South Korean firms’ profitability weakens in 2011

April 23rd, 2012 - 1:50 pm ICT by IANS  

Seoul, April 23 (IANS) South Korean firms’ profitability weakened last year due to an increase in production costs caused by a rise in global raw material prices, the country’s central bank said Monday.

Average ratio of operating profit at 1,488 firms listed on the local bourse and 175 major unlisted companies reached 5.4 percent of their sales in 2011, down from 7.2 percent a year earlier, according to the Bank of Korea (BOK).

The reading means companies earned an average of 5.4 won in operating profit per every 100 won in sales last year. Operating profit refers to sales minus cost of goods sold and sales and administrative expenses.

Last year’s profitability fall was mainly attributed to higher commodity prices that boosted production costs for local firms.

“Rising oil prices cost all industries for higher costs of production. Other commodities used as manufacturing feedstock also gained, weighing on local companies,” an official at the BOK told Xinhua.

The ratio of operating profit against interest payment, which measures companies’ ability to pay back borrowing costs, dropped to 420.8 percent in 2011 from 502.1 percent the previous year due to weaker profitability, said the BOK.

Local firms’ sales grew 14.1 percent in 2011 compared with the previous year, down from a 16.9 percent on-year expansion in 2010. The on-year growth rate of total assets decelerated to 8.3 percent last year from 10.5 percent a year earlier, with the growth rate for tangible assets falling from 8.4 percent to 8.2 percent over the cited period.

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