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Korea's corporate profitability slows in Q1

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(Globalpost/GlobalPost)

SEOUL, June 27 (Yonhap) -- South Korean corporate profitability worsened in the first quarter from the previous year as the prolonged economic slowdown dented local firms' sales growth, the central bank said Thursday.

The average ratio of operating profit to sales, a key barometer of profitability, came in at 5.3 percent in the first quarter, compared with a 5.4 percent gain in the previous year, the Bank of Korea (BOK) said in a report based on a survey of 1,767 companies.

Sales inched down 0.7 percent on-year in the first quarter, sharply down from a 10.5 percent on-year gain in the same period of 2012, it added.

The data came as the Korean economy suffers from the slowdown on faltering facility investment and sluggish consumer spending.

The South Korean economy grew 0.8 percent on-quarter in the first quarter, picking up from a 0.3 percent on-quarter growth in the fourth quarter.

But Korea's economic growth is widely expected to underperform its long-term potential growth of some 3.8 percent for the second straight year in 2013.

The BOK's 2013 growth estimate stood at 2.6 percent while the government has now forecast the local economy to grow 2.7 percent this year.

The average interest coverage ratio came in at 435.5 percent in the first quarter, up from 422.5 percent the previous year as a long streak of low rates eased burdens to cover financial costs, the BOK said.

The ratio measures a firm's capacity to cover financial costs with operating profit.

The portion of companies whose interest coverage ratio stayed below 100 accounted for 36.6 percent last quarter, up from 31 percent the previous year, pointing to tougher business conditions facing marginalized companies.

A reading below 100 indicates that a company does not have the capacity to cover financial costs with its earned income.

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