Major Corporations Cut Down on Investment

The economic slowdown and the contraction of investment sentiment last year drove big businesses to decrease their investments and increase their savings.

Companies saw no investment attractions and felt more uncertainty for the future.

Financial Supervisory Service (FSS) analyzed the combined financial statements of 18 companies that had more than 5 trillion won in assets last year. The total cash generated by the companies, including the five major corporations of Samsung, LG, Hyundai Motor, Hanhwa and SK, stood at 56.3 trillion won, up 7.2 percent year-on-year.

The corporations, however, invested only 30.9 trillion won, down 33.5 percent from last year’s 46.5 trillion won.

The remaining 13 businesses, such as Hanjin, KT, Posco and Lotte, spent 4.76 trillion won, down a whopping 46.2 percent from 8.85 trillion won last year.

“The future is very uncertain and insecure in almost all areas, from politics to economy to society. Moreover, businesses do not see any new investment opportunities, so they repay their debts or build up their cash reserves,” said Lee Eon-oh, a senior managing director at Samsung Economic Research Institute (SERI).

While the 18 companies saw an increase in their cash reserves, they suffered a decrease in profits. The total operating income of the companies fell 2.1 percent, to 32.9 trillion won. The operating income of the five corporations dropped 8.5 percent, to 23.2 trillion won.

The ordinary income of the 18 businesses was down 7.5 percent, to 22 trillion won from last year’s 23 trillion won.

The ratio of operating margin to sales of the companies recorded 7.76 percent on average, down 7.93 percent year-on-year. Last year’s operating margin of overseas business activities plunged to 1 percent, a sharp contrast with that of domestic business activities of 6.4 percent.

The total assets of Samsung stood at 118.7 trillion won last year, 33.7 percent of the total assets of the 18 companies, almost 560 trillion won.

The five corporations accounted for 69 percent of the total assets of 18 companies, with 386 trillion won.

Ordinary income is an important barometer for evaluating business performances. It can be calculated as follows: Subtract cost of sales, and selling and administrative expenses from sales, which is operating income. Then add non-operating income before subtracting non-operating expense.

Keuk-In Bae bae2150@donga.com