Manufacturers post net cash outflow in 2010

South Korean manufacturing companies chalked up a net cash outflow in 2010 as they revved up capital spending and securities investments, the central bank said Thursday.

According to a survey of 6,778 manufacturers by the Bank of Korea, their average net cash outflow came to 248 million won ($235,000) last year, a turnaround from a net inflow of 1.01 billion won the previous year.

“Last year, local manufacturers’ cash flows from their business activities improved as exports remained solid amid the economic recovery,” Kim Jun-tae, an official at the BOK, said in a briefing.

Cash flow is the money that flows in and out of a company, equaling cash receipts minus cash payments over a given period of time. Cash inflows usually arise from operations, investing or financing, while cash outflows involve expenses or investments.

Manufacturers’ net cash inflow from operations averaged 13.2 billion won, up 15 percent from the previous year, as local firms logged healthy net income amid the economic recovery.

Improved earnings led local manufacturers to boost their investment activities like capital spending or investment in stocks and bonds. The companies posted a net cash outflow of 14.7 billion won on average from investment in 2010, up 16.2 percent from the previous year.

Their net cash inflow from financing declined 43.9 percent on-year to 1.2 billion won last year due to a record dividend payout, the BOK noted. They paid out an average of 2.16 billion won in dividends last year, the largest since the BOK began to compile related data in 1995.

Meanwhile, local manufacturers’ capacity to service short-term debt improved in 2010 as their net income rose amid the global recovery, but smaller firms’ performance and cash flows were far weaker than those of large companies, the BOK said.

The ratio of a manufacturer’s earned income to short-term borrowing and interest reached 67.8 percent last year, up from 65.2 percent the previous year, it said.

The ratio measures a company’s ability to service short-term debt with cash generated from operating activities. The 2010 data marked the highest level since the 88.7 percent tallied in 2007, the central bank said.

Despite overall improvement in their debt-repayment ability, there was a sharp gap in cash flows and debt-service capacity between large companies and smaller firms, indicating that the overall growth was driven by bigger companies.

The ratio measuring a large firms’ capacity to service short-term borrowing reached 96.3 percent last year, up 6.5 percentage points from a year earlier. But the corresponding ratio for smaller companies shed 3.7 percentage points to 31 percent

The BOK said the spread between the two ratios came in at 65.3 percentage points in 2010, the largest gap since 107.3 percentage points tallied in 2007.

The data came as the South Korean economy grew 6.2 percent last year, aided by sustained exports, which account for about 50 percent of the economy. 

(Yonhap News)