Traded firms hold cash amid worsened profits

Korea’s listed companies accumulated a large amount of cash and other reserves through March this year, indicating they are reluctant to make investments amid worse profitability, the Korea Exchange said yesterday.
The average reserve ratio of the country’s 537 manufacturers traded on the exchange stood at 637.6 percent as of March this year, compared with 633.5 percent at the end of last year.
The reserve ratio measures a corporation’s capital surplus and retained earnings against paid-in capital and is a good indicator of a company’s financial stability. However, the higher the ratio is, the more a company is unwilling to spend.
As of the end of March, the companies’ capital surplus widened to a total of 334.6 trillion won while their paid-in capital stood at 52.4 trillion won, the exchange said.
The average reserve ratio of the country’s listed manufacturers topped 600 percent last year after reaching 500 percent a year earlier.
The exchange said that the reserve ratio jumped as the manufacturers’ profitability worsened. The ratio of the firms’ operating profits to sales, a key barometer of profitability, declined 1.2 percentage points from 2005 and 3.1 percentage points from 2004, to 6.6 percent last year.
As of the end of March, listed firms of the country’s 10 largest business groups posted a reserve ratio of 747.5 percent on average, compared with 567.67 percent for the other listed firms.