Last Year, Corporate Profitability and Stability Deteriorated... Operating Profit Margin Decreased, Debt Ratio Increased

Crossing the pedestrian crosswalk at Gwanghwamun Intersection in Seoul. Photo by Jo Yongjun jun21@

Last year, the growth, profitability, and stability of domestic companies all deteriorated. While the sales growth rate and operating profit margin declined, the debt ratio and reliance on borrowings increased.

According to the "2022 Annual Corporate Management Analysis Results" released by the Bank of Korea on the 25th, the sales growth rate, an indicator of growth for non-financial profit-seeking corporations, fell from 17.0% to 15.1% in one year.

The sales growth rate showed poor performance at 0.4% in 2019 and -1.1% in 2020 due to the spread of COVID-19, then surged to 17% in 2021, but declined again after one year.

However, key manufacturing industries such as petroleum refining and coke, automobiles, as well as electricity, gas, and construction sectors maintained an upward trend. Petroleum refining and coke (49.3%→66.6%) saw export unit prices rise due to increased oil prices and global demand growth, while automobiles (11.7%→14.9%) experienced increased overseas exports centered on eco-friendly vehicles.

Last year, the total asset growth rate of companies shrank from 12.7% to 9.7%. The Bank of Korea explained, "As the sales growth slowed somewhat, manufacturing and large companies saw declines centered on accounts receivable, while non-manufacturing and small and medium enterprises focused on cash assets."

2022 Annual Corporate Management Analysis Results (Data provided by Bank of Korea)

The operating profit margin, a profitability indicator, also worsened from 5.6% to 4.5% in one year due to rising raw material prices.

Manufacturing (6.8%→5.7%) was sluggish mainly in electronic, video, communication equipment, and chemical products, while non-manufacturing (4.6%→3.6%) was weak mainly in electricity, gas, and information and communication industries. The pre-tax net profit margin fell from 6.5% to 4.6%.

With a sharp rise in interest rates last year, companies' interest coverage ratio dropped from 487.9% to 348.6%. The proportion of companies with a ratio below 100% also increased from 40.5% to 42.3%.

The interest coverage ratio indicates the extent to which earnings generated from operating activities can cover financial costs. If it falls below 100%, it means the company cannot cover interest and other financial costs with profits generated from operations.

Stability indicators such as the debt ratio (120.3%→122.3%) and reliance on borrowings (30.2%→31.3%) rose mainly in the non-manufacturing sector. This is the highest level since 2015 (128.4%, 31.4%).

In manufacturing, both the debt ratio (78.6%→77.0%) and reliance on borrowings (22.6%→22.1%) declined, but in non-manufacturing, the debt ratio (158.2%→164.0%) and reliance on borrowings (35.0%→36.9%) expanded.

The electricity and gas sector (183.6%→269.7%) was significantly affected by Korea Electric Power Corporation's large-scale operating losses and increased borrowings, worsening the debt ratio and reliance on borrowings.

Excluding Korea Electric Power Corporation and Korea Gas Corporation, the overall industry debt ratio decreased from 119.1% to 118.5%, and the increase in reliance on borrowings slowed, rising from 29.9% to 30.4%.

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