Four in 10 companies can’t even cover interest payments; marginal firms hit a record high

[Financial News] Last year, domestic companies’ average profitability and financial stability improved, but the share of marginal firms unable to cover even their interest payments with earnings reached a record high. The trend points to deepening polarization behind the rapid growth of large companies and some key industries, including semiconductors.
According to the Bank of Korea’s 2025 annual Corporate Business Analysis, the share of marginal firms—those with an interest coverage ratio below 100%—among the country’s 982,767 nonfinancial for-profit corporations rose from 42.8% in 2024 to 42.9% last year, setting a new record. The interest coverage ratio measures a company’s ability to meet interest expenses with operating profit.
The share of companies with an interest coverage ratio below 0%, meaning they recorded operating losses in their core businesses and could not even cover interest payments, also rose from 33.9% in 2024 to 34.4% last year, indicating heightened risk of financial distress.
However, the overall average interest coverage ratio rose sharply last year, from 244.1% to 292.7%. As operating profits improved significantly at large companies, particularly in semiconductors and shipbuilding, the share of highly profitable companies with an interest coverage ratio of at least 500% also increased (29.4%→29.5%).
This suggests that profitability at mid-sized and smaller companies is weakening, while large companies are expanding their ability to cut costs and generate profits, widening the gap in financial strength between companies.
Lee Mi-ju, head of the Bank of Korea’s Corporate Statistics Team, explained, “There is an aspect to the improvement in profitability that has been concentrated among large companies, particularly in semiconductors and shipbuilding, amid rising valuations of securities and increased dividends.” Companies’ sales growth slowed overall, falling from 3.7% the previous year to 2.4%.
Manufacturing sales growth fell from 4.6% in 2024 to 2.4% last year. This was due to the decline in sales growth for coke and refined petroleum products, from 1.4% to -7.6%, as petroleum product prices fell following a drop in international oil prices.
Non-manufacturing growth also slowed, from 2.9% to 2.3%.
Growth in transportation and warehousing (11.6%→2.6%) slowed as lower ocean freight rates dampened the increase in transportation revenue. In construction (-2.8%→-7.6%), sales fell more sharply as the industry downturn persisted.
The downward trend was similar for large companies (3.4%→2.0%) and small and medium-sized companies (4.1%→3.0%).
Although growth in scale slowed, companies’ profitability and financial stability improved. This is thought to reflect companies’ focus on strengthening their fundamentals rather than investing aggressively amid an economic slowdown and heightened uncertainty last year.
The operating margin rose from 4.6% the previous year to 5.2% last year, while the pretax net profit margin also increased, from 4.3% to 5.2%. In particular, the 5.2% operating margin was the highest since 2021, when it stood at 5.6%.
By company size, large companies significantly raised their operating margin (5.6%→6.7%). Small and medium-sized companies, by contrast, saw a slight decline in their operating margin (3.0%→2.8%), while their pretax net profit margin edged up (2.4%→2.5%).
Stability indicators used to gauge companies’ financial soundness also improved.
The corporate debt ratio fell from 119.9% in 2024 to 116.2% last year, its lowest level since 2019 (115.6%). The dependence on borrowing also declined, from 31.0% to 30.4%. Both the debt ratio and dependence on borrowing fell across large and small and medium-sized companies, as well as in manufacturing and non-manufacturing.
Experts said that amid an uncertain domestic and global environment last year, companies focused on managing their fundamentals by controlling costs and managing risks rather than pursuing excessive expansion. However, they noted that structural polarization among companies is deepening, with profit growth concentrated in key sectors such as semiconductors and at large companies.

[email protected] Jeong Sang-gyun Reporter