South Korean companies saw average profitability improve last year on the back of a semiconductor boom, but the share of "marginal firms" unable to cover even their interest payments with earnings also reached a record high, highlighting growing polarization.
According to the "2025 Business Management Analysis" released by the Bank of Korea on Tuesday, the operating profit margin of 34,456 externally audited corporate entities in Korea was 6.2 percent last year, up 0.8 percentage point from the previous year's 5.4 percent. The pretax profit margin also rose 1.1 percentage points from 5.2 percent in 2024 to 6.3 percent in 2025.
By industry, the operating profit margin of manufacturing rose from 5.5 percent to 6.9 percent over the same period, while non-manufacturing edged up from 5.2 percent to 5.4 percent. In particular, the operating profit margin of the electronics, video and communications equipment sector within manufacturing jumped sharply from 8.8 percent to 15 percent, driven by improved earnings at major semiconductor companies.
"The rise in the operating profit margin stems from a sharp increase in the operating profit margin of major semiconductor companies as prices of high value-added semiconductors rose significantly," said Lee Mi-ju, head of the Bank of Korea's corporate statistics team. "In fact, excluding Samsung Electronics and SK hynix, the operating profit margin of all companies was identical at 4.9 percent in both 2024 and last year."
The interest coverage ratio (operating profit divided by interest expense), which indicates the extent to which operating profit can cover financial costs, rose from 305.8 percent to 369.8 percent over the same period. Among other financial stability indicators, the debt ratio fell from 103.4 percent to 98.3 percent, and the dependence on borrowings declined from 28.4 percent to 27.3 percent.
However, the share of companies with an interest coverage ratio below 100 percent stood at 39.9 percent, up 1.4 percentage points from the previous year's 38.5 percent. This is the highest since related statistics began to be compiled in 2013. It means that the share of companies whose annual earnings fall short of financial costs such as interest has expanded. The share of companies with an interest coverage ratio below 0 percent, having recorded an operating loss, also rose 2 percentage points from 26.2 percent in 2024 to 28.2 percent last year. This too was the highest since 2013.
This suggests that while overall corporate profitability appears to have improved as operating profit increased centered on major semiconductor companies, the deterioration in management among lower-ranked firms, mostly small and medium-sized enterprises, is accelerating. In fact, the share of large companies with an interest coverage ratio below 100 percent rose 0.1 percentage point in a year, from 5.7 percent in 2024 to 5.8 percent last year, while that of small and medium-sized enterprises increased 1.3 percentage points from 32.8 percent to 34.1 percent over the same period. The share of large companies with an interest coverage ratio below 0 percent remained unchanged from the previous year at 4.3 percent, but that of small and medium-sized enterprises rose 1.9 percentage points to 23.8 percent.
Meanwhile, the sales growth rate of all surveyed companies fell from 4.2 percent in 2024 to 2.5 percent last year. Sales declined in both manufacturing (5.2 percent to 3.2 percent) and non-manufacturing (3.0 percent to 1.6 percent).
Within manufacturing, the slowdown in growth was notable in petroleum refining and coke (1.0 percent to -7.4 percent) and chemical materials and products (4.0 percent to -2.4 percent). The causes were a slump in the petrochemical market amid global oversupply and worsening supply-demand conditions due to falling oil prices.
In non-manufacturing, the declines in sales growth rates were largest in construction (-3.2 percent to -9.6 percent) and transportation and warehousing (12.8 percent to 2.9 percent).
