The return on equity (ROE) of South Korea’s top companies has plummeted over the past three years. (Image courtesy of Yonhap)
SEOUL, Nov. 29 (Korea Bizwire) – Despite the government’s initiatives to boost corporate value, the return on equity (ROE) of South Korea’s top companies has plummeted over the past three years, with average ROE nearly halving. ROE, a critical metric for evaluating value enhancement, measures net income relative to shareholder equity, reflecting how effectively a company utilizes its capital to generate profit.
According to an analysis by Leaders Index, the average ROE of 286 listed firms among South Korea’s top 500 revenue-generating companies fell from 10.1% in 2021 to 5.2% in 2023. Over the same period, average shareholder equity increased by 16.6%, from ₩1,906.7 trillion to ₩2,222.9 trillion, but net income dropped by 40.2%, from ₩192.1 trillion to ₩114.8 trillion.
Sectoral Declines
The steepest decline was seen in the service sector, where average ROE plummeted from 27% in 2021 to 3.2% in 2023—a drop of 23.9 percentage points. While shareholder equity grew by 7%, net income fell by a staggering 87.5%. Among service firms, Naver saw the sharpest decline, with its ROE plunging from 68.5% to 4.1%. This was largely due to an accounting spike in 2021 following the merger of Line and Z Holdings.
The transportation sector also faced significant losses, particularly in maritime shipping, where falling freight rates drove average ROE from 20.2% to 7.9%. Similarly, IT and electronics, including giants like Samsung Electronics and SK Hynix, saw ROE decline from 13.1% to 1.5%, while the petrochemical industry, grappling with recessionary pressures, experienced a drop from 12.2% to 3.5%.
Bright Spots in Shipbuilding and Automotive
In contrast, the shipbuilding and machinery sector reported the most significant improvement, with ROE surging from -2.8% in 2021 to 8.8% in 2023, buoyed by increased orders and a return to profitability. The automotive sector also showed growth, with Hyundai Motor and Kia Motors contributing to a rise in ROE from 7.8% to 12.2%.
Top Performers
Several individual companies posted remarkable ROE gains. SoluM saw its ROE jump from 4.97% to 29.86%, followed by Jongkundang (7.49% to 26.19%), EcoPlastic (4.21% to 19.88%), Heungkuk Fire Insurance (8.98% to 23.23%), and Seomyun Ewha (4.26% to 17.72%).
While some sectors and firms have navigated challenging conditions successfully, the overall decline in ROE underscores the difficulty South Korean companies face in translating shareholder equity into sustainable profits amid global and domestic headwinds.
Ashley Song (ashley@koreabizwire.com)
