Cash inflows dwindle as firms wrestle with costs

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Cash inflows dwindle as firms wrestle with costs

Manufacturers’ capacity to repay debt deteriorated in 2011 due to sluggish economic growth and increases in borrowing costs, the central bank said yesterday.

A manufacturer’s operating cash flow reached a 53.8 percent of the short-term borrowing and interest last year, down sharply from 66.1 percent reached in the previous year, according to a survey of 7,404 manufacturers conducted by the Bank of Korea (BOK).

The percentage measures a company’s ability to service short-term debt with cash generated from operating activities. The 2011 data marked the lowest level since the 51.4 percent tallied in 2008, the central bank said.

“Last year, local manufacturers’ cash flows from their business activities fell as the slowdown in the global economy affected domestic growth and the bottom line of many large conglomerates,” a BOK researcher said.

She added that because local companies borrowed more money to meet preset investment plans and other business obligations, there was a rise in interest payments.

Manufacturers posted a net cash inflow of 11.5 billion won ($9.8 million) on average last year, down from 12.4 billion won in the previous year.

Asia’s fourth-largest economy expanded 3.6 percent last year.

Local manufacturers also posted a net cash outflow of just under 14.2 billion won on average from investment in 2011, up from 13.9 billion won in the previous year. In the cited period, their net cash inflow surged 152.7 percent on-year to 3.2 billion won due to a rise in corporate bonds issued.

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