4 Out of 10 Companies Could Not Cover Interest Payments Last Year... "Record High"

Growth and Profitability Improve Mainly in Large Corporations and Manufacturing Sector
Weak Performance Continues Among Small and Medium-sized Enterprises in Wholesale, Retail, and Real Estate

Last year, 4 out of 10 domestic companies were unable to cover their interest expenses with operating profits. This is the highest level since relevant statistics began being compiled in 2013.

According to the "2024 Corporate Management Analysis (Preliminary)" released by the Bank of Korea on June 11, the proportion of companies with an interest coverage ratio below 100%?meaning they could not cover financial costs with income generated from operating activities?stood at 40.9%, an increase of 1.9 percentage points from the previous year (39.0%). This is the highest level since these statistics began being compiled in 2013. The proportion of companies with an interest coverage ratio not exceeding 0% due to operating losses also rose by 1.3 percentage points to 28.3%, up from 27.0% the previous year. This is likewise the highest level since the statistics began. This analysis was conducted on 34,167 corporations subject to external audits (excluding financial institutions).

The proportion of financially sound companies with an interest coverage ratio exceeding 500% also decreased by 1.8 percentage points to 31.1% from 32.9% in 2023. The overall interest coverage ratio for all surveyed companies rose to 298.9%, up from 221.1% the previous year. After dropping by half from 443.7% in 2022 to 221.1% in 2023, it saw a slight increase last year.

Jung Youngho, head of the Corporate Statistics Team at the Economic Statistics Department 1 of the Bank of Korea, explained, "Indicators are improving mainly among large corporations and in the manufacturing sector. In 2023, companies like Samsung Electronics experienced a significant decline, but there was some improvement last year." He added, "However, among small and medium-sized enterprises?which account for about 83% of all companies?and especially in the non-manufacturing sector, operating profits have decreased, particularly in wholesale, retail, and real estate. As a result, the number of companies with an interest coverage ratio below 100% has increased."

Both growth and profitability improved among the companies surveyed last year. The sales growth rate, which indicates growth, turned positive, rising from -2.0% in 2023 to 4.2% last year. By industry, manufacturing (5.2%) shifted to growth, particularly in electronics, video, and telecommunications equipment, as demand for semiconductors related to artificial intelligence (AI) increased. Non-manufacturing (3.0%) also turned to growth, led by service industries such as transportation, warehousing, and wholesale and retail, due to higher maritime freight rates and the base effect of reduced sales in the previous year. By company size, large corporations saw an increase from -2.8% in the previous year to 4.4%, while small and medium-sized enterprises rose from 1.4% to 3.2%. The total asset growth rate also jumped from 5.4% in 2023 to 6.5% last year.

The operating profit margin (5.4%) and pre-tax net profit margin (5.2%), both indicators of profitability, increased by 1.6 percentage points and 0.7 percentage points, respectively, compared to 2023 (3.8% and 4.5%). In manufacturing, although petroleum refining, coke, and electrical equipment declined, electronics, video, and telecommunications equipment improved significantly, raising the operating profit margin from 3.3% to 5.6% and the pre-tax net profit margin from 5.2% to 6.3%. In non-manufacturing, electricity and gas turned profitable due to price hikes and reduced cost burdens, resulting in the operating profit margin increasing from 4.4% to 5.1% and the pre-tax net profit margin from 3.6% to 3.8%. There were differences by company size. Large corporations saw both the operating profit margin (3.6%→5.6%) and pre-tax net profit margin (4.8%→5.7%) rise, but among small and medium-sized enterprises, these figures fell from 4.8% to 4.6% and from 3.4% to 3.0%, respectively.