, weighed down by the sluggish real estate market, as their average cash flow recorded a net outflow of 46 billion won during the April to June period.
With falling profits and worsening cash flow, the overall corporate financial structure worsened. The average debt to equity ratio stood at 96.4 percent as of June, up from 93.5 percent. The central bank said companies borrowed more in the second quarter to pay for higher oil and commodity prices, and other business-related costs.