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35 Pct. of Companies Suffering Negative Cash Flow

Posted December. 05, 2008 04:25,   


Cash flow at Korean companies worsened in the first nine months of the year, with a third of them posting a negative balance despite earning operating profits, according to a survey released yesterday.

Delays in the collection of payments to the global economic downturn are blamed for the negative cash flow, raising fears over a series of bankruptcies at financially sound companies.

Based on an analysis of balance sheets from January to September of 629 listed companies closing their books Dec. 31, the Korea Chamber of Commerce and Industry said 219 companies (34.8 percent) posted negative operating cash flow despite seeing operating profits. The figure is more than double that of 1998 (13.6 percent), the year the country suffered a foreign exchange crisis.

“Companies had trouble collecting payments due to the credit crunch, leading to a rise in credit sales and payments by corporate bills. The fall in consumption also caused inventories to grow. All of these resulted in deteriorating cash flow,” said chamber official Sohn Yeong-gi.

The ratio of operating cash flow to sales peaked at 12.6 percent in 2004, but has dropped to 1.6 percent this year, lower than 9.7 percent in 1998.

Of companies going bankrupt from 1996 to 1999, more than half suffered negative cash flow despite earning operating profits, according to the report. “When cash in the market doesn’t flow into the real economy, the number of companies that go under despite posting profits will grow,” it said.