Last Year Corporate Debt Ratio Hits Highest in 8 Years... Deterioration in Growth, Profitability, and Stability Indicators

Bank of Korea, 2022 External Audit Corporate Management Analysis

Last year, the debt ratio of corporate enterprises reached 102.4%, marking the highest level since 2014. The dependence on borrowings also rose to 28.2%, approaching the record high set in 2019, indicating a deterioration in corporate stability indicators.

According to the Bank of Korea on the 13th, a survey of 30,129 non-financial profit-making corporations subject to the "Act on External Audit of Stock Companies, etc." revealed that the growth, profitability, and stability indicators of domestic companies worsened compared to the previous year.

In particular, the debt ratio, a stability indicator, increased from 101.0% in 2021 to 102.4% last year, while the dependence on borrowings rose from 27.6% to 28.2% during the same period. This was influenced by increased external borrowing due to higher working capital demand caused by rising raw material prices.

While the debt ratio and borrowing dependence of manufacturing and small and medium-sized enterprises decreased, those of non-manufacturing and large enterprises increased. However, sectors such as electronics, video, communication equipment, transportation, and warehousing saw declines due to capital increases from retained earnings growth.

The sales growth rate, an indicator of corporate growth, slightly declined to 16.9% from 17.7% the previous year.

Lee Seong-hwan, team leader of the Economic Statistics Bureau at the Bank of Korea, explained, "Last year's sales growth rate was slightly lower than the highest level recorded since the statistics compilation began in 2013, but it was still a strong performance at a similar level. This was supported by robust demand and rising product prices, mainly in key manufacturing sectors such as petroleum refining, coke, automobiles, and the electricity and gas industries." By company size, large enterprises recorded 18.1%, and small and medium enterprises 12.3%, both down from the previous year.

The total asset growth rate fell to 7.8%, down from the record high of 10.8% the previous year.

Profitability also deteriorated somewhat. Due to the impact of rising raw material prices last year, the operating profit margin to sales was 5.3%. The pre-tax net profit margin to sales was also recorded at 5.2%. Both the operating profit margin and pre-tax net profit margin declined in manufacturing (6.3%, 6.3%)?centered on electronics, video, communication equipment, and chemical products?and in non-manufacturing (4.2%, 3.8%)?mainly in the electricity and gas sectors.

As the operating profit margin decreased, the interest coverage ratio fell from 654.0% in 2021 to 455.4% last year.

Looking at the interest coverage ratio by range, the proportion of companies with less than 100% increased from 34.1% in 2021 to 35.1% last year. The proportions of companies with 100?300% (18.5%) and 300?500% (8.2%) coverage expanded, while those with over 500% (38.2%) decreased.

Stability indicators, the debt ratio (102.4%) and borrowing dependence (28.2%), both rose compared to the previous year (101.0%, 27.6%).

Additionally, with a significant decrease in cash inflows from operating activities, the cash flow coverage ratio dropped to 40.6% from 59.3% the previous year.

[Image source=Yonhap News]

This content was produced with the assistance of AI translation services.