Q1 Corporate Growth, Profitability, and Stability Face 'Triple Challenges'

Bank of Korea 2020 Q1 Corporate Management Analysis

[Asia Economy Reporter Eunbyeol Kim] Due to the impact of the novel coronavirus infection (COVID-19), the growth, profitability, and stability of companies all deteriorated simultaneously in the first quarter of this year.

According to the "2020 Q1 Corporate Management Analysis" released by the Bank of Korea on the 16th, the sales growth rate of corporations subject to external audits slowed to -1.9%, compared to -0.5% in the fourth quarter of last year.

Looking at sales by major industries, manufacturing sales decreased by 1.9%, narrowing the decline compared to -2.4% in the fourth quarter of last year. This was thanks to improvements in sales of machinery, electrical and electronic products, etc. The semiconductor export volume, which had decreased by as much as 27.6% in the fourth quarter of last year, turned positive (0.6%) in the first quarter, which had a significant impact.

On the other hand, the sales growth rate of non-manufacturing industries turned negative from 2.2% to -1.9% during the same period. This was due to a sharp drop in sales centered on wholesale and retail trade, food and accommodation industries, etc., affected by COVID-19.

Profitability of companies also worsened in the first quarter. The operating profit margin to sales for all industries recorded 4.1%, down 1.2 percentage points from 5.3% in the first quarter of last year. The pre-tax profit margin to sales for all industries also fell by 1 percentage point from 5.8% to 4.8% during the same period.

By industry, profitability declined in manufacturing, mainly in petrochemicals, machinery, electrical and electronic sectors. The operating profit margin of manufacturing plummeted from 5.7% in the first quarter of last year to 3.5%. However, the operating profit margin to sales of non-manufacturing industries rose from 4.6% to 5.1%. Although the operating profit margin of transportation industries decreased, it showed an upward trend centered on electricity and gas industries.

While growth and stability of companies are compared with the previous quarter, profitability is compared with the same quarter of the previous year due to seasonal characteristics.

As the number of companies relying on loans increased, the debt ratio of companies rose. The debt ratio in the first quarter was 88.0%, up from 84.3% in the fourth quarter of last year. The debt ratio of manufacturing increased from 65.0% to 68.9% during the same period, and that of non-manufacturing also rose from 117.5% to 120.8%.

The debt dependency ratio, which refers to the ratio of borrowings and corporate bonds to total assets, recorded 25.3%, up from 25.1% in the fourth quarter of last year. Manufacturing showed a debt dependency ratio of 21.4%, and non-manufacturing showed 30.5%.

This content was produced with the assistance of AI translation services.