Seoul, South Korea – Despite government initiatives aimed at boosting corporate value, South Korea's major companies have seen their return on equity (ROE) plummet by nearly half over the past three years.

A recent analysis by Leaders Index, a corporate research institute, of 286 listed companies among South Korea's top 500 by revenue, revealed a significant decline in average ROE from 10.1% in 2021 to 5.2% in 2023. ROE, a key profitability metric, measures a company's net income relative to shareholders' equity.

While total equity of these companies increased by 16.6% from 1,906.7 trillion won to 2,222.9 trillion won between 2021 and 2023, net income dropped a staggering 40.2% from 192.1 trillion won to 114.8 trillion won over the same period. This disparity led to a substantial decline in ROE.

Sectoral Performance

The service sector experienced the most significant drop in ROE, with the average falling from 27% in 2021 to 3.2% in 2023. This decline was primarily attributed to an 87.5% decrease in net income despite a 7% increase in equity.

The transportation sector followed closely behind, with the average ROE of shipping companies decreasing from 20.2% in 2021 to 7.9% in 2023 due to a decline in shipping rates. The IT and electronics sector, which includes Samsung Electronics and SK hynix, also saw a substantial drop in average ROE, from 13.1% to 1.5%. The petrochemical sector was hit hard by oversupply from China, leading to a decline in average ROE from 12.2% to 3.5%.

Bright Spots

In contrast, the shipbuilding, machinery, equipment, and automotive sectors saw improvements in ROE. The shipbuilding industry's average ROE rose from -2.8% in 2021 to 8.8% last year due to increased orders and a return to profitability. The automotive sector, driven by increased net income at Hyundai Motor and Kia, saw its average ROE climb from 7.8% to 12.2%.