"Top 100 Companies Show Strong Earnings but Delay Investment and Accumulate Cash"

FKCCI, Comparison of Management Performance of Top 100 Companies Before and After COVID-19

[Asia Economy Reporter Park Sun-mi] Although domestic large corporations have recovered their business performance to pre-COVID-19 levels, it has been revealed that they are responding by postponing investments and securing cash only. There are claims that proactive tax support and regulatory reforms should accompany efforts to enable companies to make active investments.

On the 2nd, the Federation of Korean Industries (FKI) announced that, based on a comparative analysis of the performance of the top 100 domestic companies by sales before (cumulative 2018-2019) and after (cumulative 2020-2021) COVID-19, the sales and operating profits of the top 100 companies increased by 5.8% and 5.9%, respectively, compared to before COVID-19. Even excluding semiconductor companies (Samsung Electronics, SK Hynix), which enjoyed a boom due to increased non-face-to-face demand, the sales of the remaining 98 companies increased by 3.7% compared to pre-COVID-19 levels, and operating profits also rose by 43.4%.

On the other hand, investment by the top 100 companies, excluding Samsung Electronics and SK Hynix, decreased by 11.4% compared to before the COVID-19 outbreak. The FKI explained, “Despite the shock of COVID-19 lasting more than two years, our companies have achieved favorable performance, but as domestic and international uncertainties have intensified, companies are postponing investments.”

In fact, investment showed a significant divergence by industry. Industries benefiting from non-face-to-face demand such as electrical and electronics (18.0%), information and communication (14.4%), and pharmaceuticals (8.3%) saw increased investments, whereas investments in face-to-face related industries such as distribution (-85.1%), transportation and warehousing (-23.7%), and food and beverages (-20.1%) sharply contracted. The FKI analyzed that companies are focusing on securing cash by increasing debt despite good performance to prepare for expanded uncertainties such as global supply chain disruptions after COVID-19.

Since COVID-19, the cash generated from operating activities by the top 100 companies totaled KRW 244.6 trillion, which is similar to the cash spent on investments (KRW 189.1 trillion) and dividends and interest payments (KRW 59.5 trillion), totaling KRW 248.6 trillion. Nevertheless, as of the end of 2021, the total borrowings of the top 100 companies increased by KRW 23.7 trillion (9.7%) compared to the end of 2019, before COVID-19. This is because companies increased borrowings to secure additional cash as operating income alone was insufficient to cover cash outflows for investments and dividends after COVID-19.

As of the end of last year, the cash equivalents held by the top 100 companies totaled KRW 104.1 trillion, an increase of 16.6% (KRW 14.8 trillion) compared to the end of 2019, before COVID-19.

If debt increases more than the cash holdings of companies, financial burdens inevitably intensify. Choo Kwang-ho, head of the Economic Department at FKI, emphasized, “This year, external uncertainties faced by companies, such as the Russia-Ukraine war and global monetary tightening, have expanded even more than last year,” adding, “To help companies navigate uncertainties well and actively engage in investment and employment, a business-friendly environment must be created through proactive tax support and regulatory reforms.”

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