Companies Face Simultaneous Decline in Growth and Profitability in Q2... Sales Drop by 10%

Operating Profit Margin Down 0.2 Percentage Points Compared to Sales
Debt Ratio Slightly Decreased, but Borrowing Dependence Increased

[Asia Economy Reporter Jang Sehee] Due to the impact of the novel coronavirus infection (COVID-19) and other factors, both growth and profitability of domestic companies deteriorated in the second quarter of this year. In particular, companies' sales revenue plummeted by 10%. Although the debt ratio slightly decreased, the dependence on borrowings increased, especially among large corporations.

According to the corporate management analysis statistics for the second quarter of 2020 released by the Bank of Korea on the 15th, the operating profit margin relative to sales revenue of domestic companies from April to June this year was 5.3%, down 0.2 percentage points from 5.5% in the same period last year.

By industry, manufacturing fell from 5.7% to 5.3%, while non-manufacturing rose from 5.2% to 5.3%.

Among manufacturing sectors, the decline in petroleum and chemical (-5.2% → -26.8%) was particularly notable. This was due to increased inventory asset valuation losses caused by the drop in international oil prices. Due to weak automobile demand, transportation equipment fell further from -3.5% to -17.3%.

Another profitability indicator, the pre-tax net profit margin relative to sales, also decreased from 5.4% to 5.2%.

Indicators representing growth also deteriorated across the board. Sales in the second quarter decreased by 10.1%, significantly widening the decline compared to the previous quarter (-1.9%). This marked the sixth consecutive quarter of decline and the largest drop since the statistics began being compiled in the first quarter of 2015.

Manufacturing (-1.9% → -12.7%) saw a sharp decrease centered on petrochemicals and transportation equipment. Non-manufacturing (-1.9% → -6.5%) also declined, mainly in wholesale and retail trade and transportation industries.

The Bank of Korea analyzed that the growth and profitability of companies worsened due to the impact of COVID-19 and other factors. The Bank of Korea forecasted, "The decline in international oil prices and reduced automobile demand due to COVID-19 had an impact."

The corporate debt ratio stood at 87.0%, slightly down from 88.2% in the previous quarter. A Bank of Korea official explained, "It decreased due to dividend payments by major companies, but dependence on borrowings rose as large corporations increased corporate bond issuance." The dependence on borrowings, which refers to the ratio of borrowings and corporate bonds to total assets, rose from 25.3% to 25.6%.

Meanwhile, the Bank of Korea analyzed these results by sampling 3,862 companies out of 20,914 corporations subject to the Act on External Audit of Stock Companies as of the end of 2019, excluding industries unsuitable for investigation.

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