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Long-term profitability slump of Korean SMEs

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Frame of Image l problems are behind the long-term downturn in
the profit ratio of SMEs. This paper will examine the downturn in the long-term profitability of Korean SMEs, and try to identify the factors causing the profitability slump at SMEs.
2. Long-term Downturn in the Profit Ratio of Korean SMEs
The ratio of operating profit to sales of Korean SMEs (in the manufacturing sector) was 6.0 percent in 1998, and continuously fell to 4.3 percent in 2006 within 8 years as shown in Fig. 1. Large enterprises profitability during the same period compared to the profitability of SMEs did not show a downward trend, recording 9.4 percent in 2004, down to 6.0 percent in 2006. However, this seems to be the fluctuating from the normal business cycle. Although the ratio of operating profit to sales of SMEs is continuously
1) In Korea Small and Medium-sized Enterprises(SMEs) in manufacturing sector are defined as enterprises with workers of less than 300.
falling, the ratio of ordinary profit to sales did not fall. It reached a stable 3.2 percent in 1999 and 3.6 percent in 2006, as seen in Fig. 2. The improvement in the financial condition of SMEs might be a contributing factor to the ordinary profitability increase of SMEs. Fig. 2 shows that interest expense to sales declined from 5.6 percent in 1999 to 1.7 percent in 2006. The interest expense to total borrowing by SMEs plummeted from about 15.0 percent in 1999 to 6 percent in 2006.
Source : Korea Federation of Small and Medium Business, A n a l y s i


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Title Long-term profitability slump of Korean SMEs
Similar Titles
Material Type Reports
Author(English)

Cho, Deokhee

Publisher

[Seoul]:Korea Institute for Industrial Economics & Trade

Date 2008
Journal Title; Vol./Issue KIET Industrial Economic Review:vol. 13(no. 5)
Pages 11
Subject Country South Korea(Asia and Pacific)
Language English
File Type Documents
Original Format pdf
Subject Industry and Technology < Entrepreneurship
Holding KIET; KDI School

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