Study Warns of Deeper Slump

Domestic companies have been hit with an erosion in both revenue and profits, which may persist through the rest of this year, according to a study by a private think tank.

The Samsung Economic Research Institute released the report Wednesday, titled "Worsening Profitability and Subsequent Countermeasures." "The economic situation started to deteriorate at the end of last year," the report says, "and considering the domestic and international economic environments, it is unlikely there will be any improvement in the second half."

The report says total revenues of 482 listed companies grew 6.3 percent in the first half of 2001 compared with the first six months of last year, marginally better than last year's figure, but down sharply from the 18.1 percent growth in the second half of last year. The firms' first-half profit margin fell to 2.5 percent this year from 7.6 percent last year.

The total debt ratio of the listed companies rose to 157 percent in the first half, up from 147 percent for the same period last year.

The report says the worsening numbers could be attributed to four main factors: higher costs and lower efficiency, the slumping U.S. economy, the drop in semiconductor prices and depressed stock prices. The report expresses concern that debt ratios have climbed even though interest rates have fallen; it blames the depressed stock market for the rise. It also warns that the firms' current ratios, which indicate the ability to manage short-term cash flows, are also low.

The think tank warns that firms may be forced to roll back their business activity. As a result, the report says, many companies would become too weak to survive on their own.

The report also warns that as global financial markets weaken, the delayed restructuring of large companies could lead to economic instability.

by Lee Jae-kwang