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Companies cling to capital reserves

Dec 03,2007
Listed manufacturers’ reluctance to reinvest has propelled capital reserves to almost seven times that of their total capital fund, said the Korea Exchange yesterday.
Among manufacturers listed on the Kospi index as of late September, 534 saw the ratio of cash reserves to total capital, or the money spent when the business was initially started, at 675.82 percent, up 49.82 percent from late last year.
The research by the Korea Exchange also showed that cash reserves as of the end of September totaled 347.5 trillion won, an increase of 8.7 percent from the end of last year, while capital rose by a mere 0.8 percent in the same period. The combined cash assets held by firms surveyed was 57.4 trillion won, advancing 11.5 percent from late December of last year.
A high cash reserve ratio generally indicates the company has a healthy financial structure and large-scale liquidity ― sizable room to issue free new shares, buy back its own shares and pay dividends. But it can also mean a firm is stingy when it comes to spending on facilities and other types of investment on long-term growth.
“Companies have yet to find an optimal growth engine,” said Cho Jae-hoo, head of investment strategy team at Daewoo Securities, “Mounting uncertainty in the global market economy [from the U.S. subprime crisis] has also affected manufacturers’ confidence.”
The reserve rate was higher among the top 10 Korean conglomerates, the research showed. Their average rate climbed from 64.63 percent at the end of late last year to 788.73 percent in late September. The reading was the highest at Samsung, at 1,438.7 percent, followed by 1,365.6 percent at SK and 1,277.7 percent at Hyundai Heavy Industries.
But Hyundai-Kia Motor Group, LG, GS, Hanwha and Kumho Asiana had below-average figures.


By Seo Ji-eun Staff Reporter [spring@joongang.co.kr]


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