"Global No.1 Semiconductor Company's Net Profit Margin 7.3 Times That of Korean Companies"

Global Semiconductor No.1 at 36.2%, Domestic No.1 at 5.0%
Largest Gap Among Major Industries

Average Net Profit Margin of Global No.1 Companies by Industry 2.5 Times That of Domestic No.1
Due to Interest and Corporate Tax Expenses Burden

The net profit margin of the world's No. 1 semiconductor company was found to be 7.3 times higher than that of the top domestic company in the same industry. There are calls for measures to improve profitability so that domestic companies can enhance their competitiveness in the global market.

According to an analysis by the Korea Economic Association on the 27th comparing the management performance of the top domestic companies by industry and the global No. 1 companies, the average net profit margin of the global market capitalization leader (15.4%) was about 2.5 times that of the top domestic company (6.3%).

[Photo by Pixabay]

When analyzing profitability, the gap between the global No. 1 and the domestic No. 1 mainly deepened at the EBIT (earnings before interest and taxes) operating profit margin stage. The average gross profit margin was 44.7% for the global No. 1, about 1.1 times that of the domestic No. 1 (40.6%), whereas the average operating profit margin was 19.2% for the global No. 1, twice that of the domestic No. 1 (9.5%), showing a widening gap. Considering that EBIT is an indicator obtained by deducting operating expenses such as selling, general and administrative expenses and research and development costs from gross profit, the Korea Economic Association analyzed that the profitability gap between the global No. 1 and the domestic No. 1 mainly arises from these costs.

The average net profit margin of the global No. 1 was 15.4% in 2022, about 2.5 times that of the domestic No. 1 at 6.3%. In particular, the global No. 1’s average net profit margin in 2012 (10.5%) increased by 4.9 percentage points over the past decade, while the domestic No. 1’s average net profit margin in 2012 (5.8%) increased by only 0.5 percentage points over 10 years, expanding the net profit margin gap from about 1.8 times in 2012 to 2.5 times in 2022. A Korea Economic Association official explained, “Considering that net profit margin is an indicator after deducting interest and tax expenses from EBIT, it is estimated that the domestic No. 1 has experienced an increase in interest and tax burdens compared to the global No. 1 over the past decade.”

Looking at stability (the ratio of leverage to assets), the global No. 1 uses more short- and long-term leverage than the domestic No. 1, with an average debt-to-equity (D/E) ratio 1.6 times higher and an average current ratio 0.8 times that of the domestic No. 1. In terms of activity (the speed of asset liquidation), the global No. 1’s average accounts receivable turnover was 0.9 times and average inventory turnover was 1.0 times that of the domestic No. 1, indicating a relatively similar speed at which inventory assets convert to liquidity.

Compared to 2012, the domestic No. 1’s short- and long-term payment capacity has relatively increased over the past 10 years compared to the global No. 1. The domestic No. 1’s average debt ratio in 2022 decreased by 12.4 percentage points from 2012 (68.6% → 56.2%), while the global No. 1’s decreased by only 2.5 percentage points (91.4% → 88.9%), indicating a relative reduction in the domestic No. 1’s reliance on external capital. The domestic No. 1’s average current ratio increased by 10.2 percentage points (185.9% → 196.1%), whereas the global No. 1’s average current ratio decreased by 6.8 percentage points (171.3% → 164.5%), showing a relative increase in the domestic No. 1’s short-term payment capacity.

Profitability of Domestic and Global No.1 Companies in Major Industries (2022). [Provided by Hankyung Association]

In the industrial goods, materials, and energy sectors, the domestic No. 1 companies showed lower profitability compared to the global No. 1 companies due to a higher proportion of costs in sales. The Korea Economic Association estimated that in the industrial goods sector, the gap in average net profit margin (3.4 times) is deepened mainly because the domestic No. 1 bears a relatively higher burden of corporate taxes and interest expenses. In the materials sector, the large gap in average gross profit margin (2.3 times) suggests that the domestic No. 1 faces a relatively higher cost of goods sold burden related to gross profit (sales minus cost of sales). In the energy sector, the large gaps in average gross profit margin (3.6 times), operating profit margin (3.7 times), and net profit margin (3.7 times) indicate that the domestic No. 1 bears a generally higher cost burden.

A one-to-one comparison between global No. 1 and domestic No. 1 companies in major Korean industries revealed lower profitability in key sectors such as "semiconductors," "electronic products," "home appliances," "automobiles," and "petroleum products." In particular, the semiconductor sector showed the global No. 1’s net profit margin (36.2%) to be 7.3 times that of the domestic No. 1 (5.0%), with the Korea Economic Association estimating that the domestic No. 1 bears a relatively higher burden of corporate taxes and interest expenses.

Lee Sang-ho, head of the Economic and Industrial Division at the Korea Economic Association, said, “The domestic No. 1 companies are facing difficulties in competition as their profitability is less than half that of the global No. 1 companies,” and emphasized, “It is necessary to strengthen support measures such as corporate tax adjustments, investment, and R&D incentives so that domestic companies can secure profitability and gain an advantage in competition with global companies.”

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